Nuggets of Condescension

The 2024 Nobel Prize in Economics recognized the work of Daron Acemoglu, Simon Johnson, and James Robinson. The trio has published a number of important economics papers on the role of institutions in economic outcomes, and reintroduced historical data to the discipline with their 2001 paper, “The Colonial Origins of Comparative Development.” This paper posited that in African colonies where Europeans were present in high numbers in colonial settings — places like South Africa — established “European institutions” had a positive long-term impact on economic development. In contrast, in places with low numbers of Europeans, like Nigeria or Congo, where the model of colonial rule was purely “extractive,” economic development has been stagnant.

After years of economic theory operating at a remove from economic history, this paper has had profound implications for the recovery of the idea of “institutions” — norms or social conventions like the rule of law, trust, levels of government regulation of the market, property rights — as foundational to economic success, and has inspired thousands of follow-up studies using regressions of other long-run historical data series to explain economic development as stemming from a society’s “good” or “bad” institutions. 

Both historians and economists have produced sustained critiques of the idea of institutions underwriting economic progress. But what I find fascinating about Acemoglu, Johnson, and Robinson’s approach is the way that their institutional approach fits into a broader historical pattern of thought about African economic development. They are far from the first observers to try to identify institutions — good or bad — as responsible for a perceived lack of African development. Since the 18th century, people interested in what generates economic development have isolated ideas about supply and demand, trade regulation, the role of taxation, monetary policy from history and culture to position some norms of Western economic culture as fundamental laws that are necessary to economic success. By universalizing their own economic history, Western observers have used the past to portray African economic culture as backward and inadequate. 

One example of this phenomenon can be seen in the ways the U.S. and Britain approached monetary policy in their own countries and in West Africa in the second half of the 19th century. Before the gold standard was introduced in Britain in the 18th century, and in the U.S. in the 1870s, banks had issued their own paper money at a rate that made the money supply grow faster than the supply of gold. This shortfall caused economic crises every few years when people went to reclaim their gold during a downturn and were met with blank stares from bank tellers who simply didn’t have the gold reserves to pay out. Economists in various countries struggled with the problem of how to maintain a gold- or silver-backed money system while still facilitating growth. One obvious solution was to find more gold; in the U.S., the California gold rush of 1849 helped on this front.

As more countries adopted the gold standard in the late 19th century, the search for new sources of the metal ramped up. The famous British explorer Richard Francis Burton worried that the British Empire might be falling behind America in this search. In To the Gold Coast for Gold, Burton’s widely-read 1883 two-volume travel book, he called out his readers as fools for not having taken advantage of the abundance of gold to be found in the Gold Coast in West Africa (modern Ghana), a British colony since 1874. There, he saw gold panning and artisanal mining where “half the washings are wasted … not a company has been formed, not a surveyor has been sent out?” The gold is practically there for the taking — “Africa will one day equal half-a-dozen Californias.”

Burton believed that people could be understood through their cultural institutions. If West African governments were restricting gold mining, Burton held, it was probably due to their ignorance and backward institutions, rather than any conscious policymaking on their part. If he was at all aware that economic thinkers in West Africa were also grappling with the dilemma of how to regulate monetary policy to deal with economic growth — and who economic growth should benefit — Burton ignored those parallels.

Richard Francis Burton’s first impressions of West Africa in the 1850s and 1860s had not been positive. After a peripatetic youth in Europe and an exciting career in the Indian Colonial Army, he made a name for himself as a travel writer and explorer — visiting Mecca in a disguise and searching for the source of the Nile. But then he got married in 1861. To provide a steadier and more respectable stream of income than his earlier adventures, Burton took a government posting in West Africa. While traveling around the region on official business, he arrived at the view that the West African approach to prospecting was haphazard and casual, and began recirculating that idea in his own work. 

He wrote a chapter on gold in his best-selling 1863 book Wanderings in West Africa, which drew on historical observations from the 17th century Dutch traveler and merchant Willem Bosman. Bosman had visited the Kingdom of Asante in modern Ghana in the 1690s and witnessed gold retrieval processes, which took place annually for a short period after the crop harvest. Women would do some gold washing, he reported, but “for years in the same spot” without searching for the origin of the gold and thereby getting it all at once. Never mind that the “get it all at once” approach to mining silver in South and Central America had already caused inflation in Spain and Portugal. Like Bosman before him, Burton was fixated on what he saw as the inefficiency of African methods of extraction. He lamented that since Europeans would never be able to control the land in Africa, there would never be occasion to “produce much richer treasures than the [Africans] obtain from it.”

Burton deemed Asante’s system for managing gold mining as a “bad” institution, which needed to be corrected with British ideas of property rights, taxation, and government regulation. But slow and steady accumulation of gold was much more suited to the rate of economic growth in Asante, and through the seasonal regulation of gold retrieval, the kingdom was able to keep inflation under control. Before European conquest in the 19th century, the Asante government controlled all the gold through its indigenous equivalent of a central mint. Any gold nuggets found within Asante or brought into Asante had to be turned in at the royal mint, where they were pounded into gold dust, which was the medium of exchange.

Bosman and Burton saw Asante’s institutions as creating “inefficiencies” for European businesses attempting to trade with West Africa and for colonial governments attempting to collect tax. Because silver was getting cheaper in Britain in the 1870s but retaining its value in West Africa, traders could buy silver dollars in London for only 3 shillings and 6 pence, take them to West Africa, and exchange them for a profit. At the same time, when the high-value silver that colonial authorities collected in taxes was taken back to the British market, it was worth far less. And so in the 1880s, the British government stopped accepting Spanish silver dollars as tax payments the colonies, a move that immediately destroyed the value of numerous West African traders who held their assets in these coins. But because Europeans thought of Africa as an unsophisticated barter economy without monetary institutions, they assumed that this demonetization wasn’t really a problem: if West Africa didn’t have a monetized economy, how could demonetization affect them?

The sudden demonetization of silver coins was not an Africa-specific crisis. In the U.S., a country with ostensibly “European institutions” in the Acemoglu, Johnson, and Robinson model, changes in monetary policy to align with British standards generated populist protest and an accompanying crisis of confidence in the government. The Coinage Act of 1873 adopted the gold standard in the U.S. by eliminating the silver dollar. This policy was unpopular, particularly amongst farmers facing a decline in the prices of their goods. They worried that the change threatened economic growth, a concern that was famously voiced by the populist politician William Jennings Bryan in 1896. His “Cross of Gold” speech argued that the gold standard was keeping the U.S. economy from fully rebounding after the Panic of 1873, and that going back to a bimetallic monetary system would inject the economy with cash, which would then boost spending and improve the lot of America’s farmers. Family-owned farms made up a larger proportion of the U.S. economy than in Britain, where farm labor, like factory labor, had shifted to a wage worker model with a much more limited number of landowners. But the U.S. government stuck with the British-inspired gold standard, hoping that, even if parts of its population suffered, the gold standard would make the U.S. economy more attractive to foreign investors who looked for institutions like the gold standard as a marker of monetary stability and trustworthiness. 

Between 1880 and 1904, £43 million was invested in 476 gold exploration companies involved in West Africa. Burton, incentivized by his share ownership in one of these companies, was more than happy to sing the praises of the Gold Coast in Britain’s national newspapers. He knew exactly which anxieties to play into as well, citing the rising fortunes of the U.S. economy: “I take courage by observing that the Gold Coast, which threatens to oust California from her present prominence, is deemed worthy of Yankee jealousy.”’ When the company in which he had shares was liquidated in 1885, Burton was among those who lost everything they had invested. He had placed trust in his own underestimation of African capabilities. He assumed that the supposedly inefficient methods used by the African gold washers would be easy to improve on and would generate immediate returns. All it would take was British institutions.