Lance Edwin Davis, Caltech's Mary Stillman Harkness Professor of Social Science, Emeritus, passed away on Monday, January 20, 2014, at age 85. Davis was a pioneer of "cliometrics"—from Clio, the Greek muse of history—which applies modern economic theories and mathematical techniques to economic systems that no longer exist, such as the New England textile industry. These analyses required him to sift through the data buried in such things as whalers' logs from New Bedford, Massachusetts, or the records of the East India Company in order to test his hypotheses about how defunct industries and empires actually worked. "In the process," says Philip Hoffman, the Rea A. and Lela G. Axline Professor of Business Economics and professor of history, "economic history became part of economics and the whole field was remade." Davis was also instrumental in establishing Caltech's social science doctoral program, a combination of economics and political science with a uniquely mathematical approach.
Davis was born on November 3, 1928, in Seattle. He graduated from high school in Willard, Washington, and enlisted in the Navy. In 1948 he enrolled in the University of Washington on the GI Bill, getting a BA in 1950 "just in time to get called back" for the Korean War, as he recalled in his oral history. He was discharged in 1952 and earned his PhD in economics from Johns Hopkins University in 1956.
As a graduate student, Davis became interested in how institutions evolve—a focus he would retain his entire career. His first book, The Savings Bank of Baltimore, 1818–1866: A Historical and Analytical Study, was cowritten with Peter Payne during Davis's first year at Johns Hopkins. As Davis recalled in his oral history, the bank "had an archive that nobody had ever looked at before" that contained the minutes of the bank's board of directors and its investing committee and a set of ledgers of all the transactions made by the patrons of the third savings bank to be established in the United States. In these documents Davis and Payne discovered a history of "continuous adaptation to environmental changes," in the words of the introductory essay. "The Bank evolved slowly from . . . when it was open only one day a week and had neither premises of its own nor a permanent administrative body, to an important financial institution having its own bank building and staffed by its own professional officers and employees."
After joining the faculty at Purdue University, Davis embarked on a broader analysis of 19th-century American financial markets. Here he "first made his mark," Hoffman says, by finding that in any given year, the local interest rates got higher the farther west one went from the financial centers on the eastern seaboard—part of "a broader pattern of obstacles he saw that kept investment from flowing into recently settled regions and new industries, and thereby slowed economic growth."
This led in turn to a study of the financial markets from which the American system had sprung. Davis spent entire summers in London examining the records of the merchant banks that, at the height of the British Empire, were the venture capitalists to the world. These banks invested heavily in American railroads, he learned, but, as he explained in his oral history, "they really [didn't] trust Americans very much, for good reason. So [they] all originally established a branch . . . in the United States" to oversee their investments, taking on a local bank as a junior partner. These Anglo-American banks came to be supplanted by a second generation of exclusively American-held banks, which "kind of nibble around the edge of railway finance" before ultimately easing their way into financing commerce and industry. "So in some sense the British decision not to trust the Americans sets off a train of institutional innovation that results in our current set of investment banks."
Davis continued studying British economic imperialism after joining Caltech as a full professor in 1968. Along with history professor Robert Huttenback, says Hoffman, Davis "asked a question that had agitated historians, economists, and even revolutionaries such as Vladimir Lenin: did Britain profit from having an empire?" In what became "one of the first-ever historical research projects that involved collecting huge amounts of data," Davis and Huttenback essentially audited the entire empire—not just the government's incomes and expenditures, but those of private firms as well. The empire proved to be a bad investment, with a net outflow of cash to the colonies, Davis said in his oral history. "As an economic attempt to exploit someplace . . . it was a dead loser." Why, then, did the average Briton staunchly support it? Perhaps it should really be viewed as a consumer good on a grand scale, Davis suggested. "[They] may have gotten satisfaction from running India . . . we buy ice cream because we like ice cream, and maybe they bought the empire because they liked empires."
Davis's interest in evolving institutions also led to a seminal collaboration with future Nobel laureate Douglass North. While Davis was still at Purdue, the two began devising a model to evaluate how people adapt and new institutions emerge when the cost of doing business as usual exceeds the benefits. Davis and North's book, Institutional Change and American Economic Growth, "was the first step in the broader claim that institutions are the key to understanding why countries are rich or poor—an insight that eventually won North a Nobel Prize," Hoffmann says.
Davis's most enduring legacy is Caltech's doctoral program in the social sciences. When he arrived, Caltech's Division of the Humanities and Social Sciences focused on fulfilling the undergraduate breadth requirement. But Davis had bigger plans. While on sabbatical from Purdue in 1964, he had been a Guggenheim Fellow at Nuffield College, the University of Oxford's home of the social sciences. There he had first seen that political scientists, economists, and even anthropologists had something to offer one another, he remarked in his oral history, and he came to Pasadena determined to build a program that "combined economics and political science in a way that nobody else had thought about doing." He recruited economist Charles Plott, a former colleague at Purdue, in 1971; two years later, Plott was performing economics and social-science experiments in collaboration with political scientist Morris Fiorina, whom Davis had recruited in 1972.
Fiorina and the other political scientists Davis enticed to Caltech had a then-unusual taste for economics. "The hilarious thing was that they couldn't get jobs in political science," Davis remarked in his oral history, because the political scientists who dominated the field at the time "did not really consider what they were doing as very interesting, useful stuff."
"Lance was very actively involved in recruiting and hiring. That's what he did. But he wasn't a dictator; there were other people involved, too," says David Grether, the Frank J. Gilloon Professor of Economics, Emeritus, and chair of the Division of the Humanities and Social Sciences from 1982 to 1992. "Caltech was an odd place to go, because there wasn't a program there. But because there wasn't, it was a very good place to go. You weren't displacing anybody." And, if the program did fail, Grether noted, "the worst that could happen was that you'd wind up teaching a small number of really good students."
The program was launched in 1973, and its emphasis on statistical methods attracted engineers and mathematicians that other graduate economics departments weren't courting. "We hit a market that had been ignored completely and that gradually has become very important," Davis said.
Davis became the Harkness Professor of Social Science in 1980 and served as executive officer for the social sciences from 1982 to 1985. He retired in 2005. He chaired the Council on Research in Economic History from 1973 to 1974, and served as president of the Economic History Association from 1978 to 1979. He wrote or coauthored some 100 papers and 10 books, and was elected a fellow of the American Academy of Arts and Sciences in 1991. He is survived by his ex-wife, Susan Davis, retired division administrator for the humanities and social sciences; a daughter from a previous marriage, Maili Bledsoe of Fort Smith, Arkansas; and four grandchildren.