On MMT and Venezuela

For those of you not members of the C-Realm Vault podcast, the latest episode features some correspondence from me, so because I’m feeling lazy this weekend, I’ll just feature that correspondence here.

The context was an older episode I listened to after finally getting around to watching Westworld. Getting even more meta, the relevant part was another letter from a listener called Gus. Gus was reacting to an interview with Charles High Smith, of the Of Two Minds blog.

Charles is not a fan of the Universal Basic Income idea, and he argued that it was ‘unaffordable.’ It would simply cost too much money to implment. This isn’t unique—it’s clearly the most common criticism of UBI (along with moral hazard). Charles also felt that people needed formal work in order to feel like a valuable, contributing member of society, and that not having a job was detrimental to one’s self-esteem—also a common argument.

Listener Gus took issue with that, using Modern Monetary Theory (MMT) as a takeoff. Here is some of his correspondence, read by KMO on CRV293:

“The piece of the puzzle missing is actually understanding money, debt, accounting. A lot of the stuff in the interview sounded like it came from 5-10 years ago, before people learned MMT, or Modern Monetary Theory. Charles [Hugh Smith] mentioned the old notion that money is anything that acts as a store of value, a medium of exchange, [or] a unit of account, which was the best people could come up with when they didn’t really understand money–just defining it by what it does, rather than what it *is*. It’s like saying that a tree is anything that is tall, provides shade, and that you can climb. So in prison, basketball hoops can be trees.”

“Money is transferable credit – an IOU – debt for the issuer; credit for the bearer. An emergent social phenomenon existing in accounting balance sheets, and there are loads of repercussions in your thinking once you really grasp the concept, plus learn a bit about how the plumbing of government finance works. So all the opinions, predictions, evidence, etc. about the psychological effect of jobs and work for humans–great. But having strong opinions about money, UBI, Steve Keen’s proposals, inflation, etc. without actually understanding debt and money? It’s like listening someone talk about orbits in the solar system before they learned basic Newtonian physics.”

“For example a ton of very smart people get sucked into the Right/Libertarian black hole when their staring assumption–that government spends our tax dollars–is faulty, even if they have sound, principled logic applied after that…”

KMO then reacts to this part of the letter:

“This is something I encounter a lot–A LOT. ‘If you didn’t mention my pet theory, then you’ve never heard of it.’…I can assure you that Charles Hugh Smith has encountered Modern Monetary Theory. It’s not a new discovery…”

KMO goes on to compare MMT advocates to the acolytes of Ayn Rand, in the sense that they believe that those who don’t share their point of view either must not have heard of it, or are just too dumb to understand it (i.e. either stupid or ignorant). This attitude is also shared, he says, by advocates of Peak Oil Doomerism, Techno-utopians, and many other topics.

Let me just break in for a moment here (I realize this is confusing as to who is saying what, but I don’t know how to make it any clearer—sorry!). I certainly hope that I don’t display the rigidity and fanaticism of a Randroid in my advocacy of Modern Monetary Theory. But I don’t think Gus’s assumptions were all that unreasonable.

First, there is no way from just hearing the interview to know whether or not CHS was familiar with MMT or not. Second, he may reject the premises, but we don’t know why. Is it for legitimate reasons, or is just for emotional reasons?

And this may be behind the “attitude” of some MMT advocates CHS criticizes. Here’s something I encounter a lot–A LOT–people don’t wish to logically refute the points raised by MMT, they simply refuse to accept it! I’ve literally heard people say that they simply “refuse to believe” that the national debt is not a horrible crisis, or that taxes are not required for the government to spend. It’s literally a “faith-based” argument. It’s like people saying “I experience the earth as a flat plane, thereby it is so,” and refusing even to look at a globe or a photo of the earth from space for emotional reasons.

So, if there’s a bit of arrogance and frustration on the part of MMT supporters, I would say it’s partly because people refuse to engage in legitimate, good faith debate, or even attempt to refute its logic, and just keep repeating the “conventional wisdom” as a kind of religious mantra.

Anyway, back to the show. KMO then presents a “steel manning” of the MMT point of view, using the analogy of running out of inches to build a house when all the labor and materials are present. He also brings up David Graeber’s book to dismiss the bullionist theory of money in favor of chartalism. He then backs up, apparently deleting some of his thoughts, and says the following:

[19:36] “…MMT gets presented to people nowadays as a coherent and new body of thought, and it is nothing of the sort. With reguard to the idea that a government can create as much money as it thinks is necessary with no underlying basis for that wealth; no physical correlate for that currency, well, let me just direct you to the example of Venezuela. Here’s a very short piece from Reuters:”

He the reads the following new story:

Venezuela annual inflation exceeds 6,000 percent in Feb – National Assembly (Reuters)

Followed by:

“So that short piece from Reuters brings in one very relevant piece of information which is that Venezuela is rich in oil. They should be able to convert that oil into monetary wealth and, if they are of a mind to, share it broadly with the people. Hugo Chavez managed this for some years, in spite of the fact that the U.S. administration was as opposed to the Chavez’s regime as they are to the current one. I’m definitely not discounting the portion of the narrative that says that Venezuela is struggling in this way in part because of economic warfare being waged against it by the United States and its allies.”

“But I would ask you, Gus, and anyone else who is enamored with MMT, how is the Venezuelan example not in line with the prescription of Modern Monetary Theorists? That is not a rhetorical question; I invite your feedback.”

“How is the Venezuelan example not in line with the prescription of Modern Monetary Theorists?” It’s a valid, and I think an important, question. Now, I didn’t think the example of Venezuela was a particularly valid demonstration of the core ideas of MMT , but I wanted to do a bit of research to verify that this was truly the case. Honestly, I wish MMT advocates would address this question a bit more heads-on; I had to dig to find good information.

But first, a few words about MMT. Is it, or is it not, a coherent body of thought? I would argue that various gaps in knowledge do not render it incoherent, otherwise we could dismiss the entirety of Neoclassical economics just as easily! We could also dismiss Marxism, Keynesianism, and a whole lot of other traditional economic and sociological concepts using the same logic. No one seems to be bothered by the many holes and inconsistencies in “traditional” economics which is taught in universities every single day—from the absurd fiction of Homo economicus to weaseling concepts like externalities and ceteris paribus. Yet, economics IS presented explicitly as a locally consistent and coherent body of thought to the public all the time! For example, just one idea—the Theory of the Second Best—seems to undermine much of Neoclassical economic thought:

In fact, it could be argued that Neoclassical economics—which eliminates money entirely from its analysis—is the more incoherent body of thought. It not only failed to predict the latest economic crisis, but may have even contributed to it with it’s ideas of rational expectations and markets tending towards equilibrium. By contrast, MMT does not have the same blind spot. This is pointed out in the introduction to the book Quantum Economics by David Orrell, author of Economyths:

What is economics?

How about this for an exciting definition: economics is the study of transactions involving money.

Obvious, right? Economists talk about money all the time. Everything gets expressed in terms of dollars or euros, yen or yuan. The health of a nation is reduced to how much they produce, as measured by Gross Domestic Product; a person’s value to society is expressed by how much they earn. Economics is about money! Everyone knows that.

And yet, if you look at an economics textbook, it turns out that the field is defined a little differently. Most follow the English economist Lionel Robbins, who wrote in 1932 that ‘Economics is a science which studies human behaviour as a relationship between ends and scarce means which have alternative uses.’ Gregory Mankiw’s widely-used Principles of Economics for example states that ‘Economics is the study of how society manages its scarce resources.’ Or as it is sometimes paraphrased, economics is the science of scarcity. No mention of money at all.

And if you read a little further in those same textbooks, you will find that economists do not talk about money all the time – in fact they steer clear of it. Money is used as a metric, but – apart perhaps from chapters to do with basic monetary plumbing – is not considered an important subject in itself. The textbooks are like physics books that use time throughout in equations but never pause to talk about what time is. And both money and the role of the financial sector are usually completely missing from economic models, or paid lip service to.

Economists, it seems, think about money less than most people do: as the former Bank of England Governor Mervyn King observed, ‘Most economists hold conversations in which the word money hardly appears at all.’ pp. 1-2

Second, is it something new or not? In fact, the term “Modern” in the name is a bit misleading. As KMO notes, many ideas date to the early twentieth century and earlier, including the work of Alfred Mitchell-Innes, G.F. Knapp, Frederick Soddy, Joseph Schumpeter, and Hyman Minsky, among many others.

But, I would argue that “Modern” does, in fact, make sense, in the sense that it analyzes our current monetary regime. If we were to analyze the operation of the monetary and economic systems for the Roman Empire, the Carolingian Empire, medieval England, Renaissance Venice, or Ancien Régime France, its analysis would not be valid. Instead, iIt analyzes our MODERN monetary system, which was established after 1688 when a consortium of wealthy merchants and bankers formed a joint-stock corporation called the Bank of England in order to manage King William of Orange’s war debt. The king’s debts now circulated as negotiable currency, with taxes now going to fund the debt to the bank which managed the state’s finances. As David Orrell notes in Quantum Economics:

In medieval England the stock half of a tally stick became a money object representing a credit, made up by the king, that could be collected. With the founding of the Bank of England, the direction reversed, so that money is now based on the state’s debt to the private sector. With modern fiat currencies that are backed only by the word of the state, the central bank goes a step further and creates money not by loaning real assets to the state, but by loaning made-up funds, produced magically at the press of a button. p.92

In some other ways, Modern Monetary Theory IS new. The modern renaissance in this subject began with a bond trader named Warren Mosler. Later, economists such as Randall Wray and Stephanie Kelton, among others, began to flesh out the paradigm, using economic history as a guide. Numerous other economists have also contributed to this field—Steve Keen, Bill Mitchell, Michael Hudson, Pavlina Tcherneva, et. al. So, a good part of the formal development and propagation of MMT ideas has, indeed, taken place in the last thirty years or so.

Finally, about the theory part. As MMT advocates never tire of pointing out, MMT is descriptive of how the monetary system of a sovereign nation works. I have not yet seen its description of how money works in modern economies actually refuted. The worst you could say is that it’s irrelevant, which is what mainstream economics usually does.

I compare it to the hydrological cycle. The hydrological cycle describes the movement of water on planet earth. The ramification of this to the ecosystem, expressed by things like monsoons or droughts, would be the theory derived from it.

Similarly, there is a theoretical aspect to MMT in the sense that it’s proscriptions–how we should run an economy based on this information–are theoretical. It’s fair to discuss and criticize them. But in that sense, all of economics is a theory, described by Wikipedia as, “a contemplative and rational type of abstract or generalizing thinking, or the results of such thinking.” MMT is at least based on the reality of how money works, unlike “traditional” economics. And, like any theory, it will be developed, refined, and extended over time based on new data and research.

My letter is below. If you’ve listened to CRV319 then you’ve already heard it.

####

Re: Venezuela: The most common factor I’ve seen cited for Venezuela’s economic crisis is the fall in the price of oil. Being a major oil producer, paradoxically, is a cause of, rather than a palliative, for Venezuela’s economic woes. The reasons stem from the Resource Curse phenomena, or something called the “Dutch Disease” (for reasons too obscure to go into here.)

We all remember the spike in oil prices around 2008, when many believed that the Peak Oil “reckoning” was upon us. Basically, the Chavez administration used the windfall from the years of high oil prices to implement a suite of generous social policies—his “Bolivarian Revolution.” And, in those years, it really did reduce poverty and increase the living standards of poorer Venezuelans quite substantially based on economic metrics. This led to support for Socialist policies, which is still ongoing in a significant portion of the electorate.

The Dutch Disease is when a nation’s entire economy is centered around one particular commodity (such as oil). Thus, the country’s national budget is tied to the price of that commodity, which fluctuates. When the price is high, the government’s budget is flush. But a reversal in the price of that commodity causes the entire national budget to go into the red, and the overall economy takes a significant hit, affecting the currency and interest rates. This tends to not happen in more diversified economies, although it’s worth noting that even in the United States, the state budgets of places like Texas and Oklahoma also take a hit during periods of low oil prices (less so California in recent times). Texas is, however, not a sovereign currency issuer.

The problem is, that because the Venezuelan government’s revenues were so tightly bound to the price of oil, when the price of oil plummeted after 2013 or so, it took the government’s budget down along with it. The socialist government, however, chose not adjust the social spending it put in place during the era of high oil prices. As this economic blogger put it:

“…growth has been tied to terms of trade and the price of oil. Also, not only the economy collapses when the price of oil collapses, but exchange rate depreciation, in the black market now, leads to high inflation, which goes often with shortages. Anybody that has lived through high inflation in Latin America in the 1980s knows this. It has nothing to do with fiscal policy, or with the central bank printing money. The fiscal situation worsened as a result of lack of growth and the external problems.”

A brief note on Venezuela and the turn to the right in Latin America (Naked Keynesianism)

The above blogger points out that this is not a new or unique phenomena for Venezuela. Long before the Maduro or Chavez administrations, a very similar thing happened in the late 1980’s. Falling oil prices caused a budget crisis, and the implementation of Neoliberal economic “reforms.” This, in turn, led to urban rioting in the capital of Caracas, called the Caracazo. Wikipedia has this to say about the Caracazo:

“A fall in oil prices in the mid-1980s caused an economic crisis to take hold in Venezuela, and the country had accrued significant levels of debt. Nevertheless, the administration of the left-leaning President Jaime Lusinchi was able to restructure the country’s debt repayments and offset an economic crisis but allow for the continuation of the government’s policies of social spending and state-sponsored subsidies. Lusinchi’s political party, the Democratic Action, was able to remain in power following the 1988 election of Carlos Andrés Pérez as president.”

“Pérez then proposed a major shift in policy by implementing neoliberal economic reforms recommended by the International Monetary Fund (IMF)…Measures taken by Pérez included privatizing state companies, tax reform, reducing customs duties, and diminishing the role of the state in the economy…The most controversial part of the economic reform package was the elimination of the gasoline subsidies, which had long maintained domestic gasoline prices far beneath international levels and even the production costs. When the subsidy was eliminated, gasoline prices rose by as much as 100% and so the costs of public transportation rose by 30%.”

Caracazo (Wikipedia)

SO I don’t think that analogies between the Venezuelan economy and our own can tell us very much. They are fundamentally different creatures. After all, the United States is the world’s largest economy, and issues the world’s reserve currency. Those facts alone make any analogy difficult, if not impossible. There is always a demand for dollars. There has never been a single case of hyperinflation in the postwar period in any major industrialized G-7 economy. I’m sorry, comparing the U.S. to Zimbabwe, which I often hear, is absolutely ridiculous. No one who does that should be taken seriously.

Furthermore, despite popular belief, most of U.S. debt is held domestically and denominated in U.S. dollars. As MMT economists will tell you, this makes a huge difference. It effects the level of allowable domestic spending by governments. This is not the case with Venezuela. This is the best one-paragraph summary I’ve seen of the situation from a poster on Reddit:

“Venezuela gave up being monetary sovereign when they borrowed US Dollars, Euros, and gold. They borrowed these, in part, to finance trade with foreign powers. The idea was to repay these loans with dollars earned by the sale of oil — but the oil market dropped and they were unable to obtain enough dollars from the sale of oil, so they printed more of their own currency to trade in exchange for dollars. When that happened, prices began to increase, due to there being more and more bolivar in the system. To keep prices down, the government enacted price caps. This backfired, causing producers to stop producing, effectively destroying the productive capacity of the country. So now they owe a lot of foreign debt, their currency is crap, their productive capacity is trashed, and people are mad.”

https://www.reddit.com/r/mmt_economics/comments/7t9hxs/is_venezuela_monetarily_sovereign_or_not/

So the debate is not whether any sovereign state does, or does not, have the money to accomplish any particular social goal it sets for itself–whether that be poverty alleviation or infrastructure improvement. The question is, rather, “What the macroeconomic effects will be?” To say, “We don’t have the money,” is not a valid argument for a sovereign currency issuer (although it might be valid for a currency user, such as a corporation or a municipality). To say, “we don’t have the resources,” or “it will be inflationary” IS a valid argument, however. Furthermore, the amount of debt is immaterial. The amount of debt is only significant if it affects the costs to borrow. Confidence in the currency is also tied to confidence in the institutions of any particular government, including its levels of corruption and its ability to reliably collect the taxes it is owed by its citizens. Many so-called “banana republics” struggle with this, as do even some Mediterranean states like Greece and Italy.

For a smaller economy like that of Venezuela, it needs to borrow, and it needs to import. It is not an autarky. Just because it has lots of oil does not mean it can be self-sufficient, or make all the resources it needs to run its economy. Thus, issuing more money without the ability of the economy to supply more goods and services WILL be inflationary according to MMT. It’s worth noting that Venezuela is under an economic embargo, which is not, of course, true of the United States. I’ve also heard credible stories of right-wing business leaders deliberately hoarding goods and refusing to distribute them specifically to undermine the socialist government. I can’t reliably confirm this, but if true, this would also factor into Venezuela’s hyperinflation problem. That’s also very different than the case in the U.S.

SO, in conclusion, there are significant differences between the situation in Venezuela and that of the United States. Having said all that, however, many economists working in the MMT paradigm DO, in fact, believe that a Universal Basic Income would be inflationary. If you increase the supply of money faster than the economy can absorb it, inflation is a likely outcome according to MMT. No contradiction there. Also, if you increase government spending without adjusting the level of taxation, you increase the supply of the currency floating around. This will “dilute” the value of that currency, causing inflation. If a UBI scheme is to be truly Universal, its quite likely that the economy would not be able to accommodate the sudden increase in spending power in the short run, leading to inflation. Such inflation would eat into the real monetary value of any UBI scheme we wish to implement.

That’s why most of the MMT economists I read and follow advocate something called the “Job Guarantee” rather than a Universal Basic Income. This would simply be the hiring by the government of people who cannot currently find remunerative work in either the public or private sector. Essentially, this is simply the government acting as the employer of last resort. Such workers could then be deployed to accomplish important social tasks that the private sector currently finds unprofitable. AS MMT economists point out, the U.S. can purchase any commodity for sale in U.S. dollars, including the labor of its own citizens, in whatever quantity is able to be supplied.

The debate over the Job Guarantee usually does not center around whether or not we have the money to accomplish it. Governments already employ millions of people, after all. Rather, the debate centers around whether there is enough useful work to give these people to do, or whether such jobs would end up being merely useless busywork; in David Graeber’s phrasing—”Bullshit Jobs.” That is open to debate. In my experience, people who believe that such jobs would be useless are the ones who gravitate towards UBI, as do people who already have non-remunerative creative gigs (we might include ourselves here).

In parts of Europe, in the age before Neoliberalism, the government was often commonly used this way. Aspiring politicians would promise–and then create–all sort of new government positions for their supporters and patrons in the cause of “job creation.” That’s why, back in the day, visitors to Southern Europe would be struck by the numerous government employees appeared to do little ease besides eat lunch and watch football while smoking. This, in turn, plays into the European stereotype of “lazy Southerners” that effects the debate over things like Greece’s economic problems to this day.

I would put forward the argument that the United States already has a similar program in place: The U.S. military. In my opinion, the U.S. military acts as an employer of last result and an economic stimulus package for the private sector. Surely, the level of military spending is far in excess of any practical need. And it keeps going up. Furthermore, no one EVER questions whether or not we have the money to pay for military spending. Here are some statistics I ran across:

“The U.S. Department of Defense is the nation’s largest employer, with over 1.4 million active duty personnel and 1.1 million reservists. It also employs 861,000 civilians. There are 450,000 employees stationed overseas in 163 countries. An additional 3 million Americans receive income from DoD.”

“There are also 1.1 million people serving in the National Guard and Reserve forces, and two million veterans and their families who rely on this income from their past service. Because of the enormous number of past and present personnel, the DoD is also the nation’s largest healthcare provider, serving 9.5 million military members, retirees, and their families.”

Department of Defense, What It Does, and Its Impact (The Balance)

So, although your correspondent was technically correct about us having the money, the actual picture is more complicated. But I don’t think that Venezuela or Zimbabwe tell us much about the case in the U.S.

####

Interestingly, it appears that something like the Caracazo is taking place in Paris right now. It’s even caused in part by rising gasoline prices (in this case by new taxes rather than the elimination of subsidies).

The Social Effects of Scale

What originally brought to mind Maine’s conception of ancient societies were some passages I read in Nassim Nicholas Taleb’s latest book Skin In the Game.

Taleb makes the point that things don’t necessarily scale up; when they do, they lose the characteristics that allow them to operate on the smaller scale. They transform into something altogether different, with very different characteristics. Last time, we pondered why the old kinship-based, non-hierarchical “gentile constitution” fell apart. I think the simple answer to that question is: as societies got bigger, that system could no longer work. That is, it could not scale. New modes of living came to replace it, as we’ve seen, bringing things like social classes, currency, written laws, markets, and government offices. This was not a simple or linear process.

But the new systems favored certain unscrupulous individuals—the ‘Triple-A’ type personalities—who could take advantage of this change to enhance their own power and prestige in ways that they could not before. This, in turn, leads to many of the social dysfunctions that plague our modern Liberal world order today.

In ancient societies, as we saw, people belonged to various groups and subgroups, and this is not only what defined their core social identity, but their quotidian behavior as well. Furthermore, this allowed society to function in the absence of written laws or formalized institutions. “Society”, such as it was, was the aggregate of these various groups, and not a single, unified thing. This is very important. This is why ancient governments could be so minimal. Their modern functions were accomplished largely via other methods, but in ways that did not scale.

In his book, Sources of Social Power, sociologist Michael Mann begins by arguing this very point—that the bounded, unitary, linear conception of society as a whole completely misrepresents what a society actually is. In his attempt to understand where power comes from and how it is wielded, he begins by eliminating this unitary conception of society from his analysis:

Societies are not unitary. They are not social systems (closed or open); they are not totalities. We can never find a single bounded society in geographical space. Because there is no system, no totality, there cannot be “sub-systems,” “dimensions,” or “levels” of such a totality…Because there is no bounded totality, it is not helpful to divide social change or conflict into “endogenous” and “exogenous” varieties. Because there is no social system, there is no “evolutionary” process within it. Because humanity is not divided into a series of bounded totalities, “diffusion” of social organization does not occur between them…Yet most sociological orthodoxies – such as systems theory, Marxism, structuralism, structural functionalism, normative functionalism, multidimensional theory, evolutionism, diffusionism, and action theory – mar their insights by conceiving of “society” as an unproblematic, unitary totality…State, culture, and economy are all important structuring networks; but they almost never coincide. There is no one master concept or basic unit of “society.” It may seem an odd position for a sociologist to adopt; but if I could, I would abolish the concept of “society” altogether. pp. 1-2

A theoretical assumption lies at the base of the unitary conception: Because people are social animals, they have a need to create a society, a bounded and patterned social totality. But this is false. Human beings need to enter into social power relations, but they do not seed social totalities. They are social, but not societal, animals. p.14

To conceive of societies as confederal, overlapping, intersecting networks rather than as simply totalities complicates theory. But we must introduce further complexity. Real institutionalized networks of interaction do not have a simple one-to-one relationship to the ideal-typical sources of social power from which I started. This will lead us to break down the equation of functions and organizations and to recognize their “promiscuity.”

This lead to Mann’s working definition of society:

A society is a network of social interaction at the boundaries of which is a certain level of interaction and cleavage between it and its environment. A society is a unit with boundaries, and it contains interactions that is [sic] relatively dense and stable; that is, internally patterned when compared to interaction that would cross its boundaries. p. 13

Let us examine the etymology of “society.” It derives from the Latin societas. This elaborated socius, meaning a non-Roman ally, a group willing to follow Rome in war. Such a term is common in Indo-European languages, deriving from the root sekw, meaning “follow.” It denotes an asymmetrical alliance, society as a loose confederation of stratified allies. We will see that this, not the unitary conception, is correct. Let us use the term “society” in its Latin, not its Romance, sense. p. 14

All of which feeds into Taleb’s salient observations. A society is a collection of people who have, in his terms, “skin in the game”—that is, their actions affect everyone else in their peer group, and everyone else’s actions affect them in turn. This allows society to function in ways very different that our large-scale anonymous contractually-based social order. This can be at the level of a village, a tribe, a monastic order, a corporation, or many other things. The rules and behavior towards people inside the collectivity are substantially different than those toward those outside the group. Here is the passage I noted in Skin in the Game:

Things don’t “scale” and generalize, which is why I have trouble with intellectuals taking about abstract notions. A country is not a large city, a city is not a large family, and, sorry, the world is not a large village. There are scale transformations we discuss here…

When Athenians treat all opinions equally and discuss “democracy,” they only apply It to their citizens, not slaves or metics (the equivalent of green card or H-lB visa holders). Effectively, Theodosius’s code deprived Roman citizens who married “barbarians” of their legal rights, hence ethical parity with others. They lost their club membership. As to Jewish ethics: it distinguishes between thick blood and thin blood: we are all brothers, but some are more brothers than others.

Free citizens, in ancient and post-classical societies, were traditionally part of clubs, with rules and member behavior similar to those in today’s country clubs, with an inside and an outside. As club members know, the very purpose of a club is exclusion and size limitation. Spartans could hunt and kill Helots, those noncitizens with a status of slaves, for training, but they were otherwise equal to other Spartans and expected to die for the sake of Sparta. The large cities in the pre-Christian ancient world, particularly in the Levant and Asia Minor, were full of fraternities and clubs, open and (often) secret societies-there was even such a thing as funeral clubs, where members shared the costs, and participated in the ceremonials, of funerals.

Today’s Roma people (aka Gypsies) have tons of strict rules of behavior toward Gypsies, and others toward the unclean non-Gypsies called payos. And, as the anthropologist David Graeber has observed, even the investment bank Goldman Sachs, known for its aggressive cupidity, acts like a communist community from within, thanks to the partnership system of governance.

So we exercise our ethical rules, but there is a limit from scaling beyond which the rules cease to apply. It is unfortunate, but the general kills the particular. The question we will reexamine later, after deeper discussion of complexity theory, is whether it is possible to be both ethical and universalist. In theory, yes, but, sadly, not in practice. For whenever the “we” becomes too large a club, things degrade, and each one starts fighting for his own interest. The abstract is way too abstract for us. This is the main reason I advocate political systems that start with the municipality, and work their way up, rather than the reverse, which has failed with larger states. Being somewhat tribal is not a bad thing-and we have to work in a fractal way in the organized harmonious relations between tribes, rather than merge all tribes in one large soup. In that sense, an American-style federalism is the ideal system.

This scale transformation from the particular to the general is behind my skepticism about unfettered globalization and large centralized multiethnic states…But you don’t have to go very far to get the importance of scaling. You know instinctively that people get along better as neighbors than roommates.

When you think about this, it is obvious, even trite, from the well-known behavior of crowds in the anonymity of big cities compared to groups in small villages. I spend some time in my ancestral village, where it feels like a family. People attend others’ funerals (funeral clubs were mostly for large cities), help out, and care about the neighbor, even if they hate his dog. There is no way you can get the same cohesion in a larger city when the “other” is a theoretical entity, and our behavior toward him or her is governed by some general ethical rule, not someone in flesh and blood. We get it easily when seen that way, but fail to generalize that ethics is something fundamentally local.

Now what the reason? Modernity put into our heads that there are two units: the individual and the universal collective–in that sense, skin in the game for you would be just for you, as a unit. In reality, my skin lies in a broader set of people, one that includes a family, a community, a tribe, a fraternity. But it cannot possibly be the universal.

Recall our discussion of Kant: theory is too theoretical for humans. The more confined our ethics, the less abstract, the better it works. Otherwise, as we will see with Elinor Ostrom’s result later in this chapter, the system cannot function properly. And, before Ostrom, our old friend Friedrich Nietzsche got the point:

“Sympathy for all would be tyranny for thee, my good neighbor…” pp. 57-60

This is also echoed in a passage from Mann’s book where he explicitly rejects the unitary conception of society:

Empirical proof [of a nonunitary, open conception of society] can be seen in the answer to a simple question: In which society do you live?

Answers are likely to start at two levels. One refers to national states: My society is “the United Kingdom,” “the United States,” “France,” or the like. The other is broader: “I am a citizen of “industrial society” or “capitalist society” or possibly “the West” or “the Western alliance.” We have a basic dilemma – a national state society versus a wider “economic society. From some important purposes, the national state represents a real interaction network with a degree of cleavage at its boundaries. For other important purposes, capitalism unites all three into into a wider interaction network, with cleavage at its edge. They are both “societies.” Complexities proliferate the more we probe. Military alliances, churches, common language, and so forth, all add powerful, sociospatially different networks of interaction. We could only answer after developing a sophisticated understanding of the complex interconnections and powers of these various crosscutting interaction networks. The answer would certainly imply a confederal rather than a unitary society. p.16

Which is exactly Taleb’s point, above. Fukuyama, in The Origins of Political Order, argues that the history of the modern state consists primarily of the process of transferring people’s primary social identity away from the family/tribe/confederacy to the territorial nation state. This underpins much of the last 6,000 years of history. One may be a firefighter, a Mason, a member of the Elk’s Club, a member of the Schmidt family with ethnically German roots, but above all, one is an American. The contrast is summed up in the Talking History podcast:

The Oxford English dictionary defines “nation” as, “A large aggregate of communities and individuals united by factors such as common descent, language, culture, history, or occupation of the same territory so as to form a distinct people.” Note how this is not the same thing as a state, or a self-governing political entity. A nation is a collective identity that may or may not be self-governing or independent. Only in the modern world, beginning with the eighteenth century and growing ever since, do we associate nations and states to the point that we use the terms interchangeably.

Wikipedia notes that, “In Europe, before the development of nationalism, people were generally loyal to a region or to a particular leader rather than to their nation. With the emergence of a public sphere and integrated economy in the eighteenth century, a broader sense of identification with one’s country began to permeate society. Nation states have their own characteristics differing from those of pre-national states. For a start, they have a different attitude to their territory compared to the dynastic monarchies. It is semi-sacred and non-transferable. No nation would swap territory with another state simply, for example, because the king’s daughter married.”

This gives you an important idea of the differences between the old and the new way of thinking. The pre-national era in Europe wasn’t based around countries, but [around] ruling families. For example, one doesn’t normally think of Austria, the Netherlands and Spain having much in common. However, due to marriage alliances, they all ended up being ruled by the same man—Charles V (known as Charles I in Spain), from 1519 to 1556. That’s thirty-seven years. Imagine if Japan, Canada, and Denmark abruptly agreed to have a joint prime minister for the next 37 years. Up until World War I, when Europeans sat down to draw borders, they tended to be more concerned about making all the dynasties happy rather than any logical plan with respect to who actually lived where.

Talking History: The Italian Unification 1790-1870, Episode 2

Of course, everyone should know by now that the arrangement of sovereign states in the modern world, particularly in the Near East and Africa, was drawn up by European colonizers based on power relations, with nothing whatsoever to do with the nations that lived there, or the geography, or the history, or anything else. The impact of this on our modern world cannot be overstated!

In 1884 at the request of Portugal, German Chancellor Otto von Bismark called together the major western powers of the world to negotiate questions and end confusion over the control of Africa. Bismark appreciated the opportunity to expand Germany’s sphere of influence over Africa and desired to force Germany’s rivals to struggle with one another for territory.

The Berlin Conference was Africa’s undoing in more ways than one. The colonial powers superimposed their domains on the African Continent. By the time Africa regained its independence after the late 1950s, the realm had acquired a legacy of political fragmentation that could neither be eliminated nor made to operate satisfactorily. The African politico-geographical map is thus a permanent liability that resulted from the three months of ignorant, greedy acquisitiveness during a period when Europe’s search for minerals and markets had become insatiable. At the time of the conference, 80% of Africa remained under Native Traditional and local control.

How African Countries Got Their Borders (TYWKIWDBI)

Another prominent example is the Zomia region of Southeast Asia. This is a highland region the size of Western Europe containing up to 100 million people that have largely remained outside the control of territorial nation-states, and was examined by James C. Scott in his book, The Art of Not Being Governed. Many of the tribal nations in this region stand apart from the nation-states they nominally occupy. As Scott points out, if the entire existence of H. Sapiens is seen as a single day, then most people have been living under state control only in the last five minutes or so.

Taleb, as we saw above, argues that ethics are something inherently local; a point he makes concerning the ethics of economic transactions. In this, he makes the distinction between laws and ethics, or, we might say, a distinction between formal laws and ethical behavior:

The question “Is it ethical to sell something to someone knowing the price will eventually drop?” is an ancient one…the debate goes back to a disagreement between two Stoic philosophers, Diogenes of Babylon and his student Antipater of Tarsus…Assume a man brought a large shipment of corn from Alexandria to Rhodes because of shortage and famine. Suppose that he also knew that many boats had set sail from Alexandria on their way to Rhodes with similar merchandise. Does he have to inform the Rhodians? How can one act honorably or dishonorably in these circumstances?

Diogenes held that the seller ought to disclose as much as civil law requires. As for Antipater, he believed that everything ought to be disclosed—beyond the law—so that there was nothing that the seller knew that the buyer didn’t know.

Clearly Antipater’s position is more robust—robust being invariant to time, place, situation, and color of the eyes of the participants…We traders had a straightforward answer…an upright trader will not do that to other professional traders…There were some people with whom we had a relational rapport, others with who we had a transactional one. The two were separated by an ethical wall, much like the case with domestic animals that cannot be harmed, while rules on cruelty are lifted when it comes to cockroaches…Indeed much of the work of investment banks in my day was to play on regulations, find loopholes in the laws. And counterintuitively, the more regulations, the easier it was to make money.

Take for now that: The ethical is always more robust than the legal. Over time, it is the legal that should converge to the ethical, never the reverse.

Hence:

Laws come and go; ethics stay.

Thus we see that tribal societies had their own code of conduct, and were self-governing. One of the largest tribally-organized societies still in existence to this day are the Pashtun people. Note that there is no Pashtun territoriality-based state; Pashtunistan is not a self-governing nation-state by our modern legal standards. They are instead dispersed mainly between the lands of the modern-day territorial-based nation-states of Pakistan and Afghanistan. But they largely “govern” themselves through various means, as Dmitry Orlov describes in his book The Five Stages of Collapse:

The term “ungoverned” is, as usual, misapplied here: the Pashtuns have an alternative system of governance whose rules preclude the establishment of any centralized authority. At over forty million strong, they are one of the largest ethnic groups on the planet…Their ancient and eternal code of conduct is Pashtunwali, or “The Pashtun Way.” The reason for following Pashtunwali is to be a good Pashtun. In turn, what a good Pashtun does is follow Pashtunwali…Needless to say, the Pashtuns cannot be seduced with offers of social progress and economic development, because that is not the purpose of Pashtunwali. The purpose of Pashtunwali is the perpetuate Pashtunwali, and at this it is apparently very good.

Pashtun society is classified as segmentary, a subtype of acephalous (leaderless). The main figures of authority are the elders (maliks) whose serve a local tribal chief (khan), but their leadership positions remain at all times contingent on putting the tribe’s interest first. All decision making is consensus-based, severely restricting the scope of unlimited action. However, when faced with an external threat, the Pashtuns are able to appoint a dictator, and to serve that dictator with absolute obedience until the threat is extinguished.

Pashtunwali defines the following key concepts: honor (nang) demands action regardless of consequences whenever Pashtunwali is violated. It is permissible to lie and kill to protect one’s nang. Revenge (badal) demands “an eye for an eye” in case of injury or damage, but crucially allows payment of restitution to avoid bloodshed. Incarceration is considered unacceptable under any circumstances. It is seen as interfering with justice, since it complicates the process of exacting revenge and precludes the payment of restitution. This is why Afghanistan has been the scene of spectacular prison escapes, where hundred of inmates are freed in a military-style attack; the attackers’ goal is not just to free prisoners but also to kill them later or collect restitution from them. The law of hospitality (nanawatai) demands that any Pashtun must welcome and provide sanctuary to anyone who asks for it. As a matter of nang, the guest must be kept perfectly secure and safe from all harm while a guest. Once over the threshold and no longer a guest, he can he sniped at one’s leisure should such an action be called for. Laws against harboring fugitives, serving as accessory after the fact, impeding official investigations and so forth are meaningless and attempts to enforce them automatically result in badal.

The local Pahstun governing body is the jirga, which is convened only on special occasions. It takes its roots from Athenian democracy, although some scholars argue that it predates it. The participants arrange themselves in a circle, and everyone has the right to speak. There is no one presiding, in accordance to the principle that no one is superior in the eyes of the Pashtunwali. The decision is based on a majority consensus. Those who defy the decision of the jirga open themselves up to officially sanctioned arson and murder. It is significant that the jirga does not allow representation: it is a direct rather than a representative democracy. It is also crucial that the jirga reserves the right to abnegate any agreement previously entered into, making treaty-based state-legal relations with the Pashtuns impossible. Lastly, only those who follow Pashtunwali can participate in a jirga; all outsiders are automatically excluded. pp. 189-192

Thus we see that this fractal insider/outsider arrangement is how ancient society functioned in the absence of large, abstract, impersonal structures. This also allowed for management of economic resources that did not fall into our modern Liberal “public/private,” “statist/collectivist” dichotomy:

Universal behavior is great on paper, disastrous in practice. Why? As we will belabor ad nauseam in this book, we are local and practical animals, sensitive to scale. The small is not the large; the tangible is not the abstract; the emotional is not the logical. Just as we argued that micro works better than macro, it is best to avoid going to the very general when saying hello to your garage attendant. We should focus on our immediate environment; we need simple practical rules…In other words, Kant did not get the notion of scaling–yet many of us are victims of Kantian universalism. (As we saw, modernity likes the abstract over the particular; social justice warriors have been accused of “treating people as categories, not individuals.”) Few, outside of religion, really got the notion of scaling before the great political thinker Elinor Ostrom…p. 21

Let us get into the gut of Ostrom’s idea. The “tragedy of the commons,” as exposed by economists, is as follows–the commons being a collective property, say, a forest or fishing waters or your local public park. Collectively, farmers as a community prefer to avoid overgrazing, and fishermen overfishing–the entire resource becomes thus degraded. But every single individual farmer would personally gain from his own overgrazing or overfishing under, of course, the condition that others don’t. And that is what plagues socialism: people’s individual interests do not quite work well under collectivism. But it is a critical mistake to think that people can function only under a private property system.

What Ostrom found empirically is that there exists a certain community size below which people act as collectivists, protecting the commons, as if the entire unit became rational. Such a commons cannot be too large. It is like a club. Groups behave differently at a different scale.

This explains why the municipal is different from the national. It also explains how tribes operate: you are part of a specific group that is larger than the narrow you, but narrower than humanity in general. Critically, people share some things but not others within a specified group. And there is a protocol for dealing with the outside. Arab pastoral tribes have firm rules of hospitality toward nonhostile strangers who don’t threaten their commons, but get violent when the stranger is a threat.

The skin-in-the-game definition of a commons: a space in which you are treated by others the way you treat them, where everyone exercises the Silver Rule.

The “public good” is something abstract, taken out of a textbook…the “individual” is an ill-defined entity. “Me” is more likely to be a group than a single person. pp.60-61

Taleb argues that the “Silver Rule” is more robust in ordering the social behavior towards insider and outsiders than the more well-known “Golden Rule” of the salvationist world religions. It is ultimately anchored in the primordial law of reciprocity. Taleb describes the Silver Rule this way:

Leviticus is a sweetening of Hammurabi’s rule. The Golden Rule wants you to Treat others the way you would like them to treat you. The more robust Silver Rule says Do not treat others the way you would not like them to treat you…Why is the Silver Rule more robust? We know the wrong better than what’s right; The good is not as good as the absence of the bad, Ennius, reported by Cicero. p. 151

Now a word about the “others” in treat others. “You” can be singular or plural…Same with the “others.” The idea is fractal, in the sense that it works at all scales: humans, tribes, societies, groups of societies, countries, etc., assuming each one is a separate standalone unit and can deal with other counterparts as such. Just as individuals should treat others the way they would like to be treated (or avoid being mistreated), families as units should treat other families in the same way…And…so should countries…for Isocrates, the wise Athenian orator, warned us as early as the fifth century B.C. that nations should treat other nations according to the Silver Rule. He wrote:

“Deal with weaker states as you think it proper for stronger states to deal with you.”

Nobody embodies the notions of symmetry better than Isocrates, who lived more than a century and made significant contributions when he was in his nineties. He even made a rare dynamic version of the Golden Rule: “Conduct yourself toward your parents as you would have your children conduct themselves towards you.” We had to wait for the great baseball coach Yogi Berra to get another such dynamic rule for symmetric relations: “I go to other people’s funerals so they come to mine.” pp. 19-20

So it appears that a commons can indeed work in the absence of private property, state ownership, or “free and open” markets, and the like, as long as it is below a certain scale and all parties possess some “skin in the game.” In fact, it appears that this is how many resources did work for much of human history! That’s why the constant debate over whether the ancient world was more capitalist, or more socialist, miss the point: it was neither! We constantly filter the ancient world through our modern sensibilities, a classic “Flintstonization” of history–projecting modern assumptions and beliefs onto earlier societies. This leads to all sorts of absurd conclusions, like the entire world was just waiting to develop capitalism and the industrial revolution, and that these represent the Omega Point of the historical process. I don’t think that’s likely.

The Composition of Ancient Society

We’ve been taking stock over the last few weeks at how the ancient world prior to the modern Nation-State was organized—as a collection of various families, groups, factions, cliques, solidalities, fraternities, associations, colleges, cults, regiments, companies, cohorts, etc., all loosely managed by hierarchical networks of elites. The most common of these forms was the tribe, which was based around imagined descent from a common ancestor. Eventually tribes became nations, and later states, but that’s another story. “The Individual” was a rare breed, and was created as a legal fiction mainly for contractual obligation purposes as literacy became more widespread and trade more extensive in the Renaissance and Early Modern period. “The Individual” first appeared in Roman Law, and then disappeared with the dissolution of the Western Empire, only to return emphatically during the modern era. In his study of the sources of social power, Michael Mann puts it succinctly on page 52: Societies are actually federations of organizations.

Prior to contracts, economic production in advanced societies was organized mainly on a household basis, with markets being secondary appendages, and tightly regulated by governing authorities. Early tribal elites presided over the redistribution of surpluses (redistributive chiefs); eventually being supplanted in this role by just issuing coins and demanding taxes back in return, which allowed decentralized exchange to take place. They then skimmed off the surplus of the resulting commercial expansion. The lord’s expenditures were mostly relegated to lawgiving and military affairs (along with luxury goods and image-building). Most day-to-day economic production was undertaken within the extended household, often by slaves in the Classical world. The word family, in fact, comes from the term for a domestic slave—your “family size” was based on the number of slaves you controlled. Markets were confined to goods that had a high bulk-to-value ratio (e.g. cloth, spices) or were “self-propelled” (i.e. slaves and livestock). States were not territorially-based, but centered around loyalty to a particular ruling family, and the household of that ruling family essentially formed the “government,” such as it was. Government was very minimal at this time, again, because it was not organized around a collection of unrelated individuals, nor around “free markets,” but rather around collections of households, families, and other groups (guilds, etc.)

This was, in effect, a “fractal” organization of society. It allowed for the daily functioning and cooperation in the absence of the large-scale organizational structures (political and economic) provided by the modern industrial nation-state. The emergence of the nation-state out of this fractal organization was taken to the furthest extent in Western Europe, especially in England, which had a fairly centralized bureaucracy as far back as the Norman conquest. It appears that the need to fund war and maintain standing armies played a crucial role in the establishment of the nation-state. Technology, especially in communications and transport, also played a decisive role, especially after the First Industrial Revolution (iron, factories & steam engines).

Sir Henry Sumner Maine came to this conclusion in his book Ancient Law. These paragraphs from the first chapter of the book give a good account of his major thesis. I’ve condensed and cleaned up his prose a bit. See the link for the original:

If I were attempting…to express…the characteristics of the situation in which mankind [find] themselves at the dawn of … history, I should …quote a few verses from the Odyssey of Homer:

“They have neither assemblies for consultation nor themistes, but every one exercises jurisdiction over his wives and his children, and they pay no regard to one another.”

These lines are applied to the Cyclops, and…I suggest that the Cyclops is Homer’s type of an alien and less advanced civilisation; for the almost physical loathing which a … community feels for men of widely different manners from its own usually expresses itself by describing them as monsters, such as giants, or even as demons.

However that may be, the verses [demonstrate] the hints which are given us by legal antiquities. Men are first seen distributed in perfectly insulated groups, held together by obedience to the parent. Law is the parent’s word, but it is not yet in the condition of those themistes…When we go forward to the state of society in which these early legal conceptions show themselves as formed, we find that they still partake of the mystery and spontaneity which must have seemed to characterise a despotic father’s commands, but that at the same time, inasmuch as they proceed from a sovereign, they presuppose a union of family groups in some wider organisation.

The next question is, what is the nature of this union and the degree of intimacy which it involves? It is just here that archaic law renders us one of the greatest of its services and fills up a gap which otherwise could only have been bridged by conjecture. It is…of the clearest indications that society in primitive times was not what it is assumed to be at present, a collection of individuals. In fact, and in the view of the men who composed it, it was an aggregation of families. The contrast may be most forcibly expressed by saying that the unit of an ancient society was the Family, of a modern society the Individual.

We must be prepared to find in ancient law all the consequences of this difference. It is so framed as to be adjusted to a system of small independent corporations. It …therefore…takes a view of life wholly unlike any which appears in developed jurisprudence. Corporations never die, and accordingly primitive law considers the entities with which it deals, i.e. the patriarchal or family groups, as perpetual and inextinguishable.

This view is closely allied to the peculiar aspect under which, in very ancient times, moral attributes present themselves. The moral elevation and moral debasement of the individual appear to be confounded with, or postponed to, the merits and offences of the group to which the individual belongs. If the community sins, its guilt is much more than the sum of the offences committed by its members; the crime is a corporate act, and extends in its consequences to many more persons than have shared in its actual perpetration. If, on the other hand, the individual is conspicuously guilty, it is his children, his kinsfolk, his tribesmen, or his fellow-citizens, who suffer with him, and sometimes for him.

It thus happens that the ideas of moral responsibility and retribution often seem to be more clearly realised at very ancient than at more advanced periods, for, as the family group is immortal, and its liability to punishment indefinite, the primitive mind is not perplexed by the questions which become troublesome as soon as the individual is conceived as altogether separate from the group.

Ancient Law: Its Connection to the History of Early Society by Maine (Project Gutenberg)

To our modern post-Enlightenment sensibilities, the notion of “collective punishment” is abhorrent. So, too, is the idea that we are culpable for actions undertaken by family members or relatives. When people read about this in ancient societies, they are often shocked. But that’s only because they don’t understand how ancient society was fundamentally constituted.

As stated above, the basic unit of society (as far as law & governance were concerned at least) was not the individual, but rather the group to which the individual belonged. Thus, the punishment and sanction was applied to the entire group, and group members bore responsibility for all of their members. This meant that they were ‘self-policing.’ Also, punishment was not time-bound, and so groups could be held liable for the sins of their ancestors down through the generations; something totally alien to our modern point of view. This probably led to the ranked lineage structure, where some families held more or less prestige than others, a critical first step along the line to hereditary inequality and social rank.

A vivid example is the concept of wergild, (‘man-gold’) so common in the tribal societies of pagan Europe, where payments were made from one corporate group to another when an offense was committed by any one of its members. The payments were assessed according to a strict payment schedule, and overseen by chiefs, elders, or tribal councils (‘lord’ and ‘king’ are just European terms for a chief). According to some sources, these payments, and the scheduled equivalencies they were assessed according to, were the origin of money and prices. David Graeber writes:

Money, then, begins, …”as a substitute for life.’ One might call it the recognition of a life-debt. This, in turn, explains why it’s invariably the exact same kind of money that’s used to arrange marriages that is also used to pay wergeld (or “bloodwealth” as it’s sometimes also called): money presented to the family of a murder victim so as to prevent or resolve a blood-feud. …On the one hand, one presents whale teeth or brass rods because the murderer’s kin recognize they owe a life to the victim’s family. On the other, whale teeth or brass rods are in no sense, and can never be, compensation for the loss of a murdered relative. Certainly no one presenting such compensation would ever be foolish enough to suggest that any amount of money could possibly be the “equivalent” to the value of someone’s father, sister, or child.

So here again, money is first and foremost an acknowledgment that one owes something much more valuable than money…Debt: The First 5,000 Years; pp. 133-134

The reference to themistes above was a bit puzzling. A Google search turned up this passage from Money and the Early Greek Mind: Homer, Tragedy, and Philosophy by Richard Seaford, a book we looked at when we discussed the origins of money and coinage in the ancient Greek world:

…The key word is themistes, which men ‘judge’ in the agora. The savagery of the Cyclopes is expressed in their lack of ‘council-bearing agorai,’ and themistes. Themistes are a sign of civilization. The related word themis means (impersonal) established principle, and is associated explicitly with the public space of the agora…Themistes are not ad hoc judgements, but rather, as etymology suggests, something like ‘established norms’, used in the public settlement of disputes. We do not know where they stand on the spectrum between at one extreme laws (subject inevitably to personal interpretation, but orally transmitted in roughly the same form) and at the other extreme mere norms or customs (only vaguely, variously, or briefly formulated, and so dependent on personal reformulation for their judicial application). And yet they are certainly impersonal in two respects, firstly in that they are publicly applied not by a single person but by a group, and secondly in that being imagined as traditional they thereby stand in this sense at least above judges and the parties to the dispute.

…we can infer that in various city-states the relatively recent invention of alphabetic writing was used, at least from about the middle of the seventh century, to record publicly codes of law that were impersonal both in that they were uniformly binding on all citizens and in that they were decided on by the polis–or at least, if said to have been devised by an individual, were administered not by him but by the institution of the polis and were dependent for their authority on acceptance by the citizens who had appointed him. Indeed the distance between the archaic lawgiver and the laws is expressed in the lawgiver being frequently a political outsider or even a foreigner, as well as in stories about the lawgivers being subjected to their own laws…
pp. 178-180

So themistes is the mark of civilization—it’s what separated Classical Greek civilization from the barbarian hordes around them, personified by the monstrous Cyclopes—”primitive” societies where there was no such thing as impersonal law or collective justice. Following Maine, we may consider this the first “revolution” of ancient law—making justice impersonal, and subjected to reason and collective assent. Surely it is significant that this same Greek civilization was also the first European tribal society we know of to impersonalize debt as money in the form of precious metals. It was a social transformation destined to have profound consequences down the line.

Maine further argues that the only basis of political union in ancient times was the ‘shared fiction’ of descent from a remote common ancestor. This seems very limiting; however, this ancient ‘legal fiction’ was made flexible enough for large-scale social organization through the adoption of individuals into various tribes or families (fictive kinship), and the union of disparate families through bride exchange/intermarriage (affinal kinship). This is why political alliances in the ancient world were inevitably based around marriage. Such an arrangement lasted up until the Enlightenment—the ill-fated Austrian princess Marie Antoinette was married off to the King of France at age 13 in order to secure a political alliance between the Austrian ruling house (the Hapsburgs) and the French (the Bourbons) against the Prussians. To this day, most of European royalty is related (Queen Elizabeth’s husband is a distant cousin). Maine continues:

…[W]e could…suppose that communities began to exist wherever a family held together instead of separating at the death of its patriarchal chieftain.

In most of the Greek states and in Rome there long remained the vestiges of an ascending series of groups out of which the State was at first constituted. The Family, House, and Tribe of the Romans may be taken as the type of them, and they are so described to us that we can [conceive of] them as a system of concentric circles which have gradually expanded from the same point. The elementary group is the Family, connected by common subjection to the highest male ascendant. The aggregation of Families forms the Gens or House. The aggregation of Houses makes the Tribe. The aggregation of Tribes constitutes the Commonwealth…the Commonwealth is a collection of persons united by common descent from the progenitor of an original family.

Of this we may at least be certain, that all ancient societies regarded themselves as having proceeded from one original stock, and even laboured under an incapacity for comprehending any reason except this for their holding together in political union…It may be affirmed then of early commonwealths that their citizens considered all the groups in which they claimed membership to be founded on common lineage. What was obviously true of the Family was believed to be true first of the House, next of the Tribe, lastly of the State.

The Family then is the type of an archaic society in all the modifications which it was capable of assuming; but the family here spoken of is not exactly the family as understood by a modern…We must look on the family as constantly enlarged by the absorption of strangers within its circle, and we must try to regard the fiction of adoption as so closely simulating the reality of kinship that neither law nor opinion makes the slightest difference between a real and an adoptive connection…It is this patriarchal aggregate—the modern family thus cut down on one side and extended on the other—which meets us on the threshold of primitive jurisprudence. Older probably than the State, the Tribe, and the House, it left traces of itself on private law long after the House and the Tribe had been forgotten, and long after consanguinity had ceased to be associated with the composition of States.

The composition of the state, uniformly assumed to be natural, was nevertheless known to be in great measure artificial.
This conflict between belief…and…fact is at first sight extremely perplexing; but what it really illustrates is the efficiency with which Legal Fictions do their work in the infancy of society. The earliest and most extensively employed of legal fictions was that which permitted family relations to be created artificially, and there is none to which I conceive mankind to be more deeply indebted. If it had never existed, I do not see how any one of the primitive groups, whatever were their nature, could have absorbed another, or on what terms any two of them could have combined, except those of absolute superiority on one side and absolute subjection on the other.

So, in Maine’s estimation, the ‘legal fiction’ of adoption is what allowed larger, more complex societies to form out of smaller tribal ones (I would add bride exchange as well). For example, we see that when Europeans ran away to join the Native Americans in Colonial America, they were not granted “citizenship” (it didn’t exist) but rather were adopted into an existing clan. Their rights, duties, and interpersonal obligations then followed from that clan affiliation, and not from things like contracts, free markets or citizenship. By contrast, our modern states are territorially based. The idea that people should have some sort of ongoing interpersonal relationship merely because they lived in close geographical proximity to each other was totally foreign to ancient sensibilities, as Maine points out:

No doubt, when with our modern ideas we contemplate the union of independent communities, we can suggest a hundred modes of carrying it out, the simplest of all being that the individuals comprised in the coalescing groups shall vote or act together according to [proximity]; but the idea that a number of persons should exercise political rights in common simply because they happened to live within the same topographical limits was utterly strange and monstrous to primitive antiquity. The expedient which in those times commanded favour was that the incoming population should feign themselves to be descended from the same stock as the people on whom they were engrafted; and it is precisely the good faith of this fiction, and the closeness with which it seemed to imitate reality, that we cannot now hope to understand.

One circumstance, however, which it is important to recollect, is that the men who formed the various political groups were certainly in the habit of meeting together periodically, for the purpose of acknowledging and consecrating their association by common sacrifices. Strangers amalgamated with the brotherhood were doubtless admitted to these sacrifices; and when that was once done we can believe that it seemed equally easy, or not more difficult, to conceive them as sharing in the common lineage. The conclusion then which is suggested by the evidence is, not that all early societies were formed by descent from the same ancestor, but that all of them which had any permanence and solidity either were so descended or assumed that they were.

Even when institutions formed based around factors other than blood relationships, for example, occupational categories or religious affiliation, they took the basic form of the extended family as Lujo Brentano— the first historian of European guilds—explains:

There remains, in conclusion, to state briefly the chief result of this inquiry. The family appears as the first Gild, or at least an archetype of the Gilds. Originally, its providing care satisfies all existing wants; and for other societies there is therefore no room. As soon however as wants arise which the family can no longer satisfy—whether on account of their peculiar nature or in consequence of their increase, or because its own activity grows feeble—closer artificial alliances immediately spring forth to provide for them, in so far as the State does not do it. Infinitely varied as are the wants which call them forth, so are naturally the objects of these alliances.

Yet the basis on which they all rest is the same: all are unions between man and man, not mere associations of capital like our modern societies and companies. The cement which holds their members together is the feeling of solidarity, the esteem for each other as men, the honour and virtue of the associates and the faith in them not an arithmetical rule of probabilities, indifferent to all good and bad personal qualities. The support which the community affords a member is adjusted according to his wants not according to his money-stake, or to a jealous debtor and creditor account; and in like manner the contributions of the members vary according to the wants of the society, and it therefore never incurs the danger of bankruptcy, for it possesses an inexhaustible reserve fund in the infinitely elastic productive powers of its members. In short, whatever and however diverge may be their aims, the Gilds take over from the family the spirit which held it together and guided it: they are its faithful image, though only for special and definite objects.

The first societies formed on these principles were the sacrificial unions, from which, later on, the Religious Gilds were developed for association in prayer and good works. Then, as soon as the family could no longer satisfy the need for legal protection, unions of artificial-family members were formed for this purpose, as the State was not able to afford the needful help in this respect. These Gilds however had their origin in direct imitation of the family. Most certainly, none were developed from an earlier religious union: as little as were the Roman collegia opificum from the Roman sacrificial societies, or the Craft-Gilds from the Gild-Merchants, or any Trade-Unions from a Craft-Gild. p.16

On the history and development of gilds, and the origin of trade-unions (Archive.org)

Eventually, of course, people dropped the “shared fiction” pretense of common descent and formed political and economic institutions based on territoriality, occupation, religion, or propinquity. Kinship ceased to matter very much at all, replaced by “modern” notions of citizenship and individualism.

The big question this raises is: How exactly did this happen? Well, nobody knows for sure. All we know for sure is that it did happen, and we are living in that world. It likely happened over a fairly long time span. We know that in the ancient Greek world, for example, there must have been a large number of “kinless” individuals–metics, who were foreign laborers, and slaves. Sailors and mercenaries, too, we can assume, were composed largely of individuals living outside any family or kinship structure. Such people did indeed depend on money and markets for their livelihood—mercenary soldiers appear to have been among the first people regularly paid for their services with bullion currencies, and chattel slaves appear to be among the first commodities bought and sold in “free markets.”

Maine argues that this led to the next iteration of government which supplanted chiefs and tribal councils—aristocracy, or rule by elite noble families. Aristocracy supplanted consanguinity. Wikipedia defines aristocracy as “a form of government that places strength in the hands of a small, privileged ruling class. The term derives from the Greek aristokratia, meaning “rule of the best-born”. As Engels put it, the primary social relationships transitioned from being kinship based to becoming class based as society’s “productive powers” and specialization of labor increased. Clearly, sedentism, money, and trade all played crucial roles in this transition.

One thing seems fairly certain: that cities played an essential role in this process. Cities were spaces ‘demarcated’ (i.e. set apart) from the surrounding countryside where people organized themselves according to kinship. In cities, unrelated people came together to conduct trade and interpersonal exchange. Money was minted by the city-state, stamped with its seal, and distributed by its temples. While rural farmland was passed down through the generations in families (genē), it was in the cities that the first real estate markets formed. Here, land was owned by merchants, craftsmen, artisans and politicians, rather than farmers. This is also where market relations took place in the agora, which doubled as space for political assembly and themistes. It was within the city-state that people were first organized into administrative districts called demes by the constitutional reformers during the fourth and fifth centuries B.C.E. Here we see place of residence (deme) become more politically important than family ties (hence “democracy”). This change takes place throughout the ancient Greek city-states in this time period.

While social organization on the land remained kinship‑based, that of the cities became part of a higher and more cosmopolitan social ordering. Neolithic urban sites, for instance, seem to have begun as publicly demarcated spaces cut out from the surrounding land to provide evenhanded arms-length commercial contacts. This is something quite different from what occurred in classical antiquity…the classical city became more a center of government than of industry. The modern type of state developed out of the communal sector as a whole rather than out of the temples as a corporately distinct public sector.

The urban shift away from family‑oriented to territorial space began with temple cults. Individuals were initiated into corporate groupings that replaced their biological families. Paternal authority and family structures were transposed onto the public plane in the form of temple and palace households, cults and professional guilds.

Over a century ago the American anthropologist Lewis Henry Morgan’s Ancient Society (1878) placed civilization’s urban watershed in the sixth century BC. He focused on the reforms of Cleisthenes in Athens (509/07) and Servius in Rome (537) as replacing the clannish family contexts, based on rural landholding, with neighborhood political units. Toynbee (1913) followed with a similar analysis for Sparta’s changes in the seventh century BC. Subsequent archaeologists have established that cities were organized on a district or “ward” basis thousands of years earlier. Already in Bronze Age Mesopotamia and Egypt each local area took responsibility for maintaining its irrigation dikes and canals.

Assyriologists have noted that early Mesopotamian rulers downplayed their family identity by representing their lineage as deriving from the city‑temple deities. Sargon of Akkad, often taken as a prototype for the myth of the birth of royal heroes (including Moses and Romulus) emphasized his “public family.” In any event archaic clan groupings seem to have been relatively open to newcomers. There is little Bronze Age evidence for closed aristocracies of the sort found in classical antiquity. Mesopotamia seems to have remained open and ethnically mixed for thousands of years, and the Sumerians probably incorporated strangers as freely as did medieval Irish feins and many modern tribal communities.

From Sacred Enclave to Temple City (Michael Hudson)

Although the details are unclear, we do know that this process had reached its final stage during the centuries in which the Roman Empire ruled the Mediterranean. The Empire ruled over huge amounts of unrelated peoples. It was also fabulously rich by ancient standards. It had extensive markets, banking, and sophisticated legal systems. Roman law and religion ‘supplanted’ local and tribal laws and customs. Sometimes this led to conflict, as illustrated concretely by the life of Christ detailed in the Bible. There we see that Roman law “trumped” Jewish law, and the local king (Herod) was a puppet client of the Roman state, which was overseen by a Roman governor (Pontius Pilate). Jesus’ enemies appeal to the Roman state for his execution. Later in history, rebelling against this order caused the Jewish state to be utterly destroyed and Jerusalem razed in 70 AD.

An indefinite number of causes may have shattered the primitive groups…At some point of time—probably as soon as they felt themselves strong enough to resist extrinsic pressure…all these states ceased to recruit themselves by factitious extensions of consanguinity. They necessarily, therefore, became Aristocracies, in all cases where a fresh population from any cause collected around them which could put in no claim to community of origin.

Their sternness in maintaining the central principle of a system under which political rights were attainable on no terms whatever except connection in blood, real or artificial, taught their inferiors another principle…the principle of local contiguity, now recognised everywhere as the condition of community in political functions. A new set of political ideas came at once into existence, which, being those of ourselves, our contemporaries, and in great measure of our ancestors, rather obscure our perception of the older theory which they vanquished and dethroned.

The history of political ideas begins, in fact, with the assumption that kinship in blood is the sole possible ground of community in political functions; [there is no]…[revolution]…so startling and so complete as the change which is accomplished when some other principle—such as that, for instance, of local contiguity—establishes itself for the first time as the basis of common political action…In one all-important instance, that of the Roman law, the change was effected so slowly, that from epoch to epoch we can observe the line and direction which it followed, and can even give some idea of the ultimate result to which it was tending. And, in pursuing this last inquiry, we need not suffer ourselves to be stopped by the imaginary barrier which separates the modern from the ancient world. For one effect of that mixture of refined Roman law with primitive barbaric usage, which is known to us by the deceptive name of feudalism, was to revive many features of archaic jurisprudence which had died out of the Roman world, so that the decomposition which had seemed to be over commenced again, and to some extent is still proceeding…

Ancient Law: Its Connection to the History of Early Society by Maine (Project Gutenberg)

The barbarians who migrated into Roman territory and sacked their cities in the first few centuries C.E. were organized primarily on a tribal basis. This is obvious from the various Germanic and Celtic law codes that were written down and preserved, and which formed the basis for Maine’s studies. The Roman Empire, however, had long since lost its initial tribal identity centered around the Gens (what Marx and Engels called the Gentile Constitution). By this time it had become thoroughly class-based, certainly by the time Justinian’s legal scholars compiled the Corpus Juris Civilis, which profoundly affected subsequent legal thought in Western Europe.

We talk about the transition to a class-based society, but what, exactly, are classes, anyway? We use the word regularly, and we instinctively know what it means, but how do sociologists define it? According to Michael Mann in his three-volume opus, Sources of Social Power, ancient Greece was the earliest society where we have clearly recorded instances of extensive class conflict. He writes:

Classical Greece is the first historical society in which we can clearly perceive class struggle as an enduring feature of social life. To understand this better, one can distinguish between the principal forms of class structure and class struggle found in human societies.

Classes in the broadest sense are relations of economic domination. The sociologist of class is principally interested not in inequalities of wealth but, rather, in economic power, that is, in persons’ ability to control their own and others’ life chances through control of economic resources – the means of production, distribution, and exchange.

Inequalities in economic power have existed in all known civilized societies. As they are never fully legitimate, class straggle has also been ubiquitous – that is, struggle between groups arranged hierarchically, “vertically,” with different amounts of economic power. In many societies, however, this struggle has remained at a first, latent, level and been prevented from attaining any very pronounced organizational form by the coexistence alongside “vertical” classes of “horizontal” economic organizations – constituted by familial, clientelist, tribal, local, and other relations. We saw these to be characteristic of later prehistory and, to a lesser extent, of the earliest civilizations…

This brings us to the second level of class organization, extensive classes. They exist where vertical class relations predominate in the social space in question as against horizontal organizations. The growth of extensive classes has itself been uneven, and so at this second level we may make two further subdivisions. Extensive classes may be unidimensional, if there is one predominant mode of production, distribution, and exchange, or multidimensional, if there is more than one (and they are not fully articulated with each other). And extensive classes may by symmetrical, if they possess similar organization, or asymmetrical, if one does or only some do (normally the dominant class or classes).

Finally, a third level of class emerges, political classes, where the class is organized for political transformation of the state or political defense of the status quo. This is less likely in a thoroughly multidimensional structure, but again the political organization may be symmetrical or asymmetrical. In the latter case only one class, usually the ruling class, may be politically organized. This began to be the pattern in the empires of domination…as dominant groups began to unify into an extensive, organized ruling class while subordinates were predominantly organized into horizontal groupings controlled by the rulers.

These distinctions are especially useful in the case of classical Greece. It is the first known society to have moved fully into the third level of class organization, exhibiting to us symmetrical, political class struggle (though only on one of what we shall see to be two principal dimensions of its extensive class structure).

Classes did not totally dominate relations of economic power in Greece. Two principal horizontal groupings remained that effectively excluded large numbers of persons from the class struggles…The first was the patriarchal household…The second horizontal grouping was the local city-state itself, which privileged its own inhabitants at the expense of all resident “foreigners.” As the city-state was small and interaction between states was great, there were many resident foreigners. These were mostly other Greeks but included many other “nationalities.” They were called metics, and they had definite political rights somewhere between those of citizens and those of serfs and slaves…Like women, metics were actually divided by their supposedly common status. They organized themselves only on rare occasions. So only a minority of the population engaged directly in class struggle… pp.216-218

When the Germanic and Celtic tribal societies melded with the class based societies of the Classical world, we get the curious society of Late Antiquity and the Middle Ages—an ad hoc melding of both contractual obligations and petty household production. Contractual obligations between various warlords formed the centerpiece of the overarching political structure—the Feudal System. Economic production, however, was highly collectivized and organized around the local Roman villa, or manor–the Manorial System. Mediating all of this was not a territorial empire but a spiritual one—the Roman Catholic Church.

Feudalism combined kinship forms in the village and the manor, and contractual relationships among the ruling classes (vassalage). Above and apart from all of this was the hierarchically organized Catholic Church operating across ethnic and national boundaries as a sort of international quasi-corporation. Eventually, tribal and kinship structures were broken up and atrophied, particularity in post-Norman England Some argue that the Church played a crucial role in this process. Brentano has the best short summary I’ve ever come across:

Though in more ancient times the family connection was strong, and of importance in various ways, as in the maintenance of justice, in the formation of the nations, and in its first settlement, nevertheless, after this settlement had taken place, the relations which it called forth obtained the preponderance. The natural bond of the family became more and more relaxed with the increase in number of relatives, and with the rise of special interests among the individual members; and would also lose its importance as regards the maintenance of justice. Moreover, the constantly increasing number of kinless people, and of strangers, would further the formation of new institutions; for the State alone was not at that time able to satisfy its members’ claims for legal protection.

This chance had, above all, to take place in the Anglo-Saxon States through the intermixture of people with Britons and Danes. Here, artificial alliances would take the place of natural ones, and of the Frankpledge founded thereon. Already in passages of Ina’s statutes which refer expressly to the legal protection of the stranger, mention is made of “gegildan” and “gesid;” and strangers are the very people who, we are told, lived, later on, in societies or Gilds, to which probably a great antiquity must be ascribed. p.10

Thus, in Western Europe, the ancient order once again was gradually supplanted by civil society, mediated by public institutions and quasi-voluntary contracts, eventually culminating in the nation-state, as during the late Roman Empire. This process began during the Renaissance, and accelerated during and after the Age of Enlightenment. Yet, as Europeans ventured out during the colonial period in search of trade goods and other commodities, they came into contract with societies all around the world which still organized themselves under the primordial social arrangements detected by Maine in Ancient European tribal law—cultures inn North and South America, the Indian subcontinent, Asia, Africa, the Pacific, Australia, and beyond.

Today, the nation-state comprised of unrelated individual “citizens” united by an implicit social contract and common law is the dominant social order around the entire world. It is this social order which Fukuyama assumed to be the “final” form that human society had been heading towards all along—the so-called “End of History.” But is it truly? We’ll ponder that question next time.

Help Wanted

Wither demographics?

Just a quick thought: are we experiencing a tight labor market primarily because of simple demographics?

I haven’t heard this idea explored anywhere else (to my knowledge). I find this odd. I can recall, many years ago when I was first starting out in the hardscrabble job market with few prospects and little money, being told that as much as things sucked at the time, things would get better because the Baby Boomers would eventually retire. This would, in theory, create a large demand for replacements for the retiring Boomer wave. And since subsequent generations had far fewer workers, there would be greater demand for labor, and hence an easier time finding jobs. Skills would be in much more demand, they said, because the next generation of whatever profession (architect, engineer, lawyer, accountant, nurse, etc.) would be smaller.

Are we seeing that prediction finally come to fruition? It seems odd no one has considered this.

Now for the data: it’s easy to see that U.S. birth rates plunged off a cliff after 1970, and remained depressed until 1980. The whole decade has been called the “Baby Bust.” This was due to things like the contraceptive Pill becoming widely available and women entering the workforce en masse. It was helped along by a shitty economy caused by a dramatic spike in oil prices, the catching up of the U.S.’s key industrial rivals into the global Market (Germany, Japan, Taiwan) and a host of other factors. That led to the unraveling of capitalist postwar prosperity—the “Last Days of the Working Class” as Jefferson Cowie’s called it in his book of that name.

This is the decade I was born into. Now “we” are approaching the peak of our “earning power” (ha!). But the simple fact remains that the primary work generation is far, far smaller than the one that preceded it. It’s clear from the graph above. And note that even though birth rates rose again in the mid-1980’s (the so-called “echo boom”), it still does not reach anywhere near Baby Boomer levels. Nor did any subsequent cohort.

Someone born in 1970 is 48 now. Someone born in 1980 is 38. These are the prime workforce years! If Baby Boomers are indeed exiting the workforce, as I suspect they are, then there are far fewer workers coming up to replace them. Hence the uptick in hiring.

And there are reasons to believe that they (along with their elders) are leaving the workforce. It makes sense. They are the last generation for whom reliable pensions still exist. Even for those stuck in 401K systems, the rising stock market, pumped up by artificially inflated stock values due to widespread stock buybacks, means that retirement is within reach right now. And, on a grim note, a number of them are just bumping themselves off with Fentanyl or some other method.

What that means is a labor shortage, for the first time in recent memory.

I can’t recall ever seeing so many Help Wanted signs everywhere I look. Everyone, it seems, is looking to hire. Now, of course, most of the Help Wanted signs I see are for awful, low-wage McJobs with no benefits. These constitute the vast majority of jobs the U.S. economy produces, after all (burger flippers, gas station attendants, sandwich artists, school bus drivers, short order fry cooks, landscapers, salespeople, prison guards, etc.).

But I have heard things on the “back channel” that lead me to believe that their might be shortages even in higher-paying skilled work. The architecture and construction industries, for example, spent so many years actively keeping people out of the industry by increasingly burdensome education and registration requirements, coupled with dismal pay and extreme job insecurity, that they “purged” too many people. Now there is a severe skills shortage. I’ve heard scuttlebutt from job sites that they can’t find enough construction professional with real experience, and the younger people don’t know what they’re doing. So much of the construction industry is based on practical experience (despite the increasing education requirements), and that experience is in short supply and apparently not being passed down to future generations. It’s causing nightmares on job sites and huge salary bumps for the few people lucky enough have the requisite experience. So I’ve heard, in any case.

I suspect that’s likely true in a range of industries, especially those difficult to automate. I’ve been told by recruiters that they are having a very hard time finding candidates for positions. They are somewhat desperate, at least in my own AEC industry.

We know from history that a shrinking workforce increases labor’s bargaining power relative to capital. It’s generally accepted by historians that this was key in the decline of slavery and serfdom, and the rise of a commercial economy after the Black Death. The money hoarded by the upper classes was freed up by the death of up to 30 percent of the population. The same wealth distributed in fewer hands resulted in a parvenu class. They spent their newly-acquired money on higher living standards and luxury products, creating a demand for those products (silk, spices porcelain, tea, sugar, etc.). To fulfill that new demand, Europe developed a commercial economy to import these products into Europe and sell them. The continent-wide wholesalers eventually paved the way towards capitalism in Northern Italy, the Low Countries, and Britain. Ways to increase production were found (especially of cloth and sugar), leading to mechanization and the factory system. But it wouldn’t have happened unless there were a labor shortage.

Nearly all the old industrial counties have shrinking populations today (North America, Europe, Japan). If mass immigration is off the table (as backlashes across the world are demonstrating), than what will the effects on modern capitalism be? Will we see a loosening of wage slavery? A movement towards post-scarcity? Automation in the service of working less and higher living standards instead of just displacement and immiseration?

Immigration Reckoning

I have a hunch that business leaders knew this day would come eventually, hence the massive push for immigration we saw beginning in the 1990’s under the Clinton administration. Business leaders–whose job it is to look ahead, after all–could see that the demographic “cliff” of the 1970’s would eventually constitute the heart of the workforce. In order to prevent a serious potential worker shortage in the future, something drastic needed to be done. They likely knew this a long time ago.

And indeed, here are the immigration numbers. Note the timing of the spike (starting after 1980):

Coincidence? I think not.

Low-end workers were brought in from the cornfields of Northern Mexico and Central America rain forests by diffusion migration. High-end workers were imported via H1-B visa sponsorships from diploma mills in India and Pakistan. Politicians were paid to look the other way, even as their constituents started to die off.

But the business leaders vastly underestimated the resentment this would cause in the face of stagnant wages and widespread economic anxiety in the old industrial Heartland. The backlash led directly to Trump and his opportunistic xenophobia. If the de-facto “open borders” policy of the 1990-2010 United States has truly been reversed by the Trump administration, it would indeed force employers to hire Americans.

I hate to say anything complimentary about Trump. But where I sit, if the ability to import foreign workers en masse has indeed been curtailed, it would lead to a tight job market. And that’s exactly what they’re seeing. Americans have an easier time finding a job now than in recent memory (even if it’s a bad one).

Of course, the other half of this paradigm has nothing to do with Trump. The dropoff in birth rates after 1970 had nothing whatsoever to do with him (I’m pretty sure). But he is the passive beneficiary of the timing. Call it luck, or whatever. All you have to do is not screw it up.

The downside is, of course, that Trump will get the credit for all of this, leading to more popularity. Of course, the Democrats’ embrace of Neoliberalism is what forced them into obscurity, so they have no one to blame but themselves. No wonder rank-and-file democrats didn’t want another Clinton in the White House. Instead, the Democrats ran on identity politics and social issues, a losing proposition. As I (and many others) have said repeatedly, if you prevent people from intelligently discussing the problems with mass immigration by tarring them all as “racists,” the only people who WILL deal with the immigration issue will be actual racists! And that’s what it has led to.

Will Wages Rise?

However, what’s less easy to predict is whether wages will rise and working conditions will get better.

Of course, we know that one of the core defining features of Neoliberalism (maybe THE defining feature) is “disciplining” labor. This was allegedly to prevent the wage-price spirals that led to the inflation of the 1970’s. Workers can’t bid up the prices of goods if they can’t get more pay out of their employers, after all (except the costs of education, health care and housing all HAVE gone stratospheric anyways, but that’s another discussion).

A variety of methods have been deployed to do this. Breaking unions was a major one (starting with PATCO and the British coal miners). Automation was another. Shifting work overseas was another. Increasing education requirements was another. Now, increasing consolidation of entire industries in the hands just a few companies is causing monopsonies, decreasing the demand for labor. of Every trick in the book was used to keep wages as low as possible (and profits as high as possible). Workers have been kept distracted from these tactics by an endless carousel of hot-button social issues promoted by the corporate media (guns, abortion, gay marriage, postmodern neo-Marxist college professors, transgender activists, “white genocide,” etc.).

I’ve seem a large number of articles wondering why wages aren’t rising as economic “theory” says they should. Since mainstream economists have to officially pretend that Neoliberalism doesn’t exist, they have to act shocked by this development. The entire economic paradigm is predicated on keeping wages (and inflation) low. Low inflation is good for creditors, after all (and bad for debtors).

But the good news is that the demographic tide may not be able to be resisted. If indeed there is a skill and worker shortage, and mass immigration has been curtailed (even if the process by which it came about has been horrifically ugly), we might actually see a new age of marginally better working conditions for future generations, just like I was told there would be all those years ago.

Why Intentional Communities Fail

While it may seem as though communal or collective ownership of the means of production is the ideal scenario, it appears that it only works under a certain set of conditions and circumstances.

What brought this realization was reading numerous accounts of how attempts to found voluntary subcultures, from intentional communities, to hippie “back-to-land” moments, failed. The particulars of these failures are all unique, but the basic outlines tend to follow the same general pattern.

The problem is that such communities are fundamentally artificial constructs. They are nothing like the original primordial societies that they attempted to replicate, which, as we saw before, were based around two essential factors: kinship structures and religious worship. The problem is these voluntary subcultures lack the essential ingredients that held these traditional societies together organically.

It’s why we don’t really have very many examples to point to of alternatives to the mainstream society succeeding in the long-term. I’m sure if we looked hard enough, we might find some, but they are so exceptional as to be almost not worth mentioning. Most attempts to secede from the broader society fail. Some fail quickly, and some fail slowly, but they all fail in the end.

Another observation is that nearly all of the long-term successful attempts have been based around some sort of religious affiliation; be it religious movement or cult. This ensures the requisite social cohesion.

Now, this is a bitter pill to swallow. I’m as critical of organized religion as the next person (unless the next person happens to be Sam Harris). I don’t want to have to admit that religion—with all its superstition, irrationality, hierarchic, hypocrisy, sanctimony, magical thinking, moralizing and repression—is a necessary prerequisite for living without the State. It seems like just trading one sort of oppression for another.

But, I must grudgingly admit that it does seem to be the magic ingredient that has kept voluntary subcultures alive and functional long term. The primary example is, of course, the Amish. While the Amish do not claim descent from a single common ancestor, they are united by the religion that they follow, and their basic social structure is based around their beliefs. The basic unit is the conjugal, monogamous household. They speak a common language (a German dialect), and certainly share much of their DNA due to inbreeding. Another example might be Hasidic communities. One example from the past is the Amana Colonies of Iowa. They were an alternative commune founded by German Pietists:

Amana Colonies (Wikipedia).

Concerning the Amish, here’s Patrick Deneen from that same interview as before illustrating how they represent an alternative model of society to the Liberalism he’s criticizing:

[27: 40] From the macro view, the debate really tends to be over which system of depersonalized relationship [State or Market] are we going to prefer and put into the primary position. The major desiderata of the Liberal order is to transform every form of what might have been a form of personal obligation entailing certain duties and responsibilities that you would owe to a specific person, and to transform those into depersonalized relationships. Because when you have a personal obligation to someone, you don’t feel free. You feel like you’re obligated to do something for someone. When it’s depersonalized, I’m not obligated to that particular person.

I’ll give you a really quick example of what I mean by this. I often use the Amish as an example of an opposite system. In certain Amish communities, it’s not permitted to take on insurance. To procure insurance as seen as a sort of aggression against the community. And the reason is that you withdraw yourself from the shared responsibility. When some catastrophe or some bad event happens to a person in your community, you are personally obligated as a member if that community to help those people. So if someone’s house burns down, you are personally obligated to help rebuild that house. Or, if a parent dies, the community is obligated to raise that family and to help financially with that family.

What we do in modern Liberal society is to create an insurance market that we can all contribute to, and if something happens we can make a claim on, but that claim is not on any *particular* individual, it’s rather a depersonalized mechanism that liberates us from any particular obligation to any other person.

You could say, this is the ground condition of our liberty–it’s to minimize those personal obligations. And so notice how these debates take place in our society. When we were debating the health care policy in recent years, the debate is about whether it should be provided through more private means or more public means. Should it be more of a state-based system or a market-based system? But notice that’s a debate about means, and not really ends.

[…]

[32:30] “[Liberalism] ultimately acts as a kind of solvent against almost every form of relationship that we can think of. You can talk about it in terms of community, you can talk about it in terms of family, you can talk about it in terms of religion, you can talk about it in terms of association, even today you can talk about it increasingly in terms of nation.”

“One of the interesting debates we’re having today that really comes out of this is, is there any coherent idea of what a nation is? Is there any reason why there should be borders or boundaries where they’re drawn? Or is that just ultimately arbitrary? And if a nation is really just an instantiation of the liberal philosophy, then in the end there’s probably no reason to think that borders and boundaries actually have any coherent reason to exist, because it’s really an idea that can’t be bounded. And so one of the debates that’s roiling us today is: is there something more to a nation other than simply the Liberal idea that seems to define it?”

1811 – Why Liberalism Failed w/ Patrick J Deneen (YouTube)

“It is not permitted to take on insurance…” Now we see the power of, for example, things like guilds, which provided those essential services to their initiates. And the guild system might be extrapolated to other sodalities, from the village community in India, to the tribes of the Native Americans to the oikoi households of the ancient Near East and Greece. All these were the basic functional units of society before the advent of the Liberal state and the globalized Market system.

In the failing Western Roman Empire, for example, monastic brotherhoods flourished across Western Europe. These fraternal orders acted as both colonizers and proselytizers for Christianity thriving among hostile tribal peoples while gradually converting them to the new religion—one based not upon ancestors or consanguinity, but belief. These “intentional communities” were often the hotbeds of productive activity in the post-Roman world. They kept reading and literacy alive during the Dark Ages and feudal times. Many medieval innovations in craftsmanship, fabrication, alternative energy (watermills), and even banking (e.g. Knights Templar) were originally developed in monastic brotherhoods before being extrapolated to the wider society. Clocks were invented by monks to keep track of their prayer schedule. Monasteries are still known for the quality of their beer to this day. But key to their survival was always religion.

This is why intentional communities and back-to-the-land movements almost always fail. They are attempting to recreate an older, primordial, more organic societal order without the requisite social glue that held them together. Counterculture movements are usually full of people obsessed with individualism—“just be yourself, man!” was at the heart of the hippie ethos. And before the original Jesus Freaks, hippies were often reacting aggressively against the organized religions they were brought up in, which were perceived as “oppressive” and “intolerant” (as indeed they were). Instead, the counterculture sought “liberation,” often through hedonism–sex and drugs and the like. But the overwhelming evidence is that such selfish attitudes made implementing functional, viable alternative communities effectively impossible. One can read about the failure of any number of these hippie communes or alternative communities in order to come to this sad conclusion.

The irony is, these countercultural attitudes were only made possible by living in the modern Liberal state that they were rejecting! A profound irony indeed…

Instead, the alternative communities that ultimately succeeded long-tern were suffused with religion and antagonistic to strident individualism. I don’t like that fact, but that’s what history shows. That is, they were all functionally illiberal.

All this got me thinking about a book Dmitry Orlov published several years ago called Communities that Abide. Orlov went off to the ethnographic and sociological literature to find out just was the “secret sauce” of the communities that–like the Big Lebowski’s Dude–abided. What struck me is that the one thing they had in common was that they were subcultures existing within modern nation states and at the same time co-existing with them. What held these subcultures together in the absence of either the State or the Market, and despite the often open hostility of the nation-states under which they lived towards them?

Well, as with the example of the Amish given by Patrick Deneen above, what they had in common was that they were all conceived in imitation of the family; they spoke a common dialect and shared similar values and behavioral ethics, and were often (although not always) intensely religious. Here are the major communities Orlov analyzed in his book (I’ve listed their group names along with the nominal nation-state reside in):

The Hutterites (Amish) — United States and Canada
The Roma (Gypsies) — Eastern and Western Europe
The Russian Mafia — Russia and the former Soviet Union
The Pashtuns — Afghansitan and Pakistan.
The Israeli Kibbutzim — Israel
The Mormons — Primarily the western United States
The Dukhobors — Western Canada

What do all these communities have in common? Their basic social structures are essentially identical that of all people on earth pre-state! They essentially share the characteristics as the kinds of societies described by people Maine and Morgan such as the Indian Village or the Iroquois. This effectively describes their legal systems; their social structure; their economic system. They are all illiberal according to Patrick Deneen’s description above. They are suffused with social obligations. As anthropologists have determined, this was the composition of basically the entire human race before the coming of the modern Liberal nation-state. Henry Maine writes in Lectures on the Early History of Institutions [1874]:

Cæsar’s failure to note the natural divisions of the Celtic tribesmen, the families and septs or subtribes, is to me particularly instructive. The theory of human equality is of Roman origin; the comminution of human society, and the unchecked competition among its members, which have gone so far in the Western Europe of our days, had their most efficient causes in the mechanism of the Roman State. Hence Cæsar’s omissions seem to be those most natural in a Roman general who was also a great administrator and trained lawyer; and they are undoubtedly those to which an English ruler of India is most liable at this moment. It is often said that it takes two or three years before a Governor-General learns that the vast Indian population is an aggregate of natural groups and not the mixed multitude he left at home; and some rulers of India have been accused of never having mastered the lesson at all.

Of course, when we talk about collapse, we are really taking about nation-states, which are basically legal constructs and shared fictions. People themselves don’t just disappear. I don’t know of any tribal communities that have “collapsed.” And when states do collapse, what’s left are these more primordial forms of human social affiliation and solidarity to fall back on. So while empires are fragile and ephemeral things that come and go; expand and contract, the underlying fabric of society remains (or I should say, remained) more-or-less intact before industrialism (i.e. they abided). In fact, this might be a good way of understanding ancient history. Ancient empires were merely a “layer” of power above a substrate or “traditional” society, which was organized around the family, household, lineage, and clan, and headed by patriarchs, similar to many of Orlov’s subcultures like the Roma (Gypsy)  people. According to Orlov, despite their surface differences, the underlying societies more-or-less shared the same characteristics:

  • Autonomous, refusing to coalesce into larger groups. (an anthropologist would say segmentary–ch)
  • Separatist, shunning the outsiders (and those of their own number who misbehave), and interacting with the outside world as a group rather than as individuals.
  • Anarchic in their patterns of self-governance—neither patriarchal nor matriarchal—with certain individuals granted positions of responsibility, but not positions of authority.
  • Having an oral rather than a written code of conduct. (Maine writes of the early Celts: “[Caesar] says that the Druids presided over schools of learning, to which the Celtic youth flocked eagerly for instruction, remaining in them sometimes (so he was informed) for twenty years at a time. He states that the pupils in these schools learned an enormous quantity of verses, which were never committed to writing; and he gives his opinion that the object was not merely to prevent sacred knowledge from being popularised, but to strengthen the memory. Besides describing to us the religious doctrine of the Druids, he informs us that they were extremely fond of disputing about the nature of the material world, the movements of the stars, and the dimensions of the earth and of the universe. At their head there was by his account a chief Druid, whose place at his death was filled by election, and the succession occasionally gave rise to violent contests of arms”.-ch)
  • Communist in their patterns of production and consumption, with little use for money or markets.
  • Based on a strong central ideology (or faith) which they refuse to analyze, question or debate.
  • Having lots of children, bringing them up as their replacements, and retiring as young as possible.
  • Refusing to “work jobs,” and doing little work beyond what they consider necessary.
  • Consciously rejecting much of the culture and quite a lot of the technology of surrounding society. (less relevant to ancient cultures-ch)
  • Speaking their own languages or dialects, which they jealously preserve and safeguard against outside influences.
  • Adhering to a certain protocol for interacting with outsiders, perhaps hiding in plain sight, perhaps through a certain “in your face” disguise that hides who they are behind a more conventional image.
  • Pacifist rather than warlike, refusing to carry weapons or take part in military actions of any sort, and fleeing from danger rather than confronting it.
  • Nomadic rather than settled, with minimal attachment to any one piece of land beyond its immediate usefulness to them, and willing to relocate as a group in times of danger, hardship or persecution.
  • Quite happy and generally content with their lot in life, being resigned to accepting whatever life gives, and relatively unafraid of death, neither fighting it nor seeking it.

Communities that Abide – Part 2 (Club Orlov)

Again, this is describing pretty much every society on earth prior to 1500! I think when we look at history, we tend to read about the exploits of conquerors, emperors, kings, generals, and rulers. We read the annals of empire building—famous battles, capital cities, court intrigue, trading patterns and the like. That’s what was written down, after all. But underneath it all, this was the fabric of daily life, from the advent of sedentism and agriculture until the time of the Industrial Revolution.

Meanwhile, in the rest of the world, older social transitions prevailed outside of the cosmopolitan port cities connected by their expanding webs of trade. Even in modern economies like the United States and China—the two biggest economies on earth—we see this rural/urban divide between traditional family structures in the countryside and the anonymous business activities in urban centers mediated by laws and contracts. Really, Liberalism at it’s heart has been a great experiment in undoing these connections to family, language and place. In it’s place, State and Market marched together hand-in-hand as conquerors rather than adversaries.

So the nation-state is little else than the ruling class and its scaffold of institutions and interlocking power webs which comes and goes (i.e. collapses), but the older, underlying social fabric remains more-or-less intact, or at least has done in the past. A big problem, as I see it, is that in Western Liberalized democracies (especially the United States), there is no underlying society. We are all atomized strangers now, and self-serving media and corporate interests have every incentive to fan the flames of division and discord to the greatest extent possible (as do the Russians), unlike an earlier generation of politicians who were obsessed with the idea of encouraging unity. If and when (more likely when) the central government in WIERD States like the U.S. falls apart, there is no underlying “village community,” “kinship structure,” “folk tradition,” or common religion (or whatever else that unites us) to fall back upon. And sorry, Libertarians, but in those circumstances, feudalism run by warlords is the most likely outcome based on historical precedent, not the flourishing of “free markets” or voluntary transactions of small independent producers mediated by lumps of intrinsically valuable gold nuggets.

Henry Sumner Maine wrote about the prototypical village communities he encountered throughout India in Ancient Law:

[T]here is a strong à priori improbability of our obtaining any clue to the early history of property, if we confine our notice to the proprietary rights of individuals. It is more than likely that joint-ownership, and not separate ownership, is the really archaic institution, and that the forms of property which will afford us instruction will be those which are associated with the rights of families and of groups of kindred. The Roman jurisprudence will not here assist in enlightening us, for it is exactly the Roman jurisprudence which…has bequeathed to the moderns the impression that individual ownership is the normal state of proprietary right, and that ownership in common by groups of men is only the exception to a general rule…

It happens that, among the [Hindus], we do find a form of ownership…respecting the original condition of property. The Village Community of India is at once an organised patriarchal society and an assemblage of co-proprietors. The personal relations to each other of the men who compose it are indistinguishably confounded with their proprietary rights, and…attempts of English functionaries to separate the two may be…some of the most formidable miscarriages of Anglo-Indian administration.

The Village Community is known to be of immense antiquity…Conquests and revolutions seem to have swept over it without disturbing or displacing it, and the most beneficent systems of government in India have always been those which have recognised it as the basis of administration.

[I]n India …As soon as a son is born, he acquires a vested interest in his father’s substance, and on attaining years of discretion he is…permitted…to call for a partition of the family estate. As a fact, however, a division rarely takes place even at the death of the father, and the property constantly remains undivided for several generations, though every member of every generation has a legal right to an undivided share in it. The domain thus held in common is…managed by the eldest agnate, by the eldest representative of the eldest line of the stock.

Such an assemblage of joint proprietors, a body of kindred holding a domain in common, is the simplest form of an Indian Village Community, but the Community is more than a brotherhood of relatives and more than an association of partners. It is an organised society, and besides providing for the management of the common fund, it seldom fails to provide…for internal government, for police, for the administration of justice, and for the apportionment of taxes and public duties.

…Although, in the North of India…the Community was founded by a single assemblage of blood-relations… men of alien extraction have always, from time to time, been engrafted on it, and a mere purchaser of a share may generally, under certain conditions, be admitted to the brotherhood. In the South of the Peninsula there are often Communities which appear to have sprung not from one but from two or more families; and there are some whose composition is known to be entirely artificial; indeed, the occasional aggregation of men of different castes in the same society is fatal to the hypothesis of a common descent. Yet in all these brotherhoods either the tradition is preserved, or the assumption made, of an original common parentage. Mountstuart Elphinstone…observes of them:

“The popular notion is that the Village landholders are all descended from one or more individuals who settled the village; and that the only exceptions are formed by persons who have derived their rights by purchase or otherwise from members of the original stock. The supposition is confirmed by the fact that, to this day, there are only single families of landholders in small villages and not many in large ones; but each has branched out into so many members that it is not uncommon for the whole agricultural labour to be done by the landholders, without the aid either of tenants or of labourers. The rights of the landholders are theirs collectively and, though they almost always have a more or less perfect partition of them, they never have an entire separation. A landholder, for instance, can sell or mortgage his rights; but he must first have the consent of the Village, and the purchaser steps exactly into his place and takes up all his obligations. If a family becomes extinct, its share returns to the common stock.”

The tokens of an extreme antiquity are discoverable in almost every single feature of the Indian Village Communities. We have so many independent reasons for suspecting that the infancy of law is distinguished by the prevalence of co-ownership by the intermixture of personal with proprietary rights, and by the confusion of public with private duties, that we should be justified in deducing many important conclusions from our observation of these proprietary brotherhoods, even if no similarly compounded societies could be detected in any other part of the world. It happens, however…that [there are] a similar set of phenomena in those parts of Europe which have been most slightly affected by the feudal transformation of property, and which in many important particulars have as close an affinity with the Eastern as with the Western world…

http://www.gutenberg.org/files/22910/22910-h/22910-h.htm (153)

Echoing H.S. Maine’s description of the Indian village community above, Dmitry Orlov writes:

There are two organizing principles that self-sufficient communities can rely on in order to succeed: communist organization of production and communist organization of consumption. Both of these produce much better results for the same amount of effort, and neither is generally available to the larger society, which has to rely on the far more wasteful market-based or central planning-based mechanisms, both of which incur vast amounts of unproductive overhead—bankers, traders and regulators in the case of market-based approaches, and government bureaucrats and administrators in the case of centrally planned approaches. History has shown that market-based approaches are marginally more efficient than centrally planned ones, but neither one comes anywhere near the effectiveness of communist approaches practiced on the small scale of a commune.

It stands to reason that communist production methods would outperform capitalist ones. On the one hand, you have a group of people driven to work together out of a sense of solidarity and mutual obligation, cooperating of their own free will, free to switch tasks to keep life from becoming monotonous, free to do what they believe would work best, using work as a way to earn respect and improve their social standing, knowing full well that their fellows will take care of them and their families should they ever become unable to work.

On the other hand, you have commoditized human beings pigeon-holed by a standardized skill set and a job description, playing the odds in an arbitrary and precarious job market, blindly following orders for fear of ending up unemployed, relying on work to keep them and their immediate family from homelessness and starvation, and discarded once “burned out” on the set of tasks for which they are considered “qualified.” The result of all this is that 70% of the workers in the US say that they hate their job, putting a gigantic drag on the capitalist economy…

Those who chafe at the use of the word “communist” should feel reassured that no military or political “communist menace” is ever likely to reassert itself: state communism is as dead as a burned piece of wood. The one remaining, ongoing attempt at unreformed state communism is North Korea, and it is the exception that proves the rule. On the other hand, regardless of your opinions, you too are a communist.

First, you are human, and over 99% of their existence as a species humans have lived in small tribes organized on communist principles, with no individual land ownership, no wage labor, no government, and no private property beyond a few personal effects. If it weren’t for communism, you wouldn’t be here.

Second, if you have a family, it is likely to be run on communist principles: it is unlikely that you invoice your children for the candy they eat, or negotiate with your spouse over who gets to feed them. The communist organizing principle “From each according to abilities, to each according to needs” is what seems to prevail in most families, and the case where it doesn’t we tend to regard as degenerate. From this it seems safe to assume that if you are human and draw oxygen, then you must be, in some sense, a communist.

Communities That Abide – Part 3 (Club Orlov)

Echoing Orlov, Nassim Taleb writes: “Today’s Roma people (aka Gypsies) have tons of strict rules of behavior toward Gypsies, and others toward the unclean non-Gypsies called payos. And, as the anthropologist David Graeber has observed, even the investment bank Goldman Sachs, known for its aggressive cupidity, acts like a communist community from within, thanks to the partnership system of governance. Much of the difference, he explains, comes down to a question of scale:

Things don’t “scale” and generalize, which is why I have trouble with intellectuals talking about abstract notions. A country is not a large city, a city is not a large family, and, sorry, the world is not a large village. There are scale transformations…

So we exercise our ethical rules, but there is a limit from scaling beyond which the rules cease to apply. It is unfortunate, but the general kills the particular. The question we will reexamine later, after deeper discussion of complexity theory, is whether it is possible to be both ethical and universalist. In theory, yes, but, sadly, not in practice. For whenever the “we” becomes too large a club, things degrade, and each one starts fighting for his own interest. The abstract is way too abstract for us.

This is the main reason I advocate political systems that start with the municipality, and work their way up (ironically, as in Switzerland, those “Swiss, rather than the reverse, which has failed with larger states. Being somewhat tribal is not a bad thing–and we have to work in a fractal way in the organized harmonious relations between tribes, rather than merge all tribes in one large soup. In that sense, an Americans federalism is the ideal system.

This scale transformation from the particular to the general is behind my skepticism about unfettered globalization and large centralized multiechnic states. The physicist and complexity researcher Yaneer Bar-Yam showed quite convincingly that “better fences make better neighbors”–something both “policymakers” and local governments fail to get about the Near East. Scaling matters, I will keep repeating until I get hoarse…

Nassim Micholas Taleb; Skin in the Game, pp. 58-59

Next time, we’ll take a closer look at some important insights into this idea provided by Taleb’s in his new book.

Then and Now

Apologies for the Dan Carlinesque posting schedule as of late, but I’ve been going through a lot of stuff this year which has affected my ability to write. I may or may not write about it; I haven’t decided yet.

My posts on the history of guilds was just supposed to be a brief overview of the work of Prateek Raj, and how it once again explains how the intersection of geography and technology shapes history. I kind of fell down a rabbit hole in researching that subject; but I did manage to stumble across a lot of interesting old books online. This was part of my ongoing fumbling attempts to write history from a perspective that is more than the “Great Man” theory, or just a sequence of unrelated events—“one damn thing after another.”

My larger point comes from reading a lot of the very early anthropological literature of the late nineteenth century. In particular I’m intrigued by the writings of Sir Henry Maine on the history of ancient laws and the development of ancient institutions, and of course Lewis Henry Morgan, the “father” of anthropology. The more I read from this time period (as well as from the 1970’s) the more I’m convinced that they had everything already pretty much already figured out, and a lot of modern scholarship is just restating or rediscovering what they already knew but has been forgotten or deliberately obscured in the interest of keeping people from questioning the status quo.

I think we Westerners tend to think of the ancient world as a bastion of free markets, unfettered individualism, and limited government. This historical amnesia is crucial to the libertarian argument. They tend to cast “free markets” as spontaneous and natural, while collectivist institutions such as armies and governments are Johnny-come-lately impositions on otherwise happy-go-lucky individuals freely transacting without the horrible burden of the state which does nothing but allow an unproductive bureaucratic elite to skim off wealth so that they can make capricious laws and sit round and do nothing all day. Anything else is derided as “statist.”

The reality, of course, is much different. “Individualism” is, in fact, a fairly recent phenomenon. For most of human history, your identity derived from your group membership. It had to be this way: we are the social animals to the core. No man is an island, despite what Libertarians claim. The basic functional unit of society was some form of social group, and it was largely self-governing and self-regulating. All centralized governments did was basically facilitate interactions, provide a modicum of personal safety, and keep the peace between these various groups, whether they be households, extended families, clans, tribes, craft guilds, sodalities, confraternities, military regiments, crime syndicates, monastic brotherhoods, trading companies, secret societies, cliques, or whatever. From the introduction to Maine’s book Ancient Law by Professor J. H. Morgan (no relation to L.H. Morgan):

The political philosophers…had sought the origin of political society in a “state of nature”—humane, according to Locke and Rousseau, barbarous, according to Hobbes—in which men freely subscribed to an “original contract” whereby each submitted to the will of all. Maine deduced the basic social fabric of ancient societies from studying their legal codes. In addition, he gained first-hand knowledge of how family-based village communities work by serving as a jurist in India…

It was not difficult to show…that contract—i.e. the recognition of a mutual agreement as binding upon the parties who make it–is a conception which comes very late to the human mind…he shows that early society, so far as we have any recognisable legal traces of it, begins with the group, not with the individual. This group was, according to Maine’s theory, the Family—that is to say the Family as resting upon the patriarchal power of the father to whom all its members, wife, sons, daughters, and slaves, were absolutely subject…Moreover, all the members of the family, except its head, are in a condition best described as status: they have no power to acquire property, or to bequeath it, or to enter into contracts in relation to it…

The traces of this state of society are clearly visible in the pages of that classical textbook of Roman Law, the Institutes of Justinian, compiled in the sixth century A.D., though equally visible is the disintegration wrought in it by the reforming activity of the praetor’s edicts. That reformation followed the course of a gradual emancipation of the members of the family, except those under age, from the despotic authority of the father. This gradual substitution of the Individual for the Family was effected in a variety of ways, but in none more conspicuously than by the development of the idea of contract, i.e. of the capacity of the individual to enter into independent agreements with strangers to his family-group by which he was legally bound—an historical process which Maine sums up in his famous aphorism that the movement of progressive societies has hitherto been a movement from Status to Contract.

In the chapter on Property Maine again shows that the theory of its origin in occupancy is too individualistic and that not separate ownership but joint ownership is the really archaic institution. The father was in some sense (we must avoid importing modern terms) the trustee of the joint property of the family. Here Maine makes an excursion into the fields of the Early Village Community, and has, too, to look elsewhere than to Rome, where the village community had already been transformed by coalescence into the city state. He therefore seeks his examples from India and points to the Indian village as an example of the expansion of the family into a larger group of co-proprietors, larger but still bearing traces of its origin to the patriarchal power. And, to quote his own words, “the most important passage in the history of Private Property is its gradual separation from the co-ownership of kinsmen.” Ownership is itself a late abstraction developed out of use. We may say with some certainty that family “ownership” preceded individual ownership, but in what sense there was communal ownership by a whole village it is not so easy to say.

Maine was on surer ground when, as in his studies of Irish and Hindu law, he confined himself to the more immediate circle of the family group. In his Early Institutions he subjects the Brehon Laws of early Ireland to a suggestive examination as presenting an example of Celtic law largely unaffected by Roman influences. He there shows, as he has shown in Ancient Law, that in early times the only social brotherhood recognised was that of kinship, and that almost every form of social organisation, tribe, guild, and religious fraternity, was conceived of under a similitude of it. Feudalism converted the village community, based on a real or assumed consanguinity of its members, into the fief in which the relations of tenant and lord were those of contract, while those of the unfree tenant rested on status.

Ancient Law, by Sir Henry James Sumner Maine (Project Gutenberg Ebook)

American lawyer Lewis Henry Morgan had a much more immediate method—he was inducted into the Hawk Clan of the Seneca tribe, a member of what we call the Iroquois Confederation (i.e. the Haudenosaunee) for his help with issues related to land ownership.

It became obvious to Morgan that that primordial basic unit of the Iroquois—indeed, of all human societies—was the clan, which consisted of descent from an apical ancestor, whether real or imagined. Each clan was made up of various households, had its own totems and ceremonies, elected it own leaders, owned their lands in common, redistributed goods among themselves, and made collective decisions at tribal councils—what has been called “campfire democracy“.

Clans were organized an intermediate grouping called a phratry, and phratries were organized into tribes. Exchanges and redistribution were not carried out between individuals via contractual arrangements, but within and between tribes, clans and households, often surrounded by ceremonial requirements (e.g. bridewealth). Sometimes there were even distinct spheres of exchange. Everyone had their place within the extended family, with the eldest males taking the most important managerial positions–i.e. patriarchy. A number of tribes could combine into larger groups, which he called confederations. In a confederation, cooperation was based on relative equality between the various units, without one dominating the others.

While the authorities of patriarchs over the household (Patria potestas) was more-or-less absolute (in theory more than actual practice), there was no way to extend that control over the broader society. Instead, forms of democratic governance prevailed. While top-down, command-and-control arrangements (concentrated power) were necessary for a variety of social goals (notably defense), most tribal societies were very hesitant to establish any form of institutionalized power. And so they resisted it as much as possible. Often leadership roles were temporary, and based on common agreement. Tribal leadership was not hereditary and leaders were merely “first among equals” (primus inter pares).

Morgan found that the nuclear family living off by themselves in their own separate household as in Western Europe wasn’t the norm either; in fact it was highly exceptional. In addition, whom one considered to be their mother and father, and whom one considered to be their brother or sister or cousin or aunt or uncle varied considerably across cultures, even within Native American cultures. Some cultures also added distinctions based on relative age. For simplicity, Morgan identified a few typical arrangements (although not an exhaustive list) based on the ethnographic writings he had access to:

  • Hawaiian Kinship
  • Eskimo Kinship
  • Sudanese Kinship
  • Iroquois Kinship
  • Crow Kinship
  • Omaha Kinship

These arrangements established the ground rules for social interactions and interpersonal obligations, including—crucially—whom one could and could not marry. And indeed, anthropologists found that every culture had some sort of marriage ties, although the tightness and “sacredness” of that bond varied quite considerably, as did expectations concerning sexual fidelity. The conjugal, monogamous family was hardly universal or “natural.” What was universal, however, was the notion of affinal kinship—social relationships based around marriage, pair bonding and child-rearing (what we call “in-laws” in English—-a telling phrase). Each household (oikos) might be thought of as a sort of mini-corporation with joint ownership and unlimited life; with the eldest male functioning as CEO and his wife as COO. Each member of the family, whether by birth or adoption is “vested” in proportion to their age and gender, and their distance from the common ancestor. Professor A. Moret writes:

Contrary to what might have been expected…[t]he village community or, in a still less artificial manner, spatial proximity does not in fact seem to be a primary mode of grouping among men. That is intelligible when we recall that agricultural and sedentary civilizations are not the first that are known, and so it is quite natural that before their appearance the relation organization that it was subsequently to become…before geography, religion was called upon to decide the manner in which men should be grouped. The original constitutional right is mystic in nature.

The first grouping which we meet in the lower societies, the clan, is in fact a grouping, the function of which is at once — without there being any priority to seek — political and domestic, but the nature of which is mystical. Its cohesion arises from the fact that its members regard themselves as bearers of one common totem and consequently one common name, made of one common mystic substance — that of their totem. All share therein and none monopolizes it, all are sprung from one common source, to which later mythology will give individual appearances, imagining that in a fabulous past the totem has been revealed to an illustrious ancestor of the clan who became, for that reason, the eponymous ancestor.

In his memoir on the prohibition of incest, Durkheim defines the clan thus: 1 “A group of individuals who regard themselves as mutually related but who recognize this kinship exclusively by the very peculiar mark that they are all bearers of one common totem. The totem itself is a being, animate or inanimate, most commonly an animal or a plant, from which the group is held to be descended and which serves at once as emblem and collective name. If the totem be a wolf, all the members of the clan believe that they have a wolf for ancestor and consequently they have something of the wolf within them. That is why they apply to themselves this denomination: they are Wolves.”

From Tribe To Empire by A. Moret (Archive.org)

When L.H. Morgan’s work dropped in Europe, it became clear to scholars that isolated individuals forming an explicit social contract was not the true origin of governments, and that the primordial arrangement of human societies before centralized governments or the nation-state was based around kinship systems and collective ownership of land and property. Furthermore, such systems were often federal and democratic. In fact, some vestiges of this way of life persisted even in Europe. Most notable were the Swiss cantons, and the region of Dithmarschen in modern-day Germany (see: Frisian Freedom). In Switzerland’s case, the high mountains had isolated them and preserved their way of life from the prevailing feudal system; with Dithmarschen it was the bogs, swamps and marshlands which had protected them. Ireland, too, had preserved something of its ancient clan system into relatively modern times (as evidenced by Irish and Scottish surnames). But the most relevant examples were to be found in Eastern Europe:

The Zádruga of southern Slavonia offers the best still existing illustration of such a family communism. It comprises several generations of the father’s descendants, together with their wives, all living together on the same farm, tilling their fields in common, living and clothing themselves from the same stock, and possessing collectively the surplus of their earnings. The community is managed by the master of the house (domácin), who acts as its representative, may sell inferior objects, has charge of the treasury and is responsible for it as well as for a proper business administration. He is chosen by vote and is not necessarily the oldest man. The women and their work are directed by the mistress of the house (domácica), who is generally the wife of the domácin. She also has an important, and often final, voice in choosing a husband for the girls. But the highest authority is vested in the family council, the assembly of all grown companions, male and female. The domácin is responsible to this council. It takes all important resolutions, sits in judgment on the members of the household, decides the question of important purchases and sales, especially of land, etc.

Likewise among Germans, the economic unit according to Heussler (Institutions of German law) is not originally the single family, but the “collective household,” comprising several generations or single families and, besides, often enough unfree individuals. The Roman family is also traced to this type…Similar communities are furthermore said to have existed among the Celts of Ireland. In France they were preserved up to the time of the Revolution in Nivernais under the name of “parçonneries,” and in the Franche Comté they are not quite extinct yet. In the region of Louhans (Saône et Loire) we find large farmhouses with a high central hall for common use reaching up to the roof and surrounded by sleeping rooms accessible by the help of stairs with six to eight steps. Several generations of the same family live together in such a house…In India, the household community with collective agriculture is already mentioned by Nearchus at the time of Alexander the Great, and it exists to this day in the same region, in the Punjab and the whole Northwest of the country…In Algeria it is still found among the Kabyles. Even in America it is said to have existed. It is supposed to be identical with the “Calpullis” described by Zurita in ancient Mexico. In Peru… at the time of the conquest a sort of a constitution in marks, with a periodical allotment of arable soil, and consequently individual tillage, was in existence…[note: he is referring to an ayllu – ch]

The Origin of the Family, Private Property, and the State (Project Gutenberg)

Europeans began to analyze these distant cultures for clues as to how pagan tribal Europe was organized before the imposition of the Roman State. Based on the study of ancient laws, scholars realized that early Classical civilization must have also originally functioned along similar tribal principles as the Iroquois, most notably N. Fustel de Coulanges, whose book The Ancient City caused a rethinking of the basic social structures of ancient Greek and Roman civilization. In Greece, these descent groups were called genē (γένη), and in Rome, gens (the Sanskrit Gana and the English kin are cognates).

We now come to another discovery of Morgan that is at least as important as the reconstruction of the primeval form of the family from the systems of kinship. It is the proof that the sex organizations within the tribe of North American Indians, designated by animal names, are essentially identical with the genea of the Greeks and the gentes of the Romans; that the American form is the original from which the Greek and Roman forms were later derived; that the whole organization of Greek and Roman society during primeval times in gens, phratry and tribe finds its faithful parallel in that of the American Indians; that the gens is an institution common to all barbarians up to the time of civilization—at least so far as our present sources of information reach. This demonstration has cleared at a single stroke the most difficult passages of remotest ancient Greek and Roman history. At the same time it has given us unexpected information concerning the fundamental outlines of the constitution of society in primeval times—before the introduction of the state. Simple as the matter is after we have once found it out, still it was only lately discovered by Morgan…

The Origin of the Family, Private Property, and the State

Each Roman gens was bequeathed its own tillage land and ancestral burial grounds, and, according to Coulanges, was united by the worship of its own ancestral deities and the “sacred fire” of its domestic hearth. Each had its own proprietary rituals and feast days. The glue that held the gens—and the whole society—together, was that of religion, specifically ancestor worship:

Every family had its tomb, where its dead went to repose, one after another, always together. This tomb was generally near the house, not far from the door “in order,” says one of the ancients, ” that the sons, in entering and leaving their dwelling, might always meet their fathers, and might always address them an invocation.” Thus the ancestor remained in the midst of his relatives; invisible, but always present, he continues to make a part of the family, and to be its father. Immortal, happy, divine, he was still interested in all of his whom he had left upon the earth. He knew their needs, and sustained their feebleness; and he who still lived, who labored, who, according to the ancient expression, had not yet discharged the debt of existence, he had near him his guides and his supports — his forefathers. In the midst of difficulties, he invoked their ancient wisdom; in grief, he asked consolation of them; in danger, he asked their support, and after a fault, their pardon.

Certainly we cannot easily comprehend how a man could adore his father or his ancestor. To make of man a god appears to us the reverse of religion. It is almost as difficult for us to comprehend the ancient creeds of these men as it would have been for them to understand ours. But, if we reflect that the ancients had no idea of creation, we shall see that the mystery of generation was for them what the mystery of creation is for us. The generator appeared to them to be a divine being; and they adored their ancestor. This sentiment must have been very natural and very strong, for it appears as a principle of religion in the origin of almost all human societies. We find it among the Chinese as well as among the ancient Getæ and Scythians, among the tribes of Africa as well as among those of the new world.

The sacred fire, which was so intimately associated with the worship of the dead, belonged, in its essential character, properly to each family. It represented the ancestors; it was the providence of a family, and had nothing in common with the fire of a neighboring family, which was another providence. Every fire protected its own and repulsed the stranger. The whole of this religion was enclosed within the walls of each house. The worship was not public. All the ceremonies, on the contrary, were kept strictly secret. Performed in the midst of the family alone, they were concealed from every stranger…

The Ancient City, pp. 44-45 (Archive.org)

Thus, Marx could tell from the developing field of anthropology that neither “private property” nor “free markets” were natural or the primordial forms of human social organization. These were later developments, private property especially. Rather then separate individuals or families making a conscious decision to unite their property, collective ownership, whether by families, houses, clans or tribes, was the initial form of ownership over land and property—the “means of production.” This bolstered his historical narrative of “primitive communism” being steadily eroded via a process of “accumulation by dispossession” om the part of elites down through the ages.

Furthermore, he reasoned that the original “gentile constitution” (arrangements based on consanguinity and affinity) was gradually overthrown—replaced by a class structure based on occupation, wealth, land ownership, formal office, or place of residence. Thus, Marx and Engels reasoned, pairing (nuclear) families, social classes, money and private property all came into being at approximately the same time, each strengthening and reinforcing the other, culminating in Market capitalism and the class struggle of their own time. Collective inheritance was supplanted by individual agnatic inheritance (overthrowing earlier matrilineal forms of decent). Centralized governments were established a way of replacing organic solidarity with a means of enforcing contractual agreements that inevitably favored a rich landowning class over everyone else, and institutional position reinforced that hierarchy. Thus, Marx reasoned, the arbitrary divide between “government” and “the wealthy” was a fiction—they are actually two sides to the same coin. As Marx put it, “The executive of the modern state is nothing but a committee for managing the common affairs of the whole bourgeoisie.”

If one looks closely at history and anthropology, one cannot help but conclude that people like Maine, Morgan, and Lavaleye were basically correct. Marx himself took extensive notes on L.H. Morgan’s work, which were later published by Engels as The Origin of the Family, Private Property and the State.” Many of its assertions have been confirmed by subsequent scholarship, although it suffers from Morgan’s unfortunate characterizations of society as an inevitable progression through definite and predicable stages from Savagery to Barbarism to Civilization (something modern anthropology soundly rejects).

{as an aside, this is why some right-leaning academics like Jordan Peterson are so openly hostile to entire disciplines like anthropology or sociology that they claim are run by “Marxists” or “Neo-Marxists.” They don’t like their conclusions.}

In order for a modern economy based solely on “free and open” markets to work, the traditional forms of human social bonds and organic solidarity had to be broken up. Furthermore, for markets to organize all production and distribution, things like land and labor had to be turned into saleable commodities exchangeable via centralized currencies, the quantity of which would be managed by the state. Doing this was a top-down political project from the get-go, and it required powerful centralized states, the kinds of which developed in Western Europe. This is why capitalism originated in where it did. In Western Europe, commerce was widespread and decentralized, but government institutions could penetrate deeper into the underlying societies than they could in other parts of the world, thanks to the breakup of the clan system. The Catholic Church, too, played a crucial role in breaking up kinship structures, as had the high mortality rates of the Black Death and the existence of communes (free cities outside of the feudal system). By contrast, in the villages and towns that Maine, Morgan, Lavaleye, and others studied at all over the world—the Americas, India, Eastern Europe, China, Java, Africa, Micronesia and the like—the “traditional” forms of social life prevailed, like the buried skeletons of human ancestors, or flies in amber, frozen in time. Even Ireland provided examples: “It cannot be doubted…that the primitive notion of kinship, as the cement binding communities together, survived longer among the Celts of Ireland and the Scottish Highlands than in any Western society, and that it is stamped on the Brehon law even more clearly than it is upon the actual land-law of India.” wrote Maine in Lectures on the Early History of Institutions.

Furthermore, not only were ancient economies not a golden age of “limited government,” they were much more restrictive than today! The moral economy regulated the distribution of essential goods for the peasantry, while it was chiefly the distribution of high-end luxury goods for wealthy burghers and aristocrats that was set by impersonal forces of supply and demand, carried out by international wholesalers. Anything else would have led to social chaos, and ancient leaders knew it.

It is, however, utterly erroneous to regard all these provisions, which constitute some of the chief points of the craft organization solely as the independent work of the guilds themselves “which stood like loving mothers providing and assisting at the side of their sons in every circumstance of life.” This view could only have arisen through a total neglect to observe the general economy of mediaeval society, and through a failure to see that the guilds were no purely private and independent unions, but mere stones in the structure of industrial life, apart from which they cannot be comprehended.

The middle ages were a period of customary, not of competitive prices, and the idea of permitting agreements to be decided by the individual preferences of vendor or purchaser was absolutely foreign to the jurisprudence of the times. The higgling of the “market” was an impossibility simply because the laws of the market were not left to the free arbitrament of the contracting parties. Under the supposition that the interests of the whole community would be best subserved by avoiding the dangers of an unrestricted competition, the government interfered to ordain periodical enactments of customary or reasonable prices — reasonable, that is to say, for both producer and consumer.

Tabulated tariffs and official regulations of all things, from beer to labor, filled the statute books, and it would have seemed preposterous for the producer to ask as much as he could get, or on the contrary to demand less than his neighbor and thus undersell him. The three great offences of mediaeval trade were regrating, forestalling and engrossing—buying in order to sell at enhanced prices, intercepting goods and provisions on the way to market to procure them more cheaply, and keeping back wares purchased at wholesale in order to strike a more favorable bargain subsequently. But above all great solicitude was shown for the interest of consumers and every precaution was observed to preclude the possibility of deceiving purchasers. It was deemed of paramount importance to watch over every stage of the production, and the government, far from being antagonistic to the formation of the crafts, usually compelled the workmen to frame ordinances in keeping with this economic policy. The authorities went even further, and in those cases where no anterior organization had existed or where the guild administration was imperfect, imposed general regulations on the artisans which they were compelled to follow in their guilds.

Three Phases of Cooperation in the West, pp. 454-456 (Archive.org)

In the world they lived in, this arrangement made perfect sense. Letting impersonal forces of supply and demand dictate the distribution of essential goods and services would have been a recipe for disaster. Not only that, but the idea that various parts of society should be—indeed must be—in constant unremitting competition with one another, would have also stuck them as absurd. They knew it would undermine the organic solidarity that any culture depended on in order to be viable. One could argue that the unleashing of these destructive social forces did, in fact, contribute to the downfall of various societies over time, such as ancient Rome and many others. I would even argue that our current Western society—which appears to be in a near-constant state of anomie and social breakdown—is a consequence of the ignoring these principles. Instead of a moral economy, we get only the anarchy of the market—a “warre of all against all,” where any hindrances to the  Market and profits for the elites—including familial relationships and custodianship of place, must be done away with in the name of productivism. In fact, to say someone behaves “economically” is to say that one is free to behave without morals in the pursuit of self-interest alone.

For example, land—the ultimate source of wealth and primitive survival before the rise of the industrialism—was governed by a complex series of mutual social arrangements, not just pure supply and demand or fee simple contracts. This has been testified to by all the ancient sources. As stated earlier, it was customarily owned by extended families and passed down to descendants. And even families held it only by usufruct—by law, tribal lands “belonged” to the entire tribe. Tribal lands were periodically repartitioned, but arable land was not something that was bought or sold except under exceptional circumstances. The only things owned outright by individuals were various chattels. Emile de Laveleye summarizes the gradual transformation in land and property ownership in his book Primitive Property:

So long as primitive man lived by the chase, by fishing or gathering wild fruits, he never thought of appropriating the soil; and considered nothing as his own but what he had taken or contrived with his own hands. Under the pastoral system, the notion of property in the soil begins to spring up. It is however always limited to the portion of land, which the herds of each tribe are accustomed to graze on, and frequent quarrels break out with regard to the limits of these pastures. The idea that a single individual could claim a part of the soil as exclusively his own never yet occurs to any one; the conditions of the pastoral life are in direct opposition to it.

Gradually, a portion of the soil was put temporarily under cultivation, and the agricultural system was established; but the territory, which the clan or tribe occupies, remains its undivided property. The arable, the pasturage and the forest are farmed in common.

Subsequently, the cultivated land is divided into parcels which are distributed by lot among the several families, a mere temporary right of occupation being thus allowed to the individual. The soil still remains the collective property of the clan, to whom it returns from time to time, that a new partition may be effected. This is the system still in force in the Russian commune; and was, in the time of Tacitus, that of the German tribe.

By a new step of individualization, the parcels remain in the hands of groups of patriarchal families dwelling in the same house and working together for the benefit of the association, as in Italy or France in the middle ages, and in [Serbia] at the present time.

Finally individual hereditary property appears. It is, however, still tied down by the thousand fetters of seignorial rights, fideicommissa, retraits-lignagers, hereditary leases, Flurziuang or compulsory system of rotation, etc. It is not till after a last evolution, sometimes very long in taking effect, that it is definitely constituted and becomes the absolute, sovereign, personal right, which is defined by the Civil Code, and which alone is familiar to us in the present day.

In fact, ancient societies took explicit steps to restrict unrestrained competition as well as the unpredictable price swings of anarchic markets. This made perfect sense in the world that they lived in—one of localized markets with limited resources and natural constraints. To not do so would be to threaten social stability. Only with the later abundance created by the channeling extra-continental resources of Africa, Asia, and the New World on a very large scale did the ideas of “Classical Liberalism” make any sense at all. Europe needed “ghost acreage for Liberalism to be viable. We tend to forget this in hindsight. For example, in my research on guilds I found this exchange on NPR’s Planet Money with medieval historian Philip Daileader (I’ve cleaned up the transcript a bit):

ADAM DAVIDSON: So thinking about this economically, what I’m finding confusing is that there is so much money left on the table. I mean, we now know – with the benefit of hindsight – that if the shoemakers or the coffin makers or whoever else got together and said, hey, guys, forget this controlling our production. Let’s make as much as we possibly can. Let’s flood the market. We’ll make a lot less on each one, but we’ll sell a lot more units. People will not buy one pair of shoes every 10 years. They’ll buy one pair of shoes every season. Or every few months. Eventually, we can start selling it to those neighboring towns and even to other countries. And we’ll all be much richer. And according to, you know, a basic principle of modern economics, is if there’s a situation where everybody could be made much richer, someone will think of it, and someone will take advantage of it.

So on the one hand, I can see why each guild member doesn’t want any other guild member to do that. But why didn’t anybody think of this, when a few hundred years later, everybody’s thinking about this?

DAILEADER: Right. Well, two factors – one, cultural and the other, technological.

The cultural one is that the Christian milieu of the time regards moneymaking as a sordid activity. The usurers, those who lend money at interest, are considered among the worst sinners out there. And Thomas Aquinas, in the 13th century, says there’s something sordid about selling and buying goods; that it’s easier for a camel to pass through the eye of a needle than for a rich man to enter heaven. So you have these strong cultural constraints working against trying to amass as much wealth as possible.

The technological problem is transportation costs. The idea of mass-producing goods and then flooding markets with them and trying to maximize profits by having razor-thin profit margins but large number of sales, it’s not possible when overland transportation is as expensive as it was in the 12th and 13th centuries. You couldn’t move green profitably over land probably more than 40 or 50 miles. At that point, it was just too expensive.

Many times, there were famines in the twelfth and thirteenth century where there was plenty of food 50 miles away, but it cost too much to load up carts and move it over land. The only economical way to move goods was by water during the Middle Ages. And until those transportation problems were overcome, it really I think was not possible to conceive of a world where instead of trying to make a few sales and make as much profit on those few sales and abandon that for a world where you’re just going to make a large number of sales and a small amount of profit on each one.

DAVIDSON: I see, because Adam Smith wrote about how there will be specialization to the extent of the size of the market.

DAILEADER: Right.

DAVIDSON: And the market was effectively 50 miles or even less.

DAILEADER: Yes–it was intensely local.

DAVIDSON: And when you do see goods being shipped long distances, it’s things that have huge value for the weight – spices and…

DAILEADER: Precisely, that’s right. Even cloth – which was Europe’s main export to the rest of the world in 12th and 13th century – even cloth is starting to – you’ve reached the limit of what it’s economically profitable to ship, considering the value versus the weight. And certainly, medieval merchants – they wanted to deal in items, such as pepper and spices, that weighed very little and that were quite valuable.

Medieval Economics (Planet Money)

Which is the major reason why proto-capitalism developed first in the cloth industry as we saw last time. It developed last in the market for essential commodities like foodstuffs. Britain’s Corn Laws are an example of the debate of letting food prices be set by supply and demand. But, of course, it was only when transportation was good and cheap enough and surpluses were high enough that this could even be considered.

So, put simply, the ancient guild’s desire to limit competition and regulate prices—so pilloried and ridiculed by modern economic thought—made perfect sense in the world they lived in where raw material supplies and land acreage were inherently limited. They knew that unlimited competition would inevitably lead to a fall in the quality of durable goods and a “race to the bottom” in wages and living standards. They knew that it would tear apart the social fabric. They knew that scarce resources had to be conserved, otherwise it would lead to disaster. They knew that letting supply and demand just take its course and “letting the chips fall where they may,” would result in the “demolition of society” as Karl Polanyi trenchantly put it. That’s why they made their durable goods to last—one high-quality pair of boots made by a cobbler’s guild to last ten to twenty years, rather than a shoddy new pair made by sweated foreign labor to be thrown out every year.

In fact, the whole concept of “fashion” started a way to get people to buy more than they otherwise would have! And it’s no coincidence it started with clothes for the noblemen and burghers. First it was sort of “conspicuous consumption” by the upper classes—showing you could afford the latest fabrics, so that you were rich enough throw away or simply not wear what you were wearing last year. Being imitative, status-conscious creatures, soon it was a way to differentiate oneself as part of the prosperous urban upper class. Sumptuary laws were even put in place in many countries to try and regulate this behavior. Eventually the desire for the latest fashions spread throughout the whole society when mass consumption came into being thanks to mechanization, along with planned obsolescence and advertising to shape consumer behavior. The TV played as big a role in establishing mass consumption as did the assembly line. But none of this would have made any sense in the ancient world, which is why capitalism was simply not viable. When “market society” was imposed by British imperial overlords over the traditional village societies of Ireland and India, millions died—something the “Classical Liberals” would just like us to forget (while waving the bloody shirt against Communism at every opportunity).

{as a side note, the ‘right to repair’ has become something of a movement, and wearing second-hand clothing has now become a status symbol as we have become steadily poorer.}

So it is clear that it is modern Libertarianism (along with “Classical Liberalism”) which is ahistorical, unprecedented, novel, an aberration, and totally at odds with natural human instincts of social cooperation and communal solidarity. This point is well made in this interview with Dr. Patrick Deneen, the author of Why Liberalism Failed:

PATRICK DENEEN: “In an older society–think of an aristocratic society–Who you are, your identity, and what you will be, is defined by who you’re born to.

The way I usually illustrate this to students is, think of the classic WASP kind of names like ‘Smith’ or ‘Weaver’ or ‘Tailor’ or ‘Cooper.’ All of those things were once professions. They weren’t just random last names. It meant that’s what you’re going to be doing when you grew up. That was the profession that you inherited. It wasn’t just a name, it was who you were going to be. Or more easily identified at places where I teach [such as] the University of Notre Dame, if your name is O’Shaugnessy or O’Leary or McWilliams–those names indicated *who* you were from. So that you were the child of Leary, or the son of John–Johnson or something like that.”

“And you could say Liberalism, in addition to being a political program, was the effort to liberate people from any kind of defined, inherited form of identity. We live in a world today in which we assume–in fact it’s kind of the ground condition of what we think of as our liberty–that we assume that we define who we are and that we define what we will do, where we will live, who we will be with.

But the nub of the issue is that in order to create the conditions that liberate us from not only, we could say, oppressive political structures, but even what come to be seen as unchosen forms of ascribed identity like one’s profession, one’s familial ties that can define one and so forth, that there’s a kind of need to remake society so that we become ever more and more individuated, more and more freed from those defining bonds. To the point that now we are the most disconnected and atomized people ever to exist since those things have been measured in extraordinary forms of declines of rates of marriage, reproduction, fertility, and so forth, and as well as forms of associational life–joining voluntary associations, political parties, churches. Even patriotism is kind of in decline as you move from older generation to younger generation.”

“So the ground condition of our liberty makes it more and more difficult for us to see that we have anything in common; that there is any such thing as a common good other than the securing of our individual self-making selves. But there’s a question of whether you can base a society on that aim or ambition.”

[…] “I revisit some older arguments in the book that talk all about the creation of a market society. I think we do have this–I would regard this as a kind of mythos–that’s propounded by the libertarians that suggests our kind of natural condition is to exist in a kind of perfect free-market environment, and it’s only with the creation of the state that this perfect, what’s called sometimes ‘spontaneous order,’ a spontaneous market system would just pop up if there were no government, if people could just run their own affairs.

But in fact if you look back at economic history, what you see is actually a pretty extensive investment by the state in the creation of the modern market system, and in some cases violent efforts by the state to reorder society so that you would begin to legitimize the idea that all property was essentially private, or any property that was considered to be not owned by the government was private property. Whereas in medieval England there were lots of spaces that were just considered common spaces.”

“So there’s a transformation precisely as you described that creates a market system. So this is correct, there’s a deep linkage ultimately between the modern state and the modern market. And what we tend to debate about is, how extensive should the market be relative to the state and how extensive should the state be relative to the market. But in fact both tend to grow in conjunction with the rise, and indeed the realization of this ‘individual’—this creature that’s supposed to exist by nature, but in fact only exists by artifice, only exists by extensive creation both of the state and the Market.”

1811 – Why Liberalism Failed w/ Patrick J Deneen (YouTube)

Finally (tangentially), I had never mentioned this publicly, but one of my “secret” desires was to get one of my posts listed on my favorite blog—Naked Capitalism. And in the middle of August, I saw this:I don’t know how or why this happened, but I’m very grateful to the folks over at NC for posting it, and to whomever brought it to their attention. It was the only birthday present I received this year. I only wish it had come when I was a bit more productive, LOL. They’re having a fundraiser over there right now, so contribute if you can.

And finally, GO BREWERS, GO!!!

The Fall of the Guilds

Last time we saw that ancient societies were defined by the interactions of various social groups and the networks they created. Such groups, usually based on the family/kinship structure, were created to overcome the limitations which arose from the lack of government institutions that we take for granted in our modern, market-oriented societies. In pre-modern society, business was conducted mainly “by reputation.” This presented certain problems, as Randall Collins notes in Sociological Insight:

…the fact is that successful business contracts are a relatively recent innovation. Business dealings in traditional societies were carried out either in a highly ceremonial and distinctly noneconomic fashion or else with a high level of suspicion.

On the one hand, there were traditional systems of trade between particular families, or ceremonial objects, which circulated among different tribes in a prescribed manner. Here there was plenty of trust but little real economic calculation. A certain household had to deliver a basket of yams to their in-laws on a certain festival day and received a basket of fish upon the birth of a child.

It was this sort of tradition that made up much of tribal economics and not really buying and selling; there was no encouragement at all to increase productivity or devise new products.

On the other hand, in societies like medieval Europe or China, there were real economic transactions. Long-distance traders would arrive with goods that were produced not for subsistence but in order to make a profit.

This constituted a real market; but since the partners to transactions were strangers to one another, they carried out their dealings with a high degree of suspicion on both sides. Everyone wanted to have goods in hand before they delivered the cash, and no one in their right mind would have extended any kind of credit without taking extreme precautions. It is for this reason that ancient and medieval societies around the world could not produce a modern-style capitalist society. [1]

The word company gives us an idea of this. We previously noted the power of sharing a common meal. The word company comes from the Italian com + pagnia, meaning literally “with bread.” That is, the company was the people you broke bread—i.e. shared a meal—with. Outside of that narrow circle of familial relationships, the bonds of trust were just too weak to conduct large-scale business operations in the ancient world.

Groups such as guilds were created as a means of overcoming these limitations. While Hans the individual merchant might be irresponsible, the word of the merchant guild is unassailable. While Lars the cobbler’s credit might be shaky, the credit of the Banco di Rialto is solid and credible. This allowed medieval commerce to take place at much larger scales, as Felix Martin notes when describing Bills of Exchange:

…there was, by definition, no sovereign authority to coordinate commerce between countries, and no sovereign money with which to transact. So it was here, in the international sphere, that banking’s potential to accelerate the commercial revolution was first fully realised. The central innovation was the perfection, by the mid-sixteenth century, of the system of “exchange by bills”: a procedure for financing international trade using monetary credit issued by the clique of pan-European merchant bankers, denominated in their own abstract unit of account, recorded in bills of exchange, and cleared at the quarterly fair of Lyons…

An Italian merchant wishing to import goods from a supplier in the Low Countries could purchase a credit note known as a bill of exchange from one of the great Florentine merchant houses. He might pay for this note either in the local sovereign money or on credit. By buying such a bill of exchange, the Italian merchant…transformed an IOU backed by only his own puny word for one issued by a larger, more creditworthy house, which would be accepted across Europe. He transformed his private credit into money…[2]

We previously saw that there were four different types of guilds, the two most important ones being the merchant guild and the craft guild. So what caused the downfall of the guild system? Well, from what I can tell, there were several major decisive factors which came to head in the sixteenth century:

1) The needs of long distance trade and the development of transnational markets and banks. That is, guilds could not scale. The scale of commerce in the later Middle Ages became trans-national, even global. Merchant guilds, by contrast, were confined to a single territory specified in their charter. When you have a large volume of goods flowing to-and-fro all over the European continent and beyond, there is just no way a single craft or merchant guild can assert control over such an international trade. Just like today, the free mobility of capital undermined local labor solidarity. As historian Henri Pirenne put it, “It is capital which rules in inter-local commerce, which determines the forms of credit, and which, fastening itself on all the industries which produce not for the city market but for exportation, hinders them from being controlled, as the others are, by the minute regulations which in innumerable ways cramp the activity of the craftsmen.”

A new range of financial instruments came into being making this possible, as we saw above with bills of exchange.

A number of significant innovations in business methods, developed in medieval Italy–commercial credit, double-entry bookkeeping, maritime insurance, the transfer of funds by bills of exchange and letters of credit–were by the beginning of the sixteenth century united in a powerful combination that bankers and businessmen could use to forge enterprises on a scale previously unheard of.

In certain industries the old guild organization had long since lost its original character. Even in the Middle Ages the weavers of Flanders, subject to the putting-out system, were little more than factory workers whose “factory”-their own hovels-was scattered through the town. The proprietors of such “factories” held in their hands the direction of both the production and commercial sides of the business. [3]

The major commodity traded over long distances was cloth. Of the three major necessities: food, clothing and shelter; only cloth was nonperishable and easily transportable (save for a few foodstuffs like wine and cheese). Thus, while most markets in the Middle Ages were local, cloth quickly developed into the first international market, with England playing a central part in it due to its highly-desired wool exports.

The history of English wool and cloth has a two-fold interest: it explains the origin of the wealth of England, and it illustrates, with peculiar clearness, the development of industry.

In the latter middle ages wool was the one important article of export from England, an article of which that country practically enjoyed the monopoly, so that its control formed a most powerful weapon of diplomacy, and its taxation was an easy resource for our kings.

But England was not content, thus, to furnish Europe with the raw material; its government made continuous and strenuous efforts to gain for it the manufacture also, and its measures succeeded. Cloth became “the basis of our wealth; “and at the end of the seventeenth century, woollen goods were “two-thirds of England’s exports.”

Still more interesting is the woollen industry from the point of view of the economist. Food and clothes are the two primary necessaries of human life, and play a correspondingly important part in social history. It is significant that the bakers and weavers stand side by side in the earliest notices of craft guilds in England. No one who is acquainted with mediaeval legislation needs be reminded of the care with which the public authorities supervised the sale of corn and bread.

But bread could only be made in comparatively small quantities; it could not be made for a distant or for a far-future market. This, of course, was equally true of all articles of food, before the creation of modem means of rapid transit; and since the division of labor is limited by the extent of the market, it was not in food that any considerable manufacturing development could take place.

With clothing material it was far different. A necessary, but a necessary which would “keep,” it was the very first article for the manufacture of which a special body of craftsmen came into existence. And from the first, a strong tendency towards further specialization showed itself among those employed in the industry. Wherever the conditions were favorable, especially in the supply of the raw material, the manufacture soon came to supply a more than merely local demand; and this not only encouraged that division of processes which had been early seen to be advantageous, but tended also to create a class of dealers as distinguished from the actual makers.

To these causes it was due that the woollen manufacture was the first to take the form of the guild, and the first to break through its limits; that it became the most widely spread of the “domestic” industries, and therefore that in which the factory system gained its most hardly-won and signal victory. [3]

As noted above, in cloth manufacture there were many, many steps between the procurement of the raw material (wool, cotton, linen, flax, silk, etc.) and the finished product. Thus, the concept of a single master craftsman making a bespoke item from scratch, and then selling and marketing that same product himself, was quite impossible in that industry. Which leads to the next blow to the guilds: 2.) The increasing division of labor. It was here, in the cloth industry, that the relationship between workers and employers first achieved something like it’s modern form – wages paid in cash for a specific amount of work in a specific amount of time, specified by the owner of the product.

This was best exemplified by the “putting out,” or domestic system of manufacture (Verlaggsystem). These were the first “independent contractors”—the ancestors of today’s Uber drivers. While labor was out in the fields, women were often at home tending to children inside the cottages. To earn extra money, they kept a loom in their quarters and spun cloth. In the down season of winter, often both sexes worked from the home for a cloth merchant for money wages. In the tug-of-war between the craft guilds and the merchant guilds, the merchant guilds—in the cloth trade, anyway—gained the upper hand.

Despite the outward rigidity of its economic system, the… Middle Ages proved extraordinarily dynamic and capable ….of growth. The merchant guilds, formed to represent…the purely trading classes, exhibited an aggressive vitality that led to their absorption or domination of the craft guilds that produced the merchandise they sold. Masters in many guilds grew rich and despite the guild regulations succeeded in controlling sizable manufacturing operations.

The outstanding example of this tendency toward big business in a world formally dedicated to small business is the development of the putting out system of textile production, especially in the wool-cloth manufacturing region of Flanders. Wool cloth was one of the great staples, almost the great staple, of medieval long-distance commerce…Perhaps beginning as a fill-in method of utilizing peasants’ time during winter months and other periods when field labor was slack, the putting-out system grew into an urban industry centered in Flemish towns that by the twelfth century had grown large and rich: Ghent, Bruges, Ypres, Arras, Lille, and others.

The Flemish wool manufacturer bought his fleece, usually from England, and ”put it out” to a weaver, who in his own house, with the aid of his family, spun and wove it into cloth and returned it to the manufacturer, who then either fulled and dyed it in his own establishment or sold it to be finished elsewhere. The form of putting out was a sale and a resale; the manufacturer sold the fleece to the weaver, and the weaver sold the cloth back to the manufacturer. In reality, however, the manufacturer enjoyed a highly advantageous position. He made a profit on the fleece sold to the weaver even if he never saw it again; if war interrupted the flow of commerce he was under no obligation to buy back the wearer’s finished cloth, or could buy it back at a low price. Though they worked at home, at their own pace, without being subjected to factory discipline, the weavers were as much at the mercy of the cloth merchants as if they were employees, and it is not surprising that history’s first strike was by the weavers of Douai, one of the principal Flemish towns, in 1245 [4]

With their international operations and dispersed employee base, the cloth traders became the first modern capitalists.

Yet the putting-out system represented a significant advance in the organization of production. The large quantities of cloth manufactured under it formed one of the main elements in the long-distance commerce between northwest Europe and the Mediterranean that flourished throughout the high Middle Ages. An international division of labor grew up by which undyed Flemish cloth, woven from English fleece, was sold to Italians who took it home to Florence and other cities to be finished and dyed and sold it in the Muslim ones of the Mediterranean. The Florentine wool finishers guild, the Arte di Calimala, named for Calimala Street in Florence where the craft centered, became renowned throughout the western world for the beauty and excellence of its products. The craftsmen of Calimala Street did no spinning or weaving whatsoever; the cloth came into their hands already woven, but mere wool cloth, and left Calimala Street a luxury commodity and a work of art.

Though Italy itself grew fleece, the sheep of the rocky Italian countryside did not compare with the longfleeced animals belonging to the great Cistercian monasteries in England’s Cotswold hills and Lincolnshire, which supplied the weavers of Ghent and Ypres. The Italians therefore preferred to buy the Flemish cloth, which formed the basis of the great Fair of Champagne, a year-round international market held almost continuously at one or another of four towns in the French province of Champagne, east of Paris. Thus, medieval Europe’s best export was a thoroughly international product involving English shepherds, Belgian weavers, a French trading center, and Italian merchants, dyers, finishers, and navigators.

There were many variations in putting out, and the old peasant household production. Putting out, and the old peasant household production survived in many places, but the great Flemish cloth ones developed a distinct industrial system dominated by a wealthy entrepreneurial class that in many respects foreshadowed the capitalist entrepreneurs of the Industrial Revolution. A sort of pre-industrial revolution was in fact effected by them, in which the craftsmen were subordinated to the control of men who acted solely as merchants and managers of production. [5]

The growing power of the international merchant turned workers, even guild-members, into employees dependent on large amount of capital for survival, as historian Fernand Braudel writes:

In the heyday of the guilds, they controlled the bulk of trade, labour and production. When economic life and the market developed, and the division of labour required new creations and distinctions to be made, there were of course many demarcation disputes. But the number of guilds nevertheless increased, in order to keep up with developments. There were 101 in Paris in 1260, under the strict supervision of the Provost of merchants, and the fact that there were a hundred trades indicates that there was already a high degree of specialization. New sub-divisions later appeared…The same process occurred in Ghent, Strasbourg, Frankfurt and Florence, where the woollen industry as elsewhere, became a collection of trades. In fact it would be true to say that the boom of the thirteenth century arose out of this newly-created division of labour as it proliferated.

But the economic upturn It brought was soon to threaten the very structure of the guilds, now endangered by the triumph of the merchants. From this violent opposition… there naturally emerged a civil war for control of power within the city…But the age of violent clashes was comparatively short and in the undeclared war that was to follow, the merchant eventually emerged victor. Collaboration between merchant and guild could never be conducted on a completely equal footing, since what was at stake here was the conquest of the labour market and economic domination by the merchant, not to say by capitalism.

The purpose of the guilds was to bring together the members of a single trade which they defended against all others, in quarrels that were often petty but which had an impact on everyday life. The eagle eye of the guilds was trained above all on the town’s market, of which every trade wanted its fair share. This meant security of employment and profit and ‘liberties’ in the sense of privileges. But money, the money economy and external trade – in other words the merchant – were now beginning to intervene in a process that was never simple….There were clear distinctions between different trades, between rich and poor within a given trade, and also between ‘mean streets’ often wretchedly poor, and certain others unusually privileged.Above the mass rose the profile of a whole community of money-lenders and merchants, Milanese, Venetian, Genoese and Florentine…one could hardly claim that this combination of merchants and shopkeeping tradesmen (shoemakers, grocers, mercers, drapers, upholsterers, coopers etc.) was already producing some form of micro-capitalism at its upper levels, but this seems quite probable.

The money was certainly there at any rate, showing that it could be accumulated, and that once accumulated it could play its role. The unequal struggle had begun: some guilds were to become rich; others, the majority, remained modest. In Florence, they were openly distinguished: the Arti maggiori and the Arti minori– already there was il popolo grasso and il popolo magro. Everywhere differences and disparities became more marked. The Arti maggiori progressively fell into the hands of the wealthy merchants, as the Arti system became no more than a way of controlling the labour market. The organization it concealed was the system known to historians as the Verlaggsystem or putting-out system. A new age had dawned.

In this system, there is a Verleger, a merchant who ‘puts out’ work: he provides the artisan with the raw materials and a part-wage, the remainder being paid on delivery of the finished product. The system appeared very early – much earlier than is usually reckoned and certainly by the time of the thirteenth century boom.

In the putting-out system, the master of a guild was often himself a wage, earner too. He was dependent on the merchant who provided raw materials, often imported from abroad, and who would afterwards handle the sale and export of the doth, fustians, or silks he had woven. In this way, all the sectors of craft life were touched, and the guild system was gradually being destroyed, although outward appearances were maintained. By obliging the craftsmen to accept his services, the merchant was imposing his choice of activity, whether in iron-work, textiles or ship building…[6]

The fact that wool production was so central to the English economy would actually determine the course of later economic history. With the weakening of feudal bonds after the Black Death, the international cloth trade beckoned to many as a much much more attractive proposition than being a serf. If one could flee to a town, where international trade was centered, and live there for a year and a day, all feudal bonds would be dissolved. Of course, familial bonds were dissolved as well, hence the “surrogate family” nature of the various guilds.

It seems that about the time of Henry VIII, England’s began to adopt what we today call an industrial policy–they wanted to develop a domestic cloth manufacturing industry instead of just being a raw materials exporter for French and Flemish merchants where the real money was made. In turn, a lot of native English merchants who did manage to make a pile of money in the cloth trade began to reinvest it back into the expansion of the raising of sheep for wool to ensure sufficient supplies of raw material. With the dissolution of the monasteries, Henry VIII unwittingly introduced a real-estate market, and a lot of that new real estate was subsequently bought up by merchants and turned into sheep runs. In turn, established landowners throughout England saw that growing wool for export was potentially more profitable than growing grain for the domestic market, especially since their were much less restrictions on the export and sale of wool than of grain. New farming techniques also made it more efficient, lessening the need for manual labor.

A lot of those deracinated farmers ended right back in the cloth industry, but this time, instead of weaving it in the comfort of their cottages alongside their familes part-time, they now worked in the new factories that were springing up alongside fast-flowing streams where water could drive the increasingly mechanized production process. So the putting out system eventually gave way to workers who became wage labor—the first proletariat. In time these factories would increasingly turn to cotton production for export markets, with cotton imported first from Egypt and India, and then later from the thirteen colonies and Dixie in the southern United States.

…despite the undoubted advantages possessed by capitalists even in the early eighteenth century, especially in directing manufacture to meet the special needs of the different markets, the domestic workers might have held their own for some time longer, for they were accustomed to eke out their industrial earnings in many cases by tilling a patch of ground in their leisure moments. But three blows fell upon them in rapid succession: the Agricultural Revolution introduced a new system of farming, and the rapid growth of enclosures deprived many of them of their patches of land and free pasture; the Mechanical Revolution during the latter part of the eighteenth century ruined first the spinners and then the weavers under the domestic system, who were able neither to compete with the cheaper machine-made products nor to buy the new machinery; finally, the French Revolution led to a long period of war, during which the domestic workers suffered from the resulting industrial crises, and, in common with the lower classes generally, were demoralised by the cruel charity of a badly administered poor law. [7]

3.) Over time, guilds became increasingly self-serving and oligarchical. While initially anyone could join, eventually the “ladder was pulled up” and the costs to join the guilds became onerous. Guilds became more about keeping people out of the trades than facilitating them. The guilds merged with the town governments and enacted burdensome rules and regulations to help themselves and handicap others (sound familiar?). This created a “two-tier” job market similar to today, but instead of protected union workers versus everyone else, it was guild members versus the industrial workers. And as more economic activity became done by “everyone else,” this lead to widespread resentment against the guilds and their privileges, even by the common folk. Even sources sympathetic to the guilds acknowledge that they eventually became increasingly corrupt, greedy, and self-serving, contributing to their downfall (as indeed happens to just about every human institution over time). In fact, it seems they may have been a victim of their own success:

In the fourteenth century the craft guilds of Europe may be said to have attained the height of their prosperity. But the privileges they had won by their mighty contests with the aristocracy were not destined to continue long in their possession. Supremacy weakened instead of strengthening them. When fighting the common enemy there was universal cohesion among the crafts. When victory perched upon their banners, disintegration began.

Many causes may be, and have been, assigned for the loss of the liberties they had gained. Internal dissensions may have assisted in their downfall. Their lack of appreciation for the necessity of their existence may have tended to their gradual decline. Numbers may have made them unwieldy and difficult to govern. Their desire to accomplish too much may have prevented them from accomplishing anything. But over all, and above all other causes the corrupting influence of money and power led to their final disintegration and gradual decline.

The overbearing spirit of the old craft guilds is everywhere apparent in the fifteenth and sixteenth centuries. It became common to require from an apprentice an oath that when his apprenticeship was ended he would not carry on his trade on his own account without the consent of the master. Large sums of money were exacted for purchasing the freedom of the guilds. The price exacted by the guild for binding an apprentice at length became so exorbitant that only the rich could afford to pay it. It increased from 10 to 20, 40, 60, 100, and finally, in 1720, 800 was demanded by the guildmasters for the freedom of the guilds. [8]

For example, in French guilds:

There was an aristocracy among workmen as unyielding as among the nobles against whom they waged a ceaseless warfare. The young artisan, anxious to turn his hand to a trade which promised him support and advancement, found his first step hampered by a host of preliminary conditions which were established by the union for the very purpose of discouraging young candidates. A ‘prentice, wishing to become a master workman, must first fabricate and present to the guild his chef-d’oevre, which was a completed article of the class manufactured by the workmen of the order to which he desired entrance. Sundry and other tests were required of the aspirants, all of which were int themselves just and proper, but the great injustice of the whole system lay in the fact that sons of members were absolved from any preliminary tests and were members by virtue of their parentage. Thus did the workmen in their own organizations reproduce the worst feature of an hereditary aristocracy which, as practiced by the nobles, they roundly denounced. [9]

There are, of course, parallels with the downfall of labor unions in our contemporary world. Unions became increasingly oligarchical and self-serving over time, with their leaders more and more concerned with their own benefits and status rather than their duties to members of the wider society, leaving themselves vulnerable to attack from capitalists determined to undermine them in the name of higher profits and more control over labor conditions.

I am also reminded of professional associations today with their ever-greater and more onerous requirements to enter the various skilled professions. Consider the AMA, the ABA, or my own association, the AIA. Every profession erects barriers to entry, insulating themselves from competition by scrappy upstarts. This usually starts for a logical reason—keeping incompetent practitioners out to protect the public, for example—but over time becomes self-serving and corrupt. Professions that used to open to everyone now require Masters degrees from expensive universities, for example. In the above paragraph one certainly sees the shades of “legacy” admissions to elite colleges and universities for the privileged and  well-connected. Note that the “Classical Liberals” were not against government, nor against rules or regulations per se, but against corrupt rules and cronyism. This is all too often forgotten.

What this meant was that more and more work would inevitably end up being done outside the guild system, removing its relevance and making it an outmoded institution. Eventually, new products and methods led to the guilds’ irrelevance, and it just withered away. In a few trades—most prominently building and construction—guilds would morph into the earliest trade unions, but that’s another story.

This history can be generalized to a simple rule: if labor is divided, and the capitalists are united, the capitalists will always be able to break up labor solidarity, and with it, undermine working conditions. This was as true in fifteenth-century France as nineteenth century England as twenty-first century America.

4.) Much later came the mechanization of labor. Once labor was alienated from any particular craft, that labor could then be mechanized. This was the final death-blow to guilds, but it came much later in the process, long after guilds had already lost much of their membership and influence. And once again, the place this happened first was in the cloth industry. This meant that England was once again well-positioned to take the leading edge of the changes.

The spinning jenny and power loom heralded the way toward mechanization of production on an unprecedented scale. Those farmers displaced in favor of sheep-raising ended up working for wages in a factory owned by a capitalist. Once the genie of mechanization was out of the bottle, it took over more and more industries. As markets expanded, labor became more specialized. This culminated in the factory system of the production line and interchangeable parts.

The application of machinery to the arts of spinning and weaving revolutionised English industrial life. The textile industries had long been established in England, but neither the weaving of woollen cloth nor the more recent cotton and linen industries had undergone any striking development down to the middle of the eighteenth century. The wool used was largely of home production, but the cotton wholly and the linen largely came from other countries. The cotton cloth in earlier days was woven with a linen or woollen warp, for the cotton yarn spun by hand was too weak for the purpose. As has been already explained, the textile industries were largely carried on under the domestic system by the peasantry, but their hand labour was slow and the product not always of the best quality. The “spinner,” often the unmarried woman of the family (hence the word spinster), found it difficult to supply enough yarn for the weaver’s needs, and the problem was aggravated by John Hay’s invention of the “flying shuttle,” a contrivance which enabled one weaver to do the work of the two who were formerly required to weave the wider cloths.

The earlier mechanical inventions were more popular in the cotton trade, which being established around the unincorporated market-town of Manchester, was not so bound down by conservative traditions. The climate of Lancashire by its very humidity was the natural home of the cotton industry, and, despite its exotic character, the latter steadily drove out the earlier State-favoured woollen industry. However, Elay’s invention, which dated from 1738, was not widely used till it had been improved by his son Robert in 1760. A few years later James Hargreaves of Blackburn invented his famous “spinning-jenny,” by which a number of spindles could be worked at the same time by means of a belt and a treadle. Now the spinners could produce more yarn than the weavers could use, and at first they suffered from periodic spells of unemployment, until the cheapness of their product created the demand that could absorb the supply. In the meantime Hargreaves was so unpopular that he had to leave the district, and his machines were often destroyed by mobs.

However, his fate did not discourage others, and in 1769 Richard Arkwright, a Bolton barber, improved on an earlier suggestion and invented an improved spinning machine — the water-frame — worked by water power at first and later by steam. He too had to face unpopularity and the burning of his mill, but he persevered and by cleverly utilising and improving the ideas of others he made a fortune. One of his contemporaries was Samuel Crompton, who combined the inventions of Hargreaves and Arkwright in a machine called the “mule,” which enabled him to spin a much finer and stronger thread than before ; the thread produced by Crompton and Arkwright was now strong enough to be used for the warp, and pure cotton cloth became a possibility.

Fortunately for Lancashire, new supplies of raw cotton became available as required. Formerly cotton was imported from India and the East and to some extent from the West Indies. However, during the American War of Independence the Southern States had begun the cultivation of cotton on a large scale, and the output increased with the demand, thanks to the use of slave labour and abundance of land. In 1792 Eli Whitney invented a cotton gin which rendered it much easier to remove the seeds from the “ wool.” Down to the end of the nineteenth century it seemed that despite the abolition of slavery the United States would be able to supply Lancashire’s needs, but rival spinners sprang up in European countries, especially in Germany, and finally in India and Japan and the United States. The world’s cotton crop was also decreased by the ravages of the “boll-weevil” and other pests, while improved machinery increased the demand for raw material. In consequence a British Empire Cotton-growing Association has been formed under State patronage to increase the production of cotton, especially in the British African territories.

It is curious that the application of power to weaving was neither so early nor so successful. Dr. Edmund Cartwright invented the power loom in 1787, but even when two years later it could be driven by steam it made headway only by slow degrees. One reason was that steam engines were as yet few in number, but perhaps the more important reason was the fact that the labour supply made available by the improvements in tillage had already been attracted into the hand-loom weaving industry since improvements in spinning had made yarn more plentiful. The competition for work during the war kept wages at so low a rate that it was not profitable to introduce the expensive power loom. The latter certainly had advantages over the hand loom as to speed, ease of work, and uniformity of quality, but it had the disadvantage of not being suitable at first for weaving the finer kinds of cloth. It has been estimated that in 1813 there were only 2,400 power looms in use: by 1820 the number had increased to 14,000, but they probably employed not more than 7,000 girls as compared with the 240,000 workers at hand looms. However, during the nineteenth century the power loom was steadily improved, till at last the hand loom disappeared, except for a few special kinds of work. [10]

5.) As for where the merchant guilds first lost their influence, a new paper makes the case that the conditions came from a confluence of particular factors. Where they overlapped, the guild system was managed by contractual agreements among strangers rather than organized by craft and merchant guilds. Those factors were 1.) Access to the north Atlantic trade, 2.) Access to books due to the printing press, and 3.) Access to a reliable postal system. Where all of these factors first came together, the guild system was supplanted by local officials in favor of the growing power of international merchants and “free trade”:

…in the sixteenth century, the merchant guild system began to lose its significance as more impersonal markets, where traders could directly trade without the need of an affiliation, began to emerge and rulers stopped granting privileges to merchant guilds. The traders began to rely less on networked and collective institutions like merchant guilds, and directly initiated partnerships with traders who they may not have known well. For example, in Antwerp the domination of intermediaries (called hostellers) who would connect foreign traders declined. Instead, the foreign traders began to conduct such trades directly with each other in facilities like bourses…

For example, one of the first permanent commodity bourses was established in Antwerp in 1531, the first stock exchange emerged in Amsterdam in 1602, and joint stock companies became a promising form of organizing business in London in the late sixteenth century. The sixteenth century transformation was followed by the seventeenth century Dutch Golden Age, and the eighteenth century English Industrial Revolution. What made the Northwest region of Europe so different?

While the Northwest European region didn’t have a particular advantage over other regions in postal communication, it had an advantage in early diffusion of printed books. The Northwest European region was close to Mainz, the city where Johannes Gutenberg invented the movable time printing press in the mid fifteenth century…Such a high penetration of printed material reduced information barriers and improved business practices. I find that all cities where guild privileges declined or merchant guilds underwent reform in the sixteenth century enjoyed high penetration of printed material in the fifteenth century. Among cities within a 150km distance from a sea port, cities where merchant guilds declined or reformed had more than twice the number of diffused books per capita than cities where merchant guilds continued to dominate…

The combination of both the commercial revolution along the sea coast, especially the Atlantic coast, and the communication revolution, especially near Mainz, uniquely benefited Northwest Europe, as it began to attract traders who favored impersonal market-based exchange over exchange conducted via guild networks. Rulers began to disfavor privileged monopolies when they realized the feasibility of impersonal exchange and that they could have superior sources of revenue from impersonal markets. In the region, trade democratized, as more people could participate in business.

Regions like Spain and Portugal that benefited only from the commercial revolution of trade through the sea to Asia and Americas had low levels of printing penetration. In contrast, regions like Germany, Italy, and France benefited from the communication and print revolution but didn’t enjoy a bustling Atlantic coast. Thus, no other region enjoyed the unique combination of both benefits of the commercial and communication revolution.

How Markets in Europe Opened Up as Guild Monopolies Declined in the Sixteenth Century (ProMarket)

This Explains Why Modern Markets Developed Where They Did (Odd Lots Podcast)

The contrast between the German ports cities Hamberg and Lübeck is an exemplar of this:

Times became rocky for the Hanseatic system in the fifteenth century. This was in part due to the rise of the Dutch, who were once beneficiaries of trade with the Hanseatic but were now the league’s seafaring competitors. Before the arrival of the Dutch, almost all trade to and from the Baltic passed through Lübeck. Likewise, Hamburg benefited from being the sole major Atlantic port of the Hanseatic. The link between Lübeck and Hamburg was a crucial route for trade in the north. However, the Dutch began to trade with the Baltic by navigating around the Jutland peninsula and through the Sound (Øresund). Thus, the Dutch soon began to reach the Baltic shores without the need to visit Hamburg and/or Lübeck. This competition from the Dutch disrupted the two cities’ centuries-old domination over trade between the Atlantic and the Baltic.

How did the two cities respond? Differently. Lübeck responded to this competition with the Dutch by giving more privileges to its own merchants and by leading a persistent attempt to disrupt the Dutch trade through the Sound (which included taking part in the Dano Hanseatic War of 1426-35 and the Dutch Hanseatic War of 1438-41). In contrast, while Hamburg initially was an ally to Lübeck in its resistance to the Dutch (including in the two wars), it eventually began to diverge from its partner in the sixteenth century. Hamburg opened trade to all locals and non-locals, and instead of resisting this rising Dutch trade, it “adapted itself perfectly to the changing situation” and moved toward an open system of trade that welcomed diverse merchants. Thus, Hamburg internally reformed, and the centuries-old privileges that a few of its merchants enjoyed declined, especially in the sixteenth century. This made a difference…

A Tale of Two Cities: Hamburg and Lübeck (ProMarket)

Thus, it was here in Northwestern Europe and the Atlantic that old, tested rhythms of life were overthrown and the “Great Transformation” took place: money and self-regulating markets would come to control every aspect of everyday life:

…It took the creation of new bonds of trust to make [a modern contractual economy] possible. The rise of capitalism was certainly a shift away from the ultrasuspicious dealing of the Middle Ages. Businesspeople began to emphasize a slow, steady accumulation of small profits, repeated over and over again across many transactions, and that meant living up to the terms of their contracts. Long-term contracts began to replace the shady bargaining and one-shot deals of the medieval merchants.

It was this that made mass production practical. What good is it to have machinery turning out large numbers of items if there is no way of selling them? It is not industrial technology that made possible the modern economy, then, but this shift in the way in which business was carried out that made possible the technological developments of the industrial revolution. [11]

[1] Sociological Insight, pp. 19-20

[2] Money: The Unauthorized Biography, pp. 105-106

[3] Three phases of cooperation in the West p. 319
https://archive.org/details/threephasescoop01warngoog/page/n319

[4] Melvin Kranzberg & Joseph Gies; By the Sweat of Thy Brow, pp. 68-71

[5] Melvin Kranzberg & Joseph Gies; By the Sweat of Thy Brow, pp. 68-71

[6] Fernand Braudel; The Wheels of Commerce: Civilization & Capitalism Vol 2, pp. 315-317

[7] A Social History Of England Ed. 2 p. 249
https://archive.org/details/in.ernet.dli.2015.38292/page/n255

[8] The story of manual labor in all lands and ages p. 599
https://archive.org/details/storyofmanuallab00simouoft/page/n605

[9] The Story of Manual Labor, p. 206
https://archive.org/details/storyofmanuallab00simouoft/page/206

[10] A Social History Of England Ed. 2 pp. 260-262
https://archive.org/details/in.ernet.dli.2015.38292/page/n265

[11] Sociological Insight, pp. 20-21

The Origin of Guilds

In my previous post, I wanted to “set the stage” as to why it was Northwestern Europe, and not the many other locations around the world where complex civilizations developed, that formed the basis of the modern world. From this corner of the world sprang the impersonal markets and financial institutions that became the cornerstones of the modern world—institutions expressly designed for the plundering of resources from Africa, Asia, and the Americas by Western Europeans–the “Mongols of the Sea.”

But first we’re going take a short detour into the history of guilds.

Most people are aware of the basics of the guild system: practitioners of skilled trades in the Middle Ages were members of a guild which trained the members of said profession, regulated the working hours and conditions, and determined quality standards for production. In addition, members pooled their resources and took care of members who were unable to work, or the widows and orphans of members who had died. These were the Craft Guilds. Wikipedia describes them as, “…organized in a manner something between a professional association, a trade union, a cartel, and a secret society.”

However, guilds were not just craftsmen, but also merchants. Merchant guilds policed themselves and highly regulated business and trade in the Middle Ages. Buying and selling was tightly regulated by the merchant guilds, in accord with the charters granted to them by city officials, throughout the Middle Ages. Thus we see that unregulated commercial activity and “free trade” was not the historical norm by any means, but, rather, is a relatively recent development in human society.

Two other lesser known types of guilds were religious guilds, or confraternities; and frith (defensive) guilds, or mutual protection associations–perhaps something on the order of what we might call a “militia” today.

In tracing [the] history [of the guilds] we find the merchant guilds, the prototypes of the modern corporations; the religious guilds, the prototypes of modern church societies; the social guilds, the prototypes of Masonic, Odd Fellow and kindred organizations; the craft guild, the predecessor of the modern trades-unions; and finally, guilds of lawyers, and guilds of litterateurs and artists. [1]

We can consider guilds, then, as a form of risk-pooling, a uniquely human endeavor which has been going on probably since at least the Ice Age, and certainly as far as 12,000 years ago as evidenced by religious/feasting events at Göbekli Tepe, and later, at Stonehenge. As we learned in our study of the feasting theory, feasting and food-sharing appears to be inherent in the human species, and it likely enhanced cooperation among social groups allowing the formation of complex societies. Feasting events may have contributed to the formation of classes and inequality out of smaller, egalitarian band-level societies.

…Yet it is…evident that the sentiment of the Guild–that is, the desire to establish fraternal relations for mutual aid and protection…may rather be contemplated as a human sentiment, arising from the innate knowledge of his own condition, which makes man aware of his infirmity and weakness in isolation, and causes him to seek for strength in association with his fellow man.

The similitude, therefore, if not the exact form of the Guild, has appeared in almost all civilized nations, even at the remotest periods of their own history. Wherever men accustom themselves to meet on stated occasions, to celebrate some appointed anniversary or festival and to partake of a common meal, that by this regular communion a spirit of fraternity may be established, and every member may feel that upon the association with which he is thus united he may depend for relief of his necessities of protection of his interests, such an association, sodality, or confraternity, call it by whatever name you may, will be in substantial nature a guild. [2]

Let’s take a look at the history and anthropology behind such cooperative groups.

The first thing to understand about the ancient world, broadly speaking, is that there was no such thing as “the lone individual” or “individualism.” Everyone was defined by membership in a corporate group of some sort; the consanguineous family or tribe if nothing else. To not be a member of some sort of larger social group—i.e. an outcast—was a virtual death sentence. For most of human history, the lone individual was a dead individual. No doubt some people managed an existence on the margins of  society, but these were the exceptions. No example of a society of “lone individuals” has ever been found by anthropologists. Rather, pre-state societies were held together by their reckoned descent from a common ancestor, and often times the veneration of those ancestors. This has been a universal phenomenon known to anthropologists since the late Nineteenth century.

It was the interaction of these various social groups that formed the basis of society. Ancient laws were designed to facilitate interactions and mediate disputes between various groups, NOT to enforce contracts between individuals. Formal contracts between individuals did not exist (nor were they needed); rather your social behavior towards others was dictated primarily by kinship (actual or fictive)—father to son, wife to husband, uncle to nephew; cousin to cousin; slave to master; patron to client, and so on. Private and public interactions were mediated by social status—people knew what to expect of one another based on their relative social position. As people agglomerated in ever-larger groups due to population growth, eventually laws and behaviors needed to become more formalized by the rulers.

Originally, ancient laws were oral codes, but over time they increasingly came to be written down. They weren’t designed to facilitate dealings between solitary individuals , because, as we said, there was no such thing as “the lone individual”—everyone was associated with their social group and was seen by society as a representative of said group. Besides, there was no way to enforce the word of a truly solitary individual—he or she (usually he) would be regarded with suspicion, and, besides, no one would be able to “vouch” for them or make amends should they welsh on a deal. I plan to take this up in much more depth in future posts, but for now, this quotation should give us a good illustration of the concept:

In his [book] Early Institutions [Henry S. Maine] subjects the Brehon Laws of early Ireland to a suggestive examination as presenting an example of Celtic law largely unaffected by Roman influences. He there shows, as he has shown in Ancient Law, that in early times the only social brotherhood recognised was that of kinship, and that almost every form of social organisation, tribe, guild, and religious fraternity, was conceived of under a similitude of it. Feudalism converted the village community, based on a real or assumed consanguinity of its members, into the fief in which the relations of tenant and lord were those of contract, while those of the unfree tenant rested on status. [3]

Tribe, guild and religious fraternity were conceived in a similitude of the family. This is an essential point, and crucial to our understanding ancient society. It also feels odd to our modern Western sensibilities where each of us by default has no relationship whatsoever to absolutely anyone else outside of our immediate family—our biological parents and siblings—and sometimes not even with them! That is, we are all “lone individuals.” Most of our relationships are  all voluntary contracts, with terms explicitly spelled out in writing, and can be terminated by either party at any time. The ancient world was not like this.

Put succinctly, the “natural” basic unit of human society is not the lone individual, but the descent group—people who trace their descent to a distant common ancestor, even if such descent is largely fictitious. Thus, all early institutions were, more or less, a simulacrum of the family unit. The interaction of these various groups formed the basis of all political and social life. Food sharing and ritual behaviors tap into kin psychology to create larger groups than the consanguineous extended family.

So it follows that the earliest guilds were based on the family structure as the German historian Lujo Brenanto—one of the first to study the history of guilds—wrote (he uses the more accurate word Gild):

The family appears as the first Gild, or at least of the archetype of the gilds. Originally, its providing care satisfies all existing wants; and for other societies there is therefore no room. As soon however as wants arise which the family can no longer satisfy—whether on account of their peculiar nature or in consequence of their increase, or because its own activity grows feeble—closer artificial alliances immediately spring forth to provide of them, in so far as the State does not do it.

Infinitely varied as are the wants which call them forth, so are naturally the objects of these alliances. Yet the basis on which they all rest is the same: all are unions between man and man, not mere association of capital like our modern societies and companies. The cement which holds their members together is the feeling of solidarity, the esteem for each other was men, the honour and virtue of the associates and the faith in them–not an arithmetical rule of probabilities, indifferent to all good and bad personal qualities.

The support which the community affords a member is adjusted according to his wants–not according to his money stake, or to a jealous debtor and creditor account; and in like manner the contributions of the members vary according to the wants of the society, and it therefore never incurs the danger of bankruptcy, for it possesses an inexhaustible reserve fund in the infinitely elastic productive power of its members.

In short, whatever and however diverse may be their aims, the Gilds take over from the family the spirit which held it together and guided it: they are its faithful image, though only for special and definite objects.

The first societies formed on these principle were the sacrificial unions, from which, later on, the Religious Gilds were developed for association in prayer and good works. Then as soon as the family could no longer satisfy the need for legal protection, unions of artificial-family members {sic} were formed for this purpose, as the State was not able to afford the needful help in this respect. These Gilds had their origin in direct imitation of the family. Most certainly, none were developed from an earlier religious union: as little as were the Roman collegia opificum from the Roman sacrificial societies, or the Craft-Gilds from the Gild-Merchants, or any Trade-Unions from a Craft-Guild. [4]

Ancient institutions, including the extended family itself, were held together by common worship, typically involving some sort of ritual. The French historian Fustel de Coulanges argued that the primary Roman descent group–the gens–was held together by ancestral worship. It controlled its own ancestral lands, it had its own burial grounds, had its own deities and rituals (Sacra), and all property of a deceased person was partitioned out among all surviving members of the gens (rather than inherited by the eldest male offspring). Gentes were sort of a society in miniature, composed of related individuals, and their interactions were the basis of the wider society. Coulanges then went on to make the case that the entire Ancient City was sort of a superfamily based around similar communal rituals and worship, in this case the worship of a municipal deity (such as Pallas Athena at Athens, or Jupiter at Rome).

One thing appears to be universal among all of these early corporate groups (gens, sodalites, collegium, eranoi, etc.): the sharing together of a common meal. We see this has a very old pedigree indeed—it probably developed out of feasting rituals that hearken back to the very origins of civilization. The custom of assembling together at a common ceremonial banquet on various solemn occasions appears to be universal, and anthropologists have found much evidence of it at all stages of social development. Chimpanzees share meat from the hunt. The secretion of cholecystokinin (CCK) from a fat and protein-heavy rich meal induces feelings of satiety and allows for social bonding, as does alcohol consumption.

Undoutedly the collegia and sodales [sic]–Roman or Romanized institutions–founded themselves on the common meal, which was so sacred and significant a symbol in all the relations of the Aryan household. The functions of worship which the house-father (the Roman gentile head) could alone administer, the sacra, had passed into keeping of priest and church. When the sodalitates were instituted, they took to themselves the social power, perhaps we should say the socio-religious sympathy of the common meal. [6]

The second universal feature is the payment of some sort of communal dues. The world Guild itself comes from the Anglo-Saxon word gildan, meaning to pay, from which derives the word gegilda, meaning the subscribing member of a guild. [7] This allows risk pooling while minimizing the risks of free-riding, which is always a concern for collective action. Thus, guilds would have tapped into kin psychology by using their own communal banquets, rituals, and status relationships.

As labor became more specialized, especially in cities, one of the earliest class-based associations to form were occupational. In fact, groups of specialists, often associated with some sort of religious institution, look to be the core basis underlying the formation of early proto-cities. We know that specialized occupations, including merchants, had their own unique quarters in these ancient proto-cities. Thus, it makes sense that the complex and highly specialized world of ancient Mesopotamia, with its weavers, bakers, goldsmiths, builders—and, of course, merchants—was the first place on earth for large urban agglomerations to form.

Ancient Guilds

Did guilds exist in ancient Mesopotamia? Opinions differ, but it appears certain that practitioners of various specialized occupations did indeed associate together in some sort of formal—perhaps religious—structure. They may have shared meals and had their own rituals. But these differed greatly from later guilds in several regards.

First, there was no attempt to prevent people outside the guild from participating in various occupations. Second, there appears to have been no formal attempt to regulate workmanship or working conditions. In other words, the cartel-like activities of later guild systems were not present. There may have been some sort of insurance or risk-pooling; it’s hard to tell. One thing is certain, however,—guilds originated in the cities where specialized labor, long-distance trade, and raw materials were present:

Throughout the history of Mesopotamia, the skilled craftsmen had a distinct and prominent position in society…Their distinct status is especially clear in the first millennium, when we find clear evidence for craftsmen’s quarters in various cities (183)… It is thus logical that they would feel an affinity for their colleagues, and that they would form professional associations. From the early second millennium onward such organizations are attested to in the texts. It has been stated that these groups depended on the palace or the temples because they were headed by an overseer, but this common and broad title can also indicate that one of the members was selected to represent the group in its interactions with the government authorities…

The strength and cohesion of these associations is hard to define. They have been called ‘guilds’ by a minority of scholars, usually under severe criticism. In a sense, the issue whether or not it is appropriate to use that designation boils down to one of terminology, and to what one has in mind when talking about guilds. Many of the characteristics of a medieval European guild cannot be documented in Mesopotamia, including the crucial element that only guild members could perform a particular craft. But their absence also cannot be proved, and I think we should not underestimate the power of these professional associations. [8]

As mentioned above, most social organizations were based within the family: thus ancient private businesses were wholly synonymous with various Houses—that is—kin groups. Two of the most famous were the House of Egibi and the House of Murashu, whose archives have been found and studied by archaeologists. These entrepreneurial families would send relatives throughout the civilized world to run various outposts of the family business, since one can theoretically trust one’s own family members (and not outsiders). The wealth of the House was collectively owned, and collectively passed down inside the family.

Thus, we see that ancient business dealings were conducted mainly by “reputation mechanisms” and furthermore, the reputation in question was typically never that of a lone individual, but of a corporate group; a corporate group in which all the members agreed to take collective responsibility for the actions and obligations of any one of its members. Thus, entrance into any such group was heavily policed by reputation, and disreputable members could be ejected by the will of the majority (since everyone was liable for that person’s actions). This allowed transactions based on trust to take place before the advent of formal corporations, written contracts, business law, or governmental institutions.

Ancient Greece

Ancient Greece appears to have been driven by bonded/unfree labor in the from of slaves and immigrant labor (metics). Guilds were less important. However, even here we do see mutual aid societies centered around communal dues, food sharing, and common rituals, even without an explicit focus on occupation:

The Eranos among the Greeks was in every minute respect the analogue of the Guild…Clubs or societies of this kind established for charitable or convivial purposes, and sometimes for both, were very common at Athens, and were also found in other cities of Greece. These Grecian Guilds were founded on the principle of mutual relief. If a member was reduced to poverty, or was in temporary distress for money, he applied to the Eranos, or Guild. and the relief required was contributed by the members. Sometimes it was considered as a loan, to be repaid when the borrower was in better circumstances.

The Eranos met at stated periods, generally once a month, had its peculiar regulations, was presided over by an officer styled the Eramarches, and the Eranistoi, or members, paid each each a monthly contribution. There does not really appear to have been any material difference between the organization of these sodalities and the Saxon and mediaeval social Guilds. [9]

Ancient Rome

We are on somewhat firmer ground when it comes to the ancient Roman world. There were several major social groups in ancient Roman society that we know of. One early form of group was the solidates, and these appear to have began as ritual cults, often of priests (Flamen), or as common burial societies.  Another type of organization was the collegia, which was any association of individuals, not necessarily for religious or cult purposes. A third category was socialies, which were basically business partnerships for some definite purpose designed to be temporary in nature.

In ancient Rome, the principle of private association was recognized very early by the state…It can be difficult to distinguish between the two words collegium and sodalitas. Collegium is the wider of the two in meaning, and may be used for associations of all kinds, public and private, while sodalitas is more especially a union for the purpose of maintaining a cult. Both words indicate the permanence of the object undertaken by the association, while a societas is a temporary combination without strictly permanent duties.

The Collegia was the basis of the collegia opificum, or trade associations, during the Roman Empire. There were nine major categories of trade association that were sanctioned by the Roman government. This is the origin of our modern word college, which was originally a guild of students in the High Middle Ages: “An important result of the guild framework was the emergence of universities at Bologna (established in 1088), Oxford (at least since 1096) and Paris (c. 1150); they originated as guilds of students (as at Bologna) or of masters (as at Paris).”

List of Ancient Roman Collegia (Wikipedia)

Of course the societas developed into the business partnership known as the societas publicanorum—publican societies—which were the private organizations that administered the expanding Roman Empire. These organizations were pools of money, where one’s membership was anonymous and one’s stake could be transferred to other people if desired, which is why the publican societies are considered to be the forerunners of today’s corporations.

Economist Peter Temin describes Roman guilds in his extensive study of the ancient Roman market system:

…While guilds were formal organizations of men tied together by a common occupation, they differed from the European craft guilds of the Middle Ages and early modern period. Many Roman guilds, such as the sack-carriers, or longshoremen, did not require mastery of a specific artisanal skill; their work was unskilled. The guilds of skilled workers focused more on cerebral tasks like piloting ships. All guilds allowed their members to compete freely with each other, and nonguild workers could also find employment in tasks normally performed by guild members. There were significant benefits to membership…although there is no evidence that guilds acted as unions to control wages.

Guilds could prevent crime because they functioned as self-enforcing cartels; a guild could easily refuse membership and its benefits to an outsider or punish active members who stole or behaved corruptly. Elections ultimately determined guild membership, although some guilds required an entry fee in addition. Some guilds, such as the public grain-measurers, forced new members to “take a valid oath to do honest work”.

The guild members collectively elected officers and managed business operations. Those officers held terms of between two and five years, depending on the guild. While membership was not a hereditary right, sons often followed fathers into the same guilds, and freedmen similarly followed the families from which they had won their freedom and now considered their patrons. It is unclear how many members each guild had…

The strong organization of the guild and its ability to exert collective action made guild membership desirable. Guilds often pooled resources, and most guilds had guild houses stocked with gifts and decorations given by members. Many also had their own temples, while others used their resources to engage in civic life. The measurers, for instance, were one of the guilds who erected statues to the Prefects of the annona. Guilds also elected “patrons,” men of varying influence and wealth, giving members access to those men. Less powerful guilds invited reputable local men to be their patrons; more significant guilds, like the shippers, included a handful of senators on their list of patrons. A guild member would not lightly throw away such positive social benefits.

Guilds must have monitored their members’ behavior closely. The common treasury would have produced a strong interest in members to monitor one another. More important, the reputation of the entire guild could have suffered from the bad acts of one of its members. Even if corrupt members were not expelled, it is unlikely that they would ever have been voted into officer status or given special honors by their peers.

Legal systems, and other formal organizations do not exist in a vacuum; it is often informal social custom that proves even more effective than official sanctions. Merchants relied on informal institutions to promote honesty and trustworthiness. The guarantee of reputation is the most likely candidate for the unofficial enforcement mechanism in Rome. This ex-ante solution would have prescreened the agents available to the merchants.

If the Romans used a reputation mechanism, what was the signal that established trustworthiness? Roman religion did not involve an ethical code, as is present in Judaism, Christianity, and Islam, so an appeal to religious values could not ensure trustworthiness. Instead, it seems plausible that the criterion for establishing trustworthiness was the recommendation of another merchant knight or senator, especially given the homogeneity of the two primary classes of senators and knights and the close proximity in which merchants worked in Ostia, as we shall see later.

In addition, honor and probity were important secular values among the Roman aristocracy; men of these higher ranks were considered to be de facto trustworthy and could explicitly lend that trustworthiness to others. Naturally, not all members of these classes were trustworthy, but the small, close-knit community ensured that a deviant individual couldnot hide behind his rank indefinitely. [12]

We might compare the ancient Roman Collegia to something like the Screen Actor’s Guild, or Equity today. These organizations do not have an absolute monopoly over “acting” per se, nor do they enforce quality standards (as community theater can attest). Nevertheless, the precarious nature of acting and theater work has caused these organizations to form, allowing professional actors to pool their resources to ensure their members have a decent quality of life (insurance, retirement, health care, etc.). You do not have to be a member, but the benefits are too great not to be, as long as you qualify–Earning a SAG card is a rite of passage in Hollywood. Many ancient professions were of a similar nature (as opposed to permanent contract employment today).Guilds were self-regulating and self-policing without state involvement, although the state would no doubt take an interest in certain critical occupations, later even forbidding the departure from those occupations.

It’s likely that Christianity itself began as a combination of a common meal-sharing group and religious cult. This probably developed out of the communal meals the early Christians hosted in their homes during in the Roman empire. Christians were also obliged to take care of one another and help each another out—something that would have been invaluable in a rapidly decaying Empire where entire families had been decimated and civil order was rapidly declining due to civil ward, endemic corruption, and plagues.

The Agapa or Love Feats of the early Christians, though at first established for the commemoration of a religious rite, subsequently became guild-like in their character, as they were sustained by the contributions of its members, and funds were distributed for the relief of widows, orphans, and the poorer brethren. Indeed, they are supposed by ecclesiastical writers to have imitated the Grecian Eranos. The Government looked upon them as secret societies, and they were consequently denounced by imperial edicts. [13]

Medieval Guilds

There are four major theories of how medieval guilds formed, each championed by various scholars. They are:

1.) They are continuation of the ancient Roman collegia.

2.) They were formed out of the Christian monastic orders, which were organized on the basis of collective solidarity and brotherhood among their members.

3.) They were the continuation of pagan banquets held on special occasions. At these events, warriors undertook pledges of collective solidarity for war and raiding–often under the watchful eye of the gods. “The Germanic term Gild appears in connection with these banquets. “In its origin the word guild is found in the sense of “idol” and also of “sacrifice”, which has led some writers to connect the origin of the guilds with the sacrificial assemblies and banquets of the heathen Germanic tribes.” [14]. The connection with “payment” occurs in the potluck nature of these banquets.

4.) They originated as co-grazing partnerships in pagan herding societies. In these societies one’s social standing was based on control over land and wealth, primarily livestock. Subsequently, one’s rights and freedoms were based on one’s social status. Co-grazing partnerships allowed members of the lower (free or unfree) orders to pool their resources and increase their social standing. Each member of the partnership assumed responsibility for all the others. Each member paid in to the partnership, hence the use of the term gild or gildan–meaning “to pay.”

Let’s take a closer look at each one of these:

1.) For a long time scholars thought that medieval guilds were just a continuation of the ancient Roman collegia, but it’s now clear that in most locations the collegia did not survive the fall of the Roman Empire (leading to the subsequent loss of know-how). However, some scholars still argue that the old Imperial craft traditions managed to persevere, especially in Northern Italy and Southern France. From there they spread throughout Northern Europe as the Dark Ages waned and Christianity spread.

I am inclined…to attribute them to that spirit of associated labor and union of refreshment which had existed in the Roman Colleges of Artificers, where…there existed that organized union of interests which continued to be displayed in the Guilds. I will not aver that Guilds were the legitimate and uninterrupted successors of the Roman Colleges, but I will say that the suggestion of the advantages to be derived from an association in work, regulated by the ordinances that has been agreed on, governed by officers who might judiciously direct the exercise of skill and the employment of labor, the result of all of which was a combination of interests and the growth of a fraternal feeling, was suggested by these Roman institutions, and more especially adopted by the Craft Guilds, which, at a later period in the Middle Ages, directed all the architectural labors in every country of Europe. [16]

It’s possible that in at least some locations in southern Europe, this may, in fact, have been the case. But guilds as we know them first spring up in places like Dark Ages England under the Anglo-Saxon invaders where a Roman origin is extremely unlikely. Also, guild-like associations appear to have predated Roman influence.

2.) Another concept was they developed out of religious or monastic brotherhoods. However, this idea has also fallen out of favor. It appears to be the other way around—medieval brotherhoods were derived from the kinds of mutual aid associations commonly found among pagan tribal communities.

Wilda thinks that the peculiar character of the Guilds was derived from the Christian principle of love, and that they actually originated in the monastic unions, where every member shared the benefits of the whole community in good works and prayers, into the advantages of which union laymen were afterward admitted.

But the untenableness of this theory is evident from the fact that the same characteristic of mutual aid existed in the pagan nations long before the advent of Christianity, and was presented in those sodalities which represent the form of the modern Guild.

Besides the admission…that the early Saxon Guilds were so tinctured with the superstitious customs of the pagan sacrificial feasts, and that the Church had to labor strenuously and for a long time for their suppression, would prove that we must look beyond the monasteries of the true origin of the Guild. [17]

3.) The first historian of guilds, the aforementioned Brentano, argued that guilds arose out of the sacrificial feasts of the Old Germanic peoples. Only later where they “Christianized” to include things like mutual aid and support in times of distress:

The Northern historians, in answer to the question, whence the Gilds sprang, refer above all to the feasts of the German Tribes from Scandinavia, which were first called Gilds. Among the German tribes, every occurrence among the more nearly related members of the family required the active participation in it of them all. At births, marriages, and deaths, all members of the family assembled. Banquets were prepared in celebration of the event, and these had sometimes even a legal signification, as in the case of funeral banquets, namely that of entering an inheritance; and, when they concerned kings, that of a coronation.

Further, great social banquets took place on occasion of the sacrificial assemblies at the great anniversary festivals, which coincided with the national assemblies and legal assizes, and on occasion of important political events; and at the same time the common concerns of the community were deliberated on at these banquests. Moreover, they also furnished an opportunity for the conclusion of those alliances for the purpose of plunder or war, of which we have accounts, espcially in the case of Sweden and Norway, as well as of those close unions of friends, in which, according to the Scandinavian Sagas, two warriors of antiquity were wont to confederate for life or death, for common enterprises and dangers, and for indescriminate revenge when one of them should perish by violent death.

Every freeman was obliged to attend these feasts, and bring with him whatever food and drink he might require. Hence these feasts were also called Gilds; for “Gild” meant originally the sacrificial meal made up of the common contributions; then a sacrificial banquet in general; and lastly, a society. When in later times Christianity spread itself in the North, the sacrificial banquets, with all their customs and ceremonies, remained in existence, and Christ, the Virgin Mary, and other saints, stept [sic] into the place of Odin and the rest of the gods.[18]

4.) An alternate explanation was provided by historians of the Celtic peoples of ancient Ireland. Ireland was never conquered by the Romans, and thus retained many of the pagan traditions of the North. Many of these were preserved in a series of laws that were later written down and came to be known as the Brehon Laws. These laws give a rich insight into the social structure of pagan European tribal communities before the Roman conquest. “Irish law represents possibly the oldest surviving codified legal system in Europe, and is believed to have Proto-Indo-European origins in common with the Hindu Laws of Manu.” [19]

Class differentiation, as with much of the Indo-European peoples, was based around ownership of cattle and control over common grazing lands. There were two major categories of citizens: bonded and free. At the top of the social heap were the hereditary landowners, or Flaths [flah] (Noble, chieftain, prince). Below them were the lesser classes of freeholders called Aires [arra] (or Bóaires; i.e. lords). “Any free man might become first a ‘Bo-Aire,’ or cow-lord; then after possessing land for three generations his descendants might aspire to become Flaths, or hereditary lords.” [19].

Below these classes were free tenants with little or no property who paid rent dues and placed themselves under the protection of an overlord—Ceiles, [kailas] who were the equivalent to the old English ceorls, or churls. They formed the base-class of society They were further classified into “free” (saer) and “base” (daer) tenants. Ceiles rented either a portion of the common tribal lands or private lands from a noble (Flath). All freeholders had a right to access a portion of the commons owned by the fine, or clan.

Below these were the lower tier of the social order, the great mass of indentured, or “unfree” laborers, who correspond roughly to medieval serfs.  They had no claim to the tribal lands, although they were permitted to till plots for subsistence under strict conditions. The non-free classes were the Bothachs (cottars), the Sen-Cleithes (usually servants of the nobles), and the Fuidhirs (those without a clan; refugees). Saint Patrick was originally brought to Ireland as a daer fuidhir (a semi-slave). Classes were not absolute, as in a caste system; upward mobility was possible.

According to the laws, only those who held a specified share of landed property, as determined by the laws, were entitled to the full rights of citizenship: “Only a property holder could be a compurgator, a surety, a witness (the equivalent of a modern juryman), or exercise any of the functions of a freeman. The complete person as I have described him, emerging from the Roman law, was not yet born into society. A personage must have property. The next equivalent to the protection of a lord was the support of a mutual partnership or guild.” [20]

So an option for a free person, rather than pledging oneself to an overlord, was pooling resources with other clan members in order to gain control control of enough pastureland to enjoy the same rights and privileges as a noble (Aire). Each subscriber would pledge a portion of their land and livestock to the pact, which was secured by a solemn oath between the members:

…In this view of the origin of this sort of association, the meaning of the word itself becomes important. It was a payment which was symbolized in “guild.”…the link of etymology…are the Irish words gial (” a pledge or security”), gialda (“to be a pledge or security”), which bring over the earlier customs that prevailed prior to the Guild as we know it: I mean the passage of the early Aire partnership, by which the freemen first raised themselves into a position where they could get some of the advantages of chiefs or lords, into the later association of the Guild.

Four freemen, some of whom might be free “foreigners” with no tribal home, united closely for mutual support, and became each responsible for the dues of the other to society and the tribal State. Through this union one becomes an Aire, or had the privileges of a lord. They assumed these responsibilities solemnly in the presence of an Aire, and sometimes it is supposed with religious ceremonies…

These rights of co-grazing, and their corresponding duties, must have been a very early form of social development. For, as previously shown, cattle, next to human chattels (which I throw out of the discussion) was the early form of desirable property…It is significant that the bond of this association was symbolized in a payment, a contribution free in essence yet enforcing a strong obligation…There is no doubt that the feast began in common contributions, which were in one sense payments. The common meal underlay the guild, and a common obligation underlay the meal.

These rural origins of the guilds were forgotten in the course of time, as the medieval guild as we know it formed when people fled their clans and moved into towns forming similar associations there. Preserved in these guilds was the idea of paying one’s dues to the larger association, the taking of responsibility for one’s brethren, coming to their aid, pooling resources for the common good, and the communal banquet. [21]

Guilds coalesced in towns and cities where workmen were free of feudal duties. These “ports of trade” at rivers and seaports were where long-distance trading took place. Guilds played a crucial role in these activities. The city dwellers were often “refugees” from the countryside who no longer wished to live under feudal obligations (or could not—many were probably expelled from their kinship groups for some reason). We can expect the unrelated citizens of such ports of trade to have been much more “individualistic” in their outlook than their brethren left behind in the countryside due to personality self-sorting. Eventually, these free cities would become the nucleus of a new kind of economy centered around trade, money, and contracts rather than reciprocity, kinship and social status. By contrast, the household model continued to predominate in the remote areas of Europe, organized according to what Thompson called the “moral economy.”

In the eleventh century the process…had assumed definite form, both in England and on the Continent. The barons had laid firm hold of the dwellers in the fields. The peasants, who had proved too stubborn for enfiefment, had either been subjected, as in the Jaquerie of Normandy and other revolts too insignificant for historical record, or they had escaped into the growing towns, and there maintained the personal rights which their forefathers imbibed from the old Aire partnership. In this period, the earliest charters of the religious or social guilds appear in England…[22]

The ultimate origins of the medieval guild system, however, will probably never be known:

The early guilds had no connection with trade or industry, but were voluntary associations formed for a variety of purposes-political, social and religious.

Endeavors have been made to trace their origin to the pagan customs of the primitive Teutons at the sacrificial banquets and funeral festivities…But this is clearly inadequate. The common banquets were not peculiar to the Scandinavians, but on the contrary were an institution of the most wide-spread character. They occur in the early history of every nation from the Asiatic joint families to the Roman collegia, Russian villages and Irish septs.

Still more unsatisfactory is the statement…that these drinking bouts contained in germ the essence of all guilds. Occasional survivals of the practice are still found to-day on the islands of the Baltic, and it would require a peculiarly lively imagination to connect these casual festivals with the medieval unions. There is absolutely no evidence that any of the Anglo-Saxon guilds ‘were founded on such a basis, nor is there any more reason to assert a similar origin for those of the continent.

In fact, the attempt to discover any one particular source is idle. Combined efforts of individuals have always existed to supplement the defects of government and to afford mutual protection in case of need. Indeed the social instinct of man, the impulse to work or worship in common, has shown itself in all nations and at all times. The names of these associations naturally varied with the different countries, and the ends they sought to attain bore a fixed relation to the changing needs of the society in which they existed. But the idea that all guilds are derived from one fountain head is plainly erroneous, and this vain attempt to discover the impossible explains the one-sided, divergent views of so many historians.’ [23]

It was the gradual decline and sunset of this formerly effective system for both merchants and craftsmen that led to the formulation of the modern globalized market economy. Institutions such as law courts, commercial banks, and joint-stock corporations took the place of these institutions for conducting large-scale international business and trade, and thus laid the foundation for the modern world and the rise of the Liberal ethos of “hyperindividualism”—something we’ll take a look at next time.

Markets don’t function well if they are ridden with frictions like lack of information, lack of trust, or high transaction costs. In the presence of frictions, business is often conducted via relationships.

Until the end of the fifteenth century, impartial institutions like courts and police that serve all parties generally—so ubiquitous today in the developed world—weren’t well developed in Europe. In such a world without impartial institutions, trade often was (is) heavily dependent on relationships and conducted through networks like merchant guilds. Such relationship-based trade through dense networks of merchant guilds reduced concerns of information access and reliability. Not surprisingly, because the merchant guild system was an effective system in the absence of strong formal institutions, it sustained in Europe for several centuries. In developing countries like India, lacking in developed formal institutions, networked institutions like castes still play an important role in business.

Before the fourteenth century, merchant guild networks were probably less hierarchical, more voluntary, and more inclusive. But, with time, merchant guilds started to become exclusive monopolies, placing high barriers to entry for outsiders, and they began to resemble cartels with close involvement in local politics. There were two reasons why these guilds erected such tough barriers to entry:

Repeated committed interaction was the key to effectiveness of merchant guilds. Uncommitted outsiders could behave opportunistically and undermine the reliability of the system. Therefore, outsiders faced restrictions.
Outsiders threatened the position of existing businessmen by increasing competition. So, even genuinely committed outsiders could be restricted to enter as they threatened the domination of existing members.

But, in the sixteenth century, the merchant guild system began to lose its significance as more impersonal markets, where traders could directly trade without the need of an affiliation, began to emerge and rulers stopped granting privileges to merchant guilds. The traders began to rely less on networked and collective institutions like merchant guilds, and directly initiated partnerships with traders who they may not have known well. For example, in Antwerp the domination of intermediaries (called hostellers) who would connect foreign traders declined. Instead, the foreign traders began to conduct such trades directly with each other in facilities like bourses. [24]

[1] The Story of Manual Labor in All Lands and Ages: Its Past Condition, Present…By John Cameron Simonds, John T. McEnnis pp. 569-570

[2] The History of Freemasonry: Its Legends and Traditions…, Volume 2 By Albert Gallatin Mackey, William Reynolds Singleton, William James Hughan p. 56

[3] Ancient Law: Its Connection to the History of Early Society by Maine. Introduction, p. xii

[4] On the history and development of gilds, and the origin of trade-unions p. 16

[5] Not used

[6] The Social Law of Labor by William B. Weeden, p.145

[7] http://www.newadvent.org/cathen/07066c.htm

[8] The Ancient Mesopotamian City by Marc Van De Mieroop p. 190

[9] The History of Freemasonry: Its Legends and Traditions…, Volume 2 By Albert Gallatin Mackey, William Reynolds Singleton, William James Hughan p. 560

[10] https://en.wikipedia.org/wiki/Associations_in_Ancient_Rome

[11] Not used

[12] The Roman Market Economy by Peter Temin, pp. 109-110

[13] The History of Freemasonry: Its Legends and Traditions…, Volume 2
By Albert Gallatin Mackey, William Reynolds Singleton, William James Hughan pp. 560-561

[14] http://www.newadvent.org/cathen/07066c.htm

[15] Two Chapters on the Mediaeval Guilds of England by Edwin R. A. Seligman p. 10 footnote 1

[16] The History of Freemasonry: Its Legends and Traditions, Its …, Volume 2 By Albert Gallatin Mackey, William Reynolds Singleton, William James Hughan p. 562

[17] The History of Freemasonry: Its Legends and Traditions…, Volume 2 By Albert Gallatin Mackey, William Reynolds Singleton, William James Hughan pp. 561-562

[18] On the History and Development of Gilds, and the Origin of Trade-unions by Lujo Brentano, pp. 3-4

[19]https://en.wikipedia.org/wiki/Early_Irish_law

[20] The Social Law of Labor by William B. Weeden, p. 68

[21] The Social Law of Labor by William B. Weeden, p. 146-147-148

[22] ?

[23]?

[24] Two Chapters on the Mediaeval Guilds of England by Edwin R. A. Seligman pp. 1-2

[25] https://promarket.org/markets-europe-opened-guild-monopolies-declined-sixteenth-century/

Latitudes not Attitudes or ‘Maps not Chaps’

Geography is … only a branch of statistics, a knowledge of which is necessary to the well-understanding of the history of nations, as well as their situations relative to each other.
–WILLIAM PLAYFAIR

I’ve been think a lot about the way geography shapes history. A lot of the big questions of history can be boiled down to simple geography.

What brought this to mind was this interview with Ian Morris:

Philip Dodd: “The three paradigms in which you want to work are biolgical, sociologicial…[and geographical]. Tell us why geography is so important to you…”

Ian Morris: “It follows on fairly directly from the ways I was thinking about biology and sociology. It seems to me the major implication of recent work in evolutionary biology is that human beings are all more or less the same things all over the world, which is—clever chimpanzees. That’s what we are. And we do the same things as most other kinds of animals, we’re just better at it…”

“It seemed to me, as I was looking for patterns across the last 15,000 years, was that the real motor for why some societies have developed at different paces than others was simply geography. That’s just what it came down to.”

PD: Give us briefly an example of how geography is determining.

IM: “The most glaring case of geographical determinism is the beginnings of agriculture the end of the Ice Age. There were only a few places in the world while wild species of plants and animals had developed that were potentially domesticable. If you were a hunter-gatherer in central Siberia, it didn’t matter if you were Albert Einstein, you were never going to domesticate plants and animals because it could not be done. If you lived in southwest Asia, it was massively more likely that domestication would happen there than anywhere else because these plants and animals are so densely concentrated there…”

“…Much of what humanists like to dwell on as agency I think is an obsession with the noise generated by human beings. We’re very good at thinking up grand theories about the afterlife for example—about things that very likely don’t exist at all. That is just a distinctively human version of the agency that generally applies to living things.”

“Plants have agency of a kind, bunny rabbits have a lot more, chimpanzees have a lot more still. We have most of all. And we have so much of it, that we clearly have in some ways moved wildly away from what we share with animals. But in other ways we continue to share a great deal of what we do with animals.”

“I like to say when I’m teaching that history is a subfield of biology. It’s the record of what one particular species does. And when you put it like that it’s hard to argue with [that]…”

Richard Cohen and The Ancient Egyptian Book of the Dead (BBC Arts & Ideas)

The interview is from a few years back in reference is Morris’ book Why the Rest Rules–for Now. In that book, he traces history back 15,000 years in order to find the reason why the societies of the North Atlantic ended up dominating and ruling much of the planet today rather than, say, the Middle East or Africa China or South America. The geography factor came up fairly late in his inquiry, and caused him to rethink his assumptions. As he says:

“This is something that actually didn’t fully dawn on me until I was quite some way into writing the book, and I had to go back to the beginning and start doing it all over again…The reason why the book ends up being rather a long one rather than a one-page thing saying ‘it’s geography’ [is because] geography is a somewhat complicated thing. On the one hand, physical geography determines how societies develop. But the way societies develop determines what physical geography means.”

In a column for the Daily Beast he summarizes some of his major conclusions:

When the world warmed up 15,000 years ago, geography dictated that there were only a few regions on the planet where complex societies could develop. This was because only a few regions had the kinds of climate and landscape that allowed for the evolution of wild plants and animals that could be domesticated; and farming could only arise in these places.

The densest concentrations of these plants and animals lay toward the Western end of Eurasia, around the headwaters of the Euphrates, Tigris, and Jordan Rivers in what we now call southwest Asia. It was therefore here, around 9000 BC, that farming began, spreading outward across Europe. Western Eurasia became the richest part of the world.

Farming also started up independently in other areas, from China to Mexico; but because plants and animals that could be domesticated were somewhat less common in these zones than in the West, the process took thousands of years longer to get going.

Ian Morris on Why the West Rules but China Is Next (Daily Beast)

On a similar theme is a book I read recently called Prisoners of Geography by Tim Marshall. It’s mostly about current geopolitical tensions than it is about geography, but it does cover some useful facts about why certain parts of the world developed in the way they did.

It’s a good illustration of how countries came to be, and why they are the way they are. Political scientists like to talk about “Path Dependence”—the fact that understanding why societies are the way they are now has a lot do with historical circumstances, sometimes stemming from a very long time ago. To cite just one example, when you look at current voting patterns in the U.S., counties which had the best conditions for growing cotton in Dixie are the most likely to vote for Democrats today, because they have a larger concentration of African-Americans to this day. And, of course, the conditions for growing cotton growing had to do with climate and geological processes that took place even before modern humans had emerged.

1. WESTERN EUROPE

But what really got me thinking about this was looking back at the history of financial innovations. It makes sense that these all began in places which had to have expansive trade by necessity. These were places that were rich in some resources, but poor in other critical ones, and so trading became a necessity. That’s why it is in such places that we must look to find their origins. You’ll find that in history, things are invented out of necessity when and where they need to be. Ian Morris articulates this as his ‘Morris Theorem’: “Change is caused by lazy, greedy, frightened people looking for easier, more profitable and safer ways to do things. And they rarely know what they’re doing.”

The Tigris-Euphrates valley is the major case in point. The well-watered flat river valleys produced lots of raw materials, but not much in the way of stone, gems, or precious metals. So it was here that the first trading “innovations” began such as writing, double-entry bookkeeping, bonds, insurance, tradeable debt, and the like. By contrast, the Nile region was much more self-sufficient. It’s trading was command-and-control, organized through the Pharaoh’s household which owned the major national resources, such as mines and the shipping fleet.

A Four Thousand Year Old Bond (Marginal Revolution)

Looking at Europe a different situation emerges. Why didn’t Europe, with all its geographical advantages, take the lead rather than the Middle East? Marshall notes some of the advantages:

The climate, fed by the Gulf Stream, blessed the region with the right amount of rainfall to cultivate crops on a large scale, and the right type of soil for them to flourish in. This allowed for population growth in an area which, for most, work was possible year-round, even in the height of summer. Winter actually adds a bonus, with temperatures warm enough to work in but cold enough to kill off many of the germs which to this day plague huge part of the rest of the world.

Good harvests mean surplus food that can be traded; this in turn builds up trading centers that become towns. It also allows people to think of more than just growing food and to turn their attention to ideas and technology.

Western Europe has no real deserts, the frozen wastes are confined to a few areas in the far north, and earthquakes, volcanoes, and massive flooding are rare. The rivers are long, flat, navigable, and made for trade. As they empty into a variety of seas and oceans, they flow into coastlines that are—west, north and south—abundant in natural harbors…These are the factors that led to the Europeans creating the first industrialized nation states, which in turn led them to be the first to conduct industrial-scale war. pp. 88-89

Well, we know that people tend to remain foragers rather than forming more complex societies if they can avoid it, because foraging offers a much better quality of life with a lot more freedom. Complex societies that produce surpluses end up allocating those surpluses to an elite managerial class that can then use its control over the surplus to dominate and control the majority. As Johnson and Earl put it, “…the benefits of a larger community must outweigh the costs before people will form one, or join an existing one…the intensification of the subsistence economy, itself an outcome of rising population and technological innovation, creates a problem that can best be solved by working in larger groups.” (The Evolution of Human Societies, p. 141) Populations in Northern Europe did not need to rely upon intensification as did those in the Tigris/Euphrates (or Yellow River) valley.

When you look at the Near East, their dependence upon massive, labor-intensive irrigation works which can only be produced and maintained communally, as well as their dependence upon annual cereal crops for sustenance, means that it was here that complex proto-states would likely form before anywhere else. The land in the great river valleys was far more fertile than the surrounding countryside, which was dominated by nomadic pastoralists living at lower densities.

Although hydraulic theories of state formation have fallen out of favor, it does seem as though more complex civilizations tend to form first in regions where large-scale irrigation is required for crops. The labor needed to maintain a large infrastructure requires more coordination between disparate villages, which in turn causes supra-regional associations to form which elites can control. This also spurs trade between villages.

In Europe, by contrast, crops were rain-fed. The fact that the continent was originally heavily forested also meant there were lots of places to hide from despotic elites. It was only when the larger, more complex Roman Empire conquered the numerous chiefdoms of Northwestern Europe and introduced things like writing, bureaucracy and money that these lands became organized into more complex, hierarchical civilizations than chiefdoms.

So the direction of cultural transmission was destined to be from East to West rather than West to East, expanding from eastern Eurasia and the Levant across the Mediterranean Sea to Greece, and later to the Italian peninsula. The trade around the Mediterranean became so intense during the Bronze Age that some consider it to be the first global economy.

The year 1177 BCE roughly demarks the disintegration of humanity’s first global civilization: the Late Bronze Age. At its peak, a booming trade in raw materials, agricultural goods, and finished products—from jewelry to pottery, spices and wine—encircled the Mediterranean and stretched north, perhaps as far as present-day Scandinavia, and east to Afghanistan and India. Then, after centuries of brilliance, the civilized world of the Bronze Age came to an abrupt and cataclysmic end.

Drought and unrest sparked global societal collapse in the Bronze Age. Is it happening again? (Quartz)

Where else on Earth do you get something like the Mediterranean Sea, a huge inland sea surrounded by diverse ecosystems separating continents, occupied by diverse cultures, and yet small enough to traverse fairly easily? Nowhere else that I know of. In fact, Neanderthals might have even sailed around the Mediterranean before humans showed up.

Evidence suggests Neanderthals took to boats before modern humans (Phys.org)

Fast forward to the Roman Empire. Why did the Western Empire fall, while the Eastern Empire continue to function for centuries more?

The reasons are complex, but it boils down to this: The Eastern Roman empire had older, more complex settled urban civilizations than the Celtic/Germanic barbarian West did. So it had a longer tradition of civilization, a higher tax base, a longer institutional history, older cities, and more trading links to more “developed” civilizations, most notably China and India.

Western contact with China began long before Marco Polo, experts say (BBC)

Rome itself was something of an “accidental capital”—never strategically well-placed and vulnerable to invasions (as indeed the Celts had done prior to the Empire). This forced the Latins to develop formidable armies, but their geographical location still made them vulnerable.

Byzantium, however, was ideally placed, and it is this reason why Emperor Constantine established his capital here and named it after himself. Constantinople is the ideal strategic location—the gateway between Europe and Asia, as Istanbul still is today. Thus, the Roman East was shielded from armies storming out of the North European plain by the Bosporus, the Mediterranean Sea, and the mountains. The only way to get to North Africa, the breadbasket of the Roman Empire, was through two “pinch points”—Gibraltar and the Bosporus. Coming from nomadic stock, the tribes had little maritime experience—the experienced Roman navy would have made quick work of any attempts by them to attack North Africa or the Levant by sea.

So the Romans managed to confine the barbarian wanderers to Europe, fighting skirmishes but never letting them cross over into Asia or North Africa. An attempt to reunify the empire under Justinian was brought down by plague. Eventually the Vandals managed to cross into North Africa. Once the barbarians did manage to sweep across North Africa, the Eastern Empire started to decline. It remained for the Muslims storming out of the desert in the seventh century, and later the Turks from central Asia, to deal the final blow.

With the gradual dissolution of the Western Roman Empire, it was destined that Europe would end up divided into multiple, competing nations, rather than coalescing back into a single unified state as China managed to do several times throughout its history. Once again, this is due mainly to geography:

If we take Europe as a whole, we see the mountains, rivers, and valleys that explain why there are so many nation states. Unlike the United States, in which one dominant language and culture pressed rapidly and violently ever westward, creating a giant country, Europe grew organically over millennia and remains divided between its geographical and linguistic regions. p. 89

Europe’s major rivers do not meet (unless you count the Sava which drains into the Danube in Belgrade). This partly explains why there are so many countries in what is a relatively small space. Because they do not connect, most of the rivers act, at some point, as boundaries, and each is a sphere of economic influence in its own right; this gave rise to at least one major urban development on the banks of each river, some of which in turn became capital cities. pp. 89-90

Europe’s second longest river, the Danube (1,771 miles), is a case in point. It rises in Germany’s Black Forest and flows south on its way to the Black Sea. In all, the Danube basin affects eighteen countries and forms natural borders along the way, including those of Slovakia and Hungary, Croatia and Serbia, Serbia and Romania, and Romania and Bulgaria. More than two thousand years ago it was one of the borders of the Roman Empire, which in tum helped it to become one of the great trading routes of medieval times and gave rise to the present capital cities of Vienna, Bratislava, Budapest, and Belgrade. It also formed the natural border of two subsequent empires, the Austro-Hungarian and the Ottoman. As each shrank, the nations emerged again, eventually becoming nation states. However, the geography of the Danube region, especially at its southern end, helps explain why there are so many small nations there in comparison to the bigger countries in and around the North European Plain. p. 90

When you look at a map of Europe, you can’t help but be struck by just how much coastline there is! Really, almost everywhere is not that far from a sea, river or ocean. Compare that to the massive continental bulk of Asia or Africa, for example. Plus, its rivers are long, flat and navigable. This practically guaranteed that Northern Europe would became a major trading center, and that’s exactly what happened. And that’s why so many trade innovations originated there, including capitalist markets.

When “civilization” finally took root in northern Europe thanks to Roman military pacification, ports of trade developed all along Europe’s coasts and rivers (London was an early one of these). Eastern Europe, distant from the Roman heartland and shielded by mountains, remained behind their western neighbors. Not to mention they had to fight off Mongols and Turks.

One thing I always found unique about Europe is that it was “separate yet unified.” That is, even though it was divided into separate nation states, it had a common religious bureaucracy maintained by the Catholic Church in Rome (arguably the first international corporation), and it had a common language in the form of Latin thanks to the legacy of ancient Rome, meaning that scholars from different cultures could communicate in a shared language and tradition, while still maintaining cultural diffeences.

Remember how we said the Eastern Mediterranean was where the older, urban civilizations and all the riches were? And how they had trading connections with the rest of Asia? Well, it’s here that the big lake called the Mediterranean came into play once again. Islamic empires formed throughout the Middle East which linked India and Southeast Asia to the Mediterranean economy. The Pax Mongolica connected East and West along the Silk Road. The entrance of luxury goods from the Abbassid Exchange like spices, cotton and tea created a space for merchants that had not been there before. While Northern Europe concentrated on exporting raw materials, the Northern Italians formed trading empires from their urban centers. They became the conduit between the kingdoms of Northwest Europe and the riches of the East.So it was that Venice, founded by refugees from the dying Roman Empire, became the merchant center of Europe. They were quickly soon joined by other Medieval communes throughout Northern Italy whose wealth would derive from trade instead of farming or raw materials.

Through a series of fortunate events in the ninth century, Venice became politically independent. This, together with Venice’s fortunate geography, uniquely positioned it to benefit from rising trade between Western Europe and the Levant. These two factors combined to enrich Venetian merchants, who used their newfound economic muscle to push for institutional change.

So it was that Northern Italy became the center of banking and trade. Their proximity and dealings with Islamic merchants led to the adoption of Arabic innovations such as Arabic numerals and checks. Here are just a few of the financial innovations that trace their history back to Northern Italy:

By the early fourteenth century, financial innovations included: the appearance of limited liability joint stock companies; thick markets for debt (especially bills of exchange); secondary markets for a wide variety of debt, equity and mortgage instruments; bankruptcy laws that distinguished illiquidity from insolvency; double-entry accounting methods; business education (including the use of algebra for currency conversions); deposit banking; and a reliable medium of exchange (the Venetian ducat). All these innovations can be related directly back to the demands of long-distance trade.

And nearby Genoa created the first quasi-state bank:

The Casa di San Giorgio came a long way and boasted a long history of banking operations. Some scholars even called the first modern bank, predating the Bank of England established on 1695. It also preceded the British East India Company as a private enterprise that administered territory, collected taxes, and raised armies. Indeed, so much the Casa had garnered power, influence, and wealth that Machiavelli praised its administration.

Casa Di San Giorgio: Genoa’s Premier Financial Institution (Exploring History)

By contrast, southern Italy, though not culturally behind in the days Roman Empire (Pompeii is near Naples), fell behind the north in innovation thanks to constant invasions by people like the Normans and Arabs. They would end up being ruled mostly by a succession of foreigners, hence developing a distrust of government institutions and history of corruption that persists to this day.

The countries of northern Europe have been richer than those of the south for several centuries. The north industrialized earlier than the south and so has been more economically successful. As many of the northern countries comprise the heartland of Western Europe, their trade links were easier to maintain, and one wealthy neighbor could trade with another-whereas the Spanish, for example, either had to cross the Pyrenees to trade, or look to the limited markets of Portugal and North Africa.p. 90

The contrast between northern and southern Europe is also at least partly attributable to the fact that the south has fewer coastal plains suitable for agriculture, and has suffered more from drought and natural disasters than the north, albeit on a lesser scale than in other parts of the world. As we saw in chapter one, the North European Plain is a corridor that stretches from France to the Ural Mountains in Russia, bordered to the north by the North and Baltic Seas. The land allows for successful farming on a massive scale, and the waterways enable the crops and other goods to be moved easily. pp.91-92

Of all the countries in the plain, France was best situated to take advantage of it. France is the only European country to be both a northern and southern power. It contains the largest expanse of fertile land in Western Europe, and many of its rivers connect with one another; one flows west all the way to the Atlantic (the Seine), another south to the Mediterranean (the Rhone). These factors, together with France’s relative flatness, were suitable for the unification of regions, and-especially from the time of Napoleon-centralization of power.

And, sure enough, France became the location of the earliest complex states to form in Northern Europe under Charlemagne (the Holy Roman Empire, the Carolingian Renaissance). it was in France where the great Champagne fairs of Europe took place. Eastern Europe, as we saw above, tended to miss out on the party; the Adriatic Coast is a partial exception, falling under the sway of the Venetians.

So it was that we can use the fairs of Europe as a starting point of Western capitalism. But, ultimately, it’s all due to geography.

WHY EUROPE DOMINATES THE WORLD

With the closing of eastern trade routes after the dissolution of the Mongol Empire and the fall of Byzantium 1453, the race was on for the maritime countries of Europe to find an alternate route to the Indies without dealing with Italian or Arab/Turkish middlemen. Portugal was uniquely placed to send its pelagic vessels south down the coast of Africa to find alternate trade routes. Eventually, they did so, circumnavigating Africa and crossing the Indian Ocean.

But it was an Italian sailing for Spain who would really change things. Ian Morris explains what happened next:

Western Europe—sticking out into the cold North Atlantic, far from the centers of action—had always been a backwater. But when Europeans learned of the East’s oceangoing ships and guns, their location on the Atlantic abruptly became a huge geographical plus.

The Atlantic, 3,000 miles across, became a kind of Goldilocks Ocean, not too big and not too small. It was big enough that very different kinds of goods were produced around its shores in Europe, Africa, and America; but it was small enough that the ships of Shakespeare’s age could cross it quite easily.

Ian Morris on Why the West Rules but China Is Next (Daily Beast)

So of course trade moved north, to the Atlantic Coast—Portugal, Spain, France and England. But it was the small Dutch Republic that ultimately took the lead thanks to a series of commercial innovations. Again, a glance at the maps tells us why the Dutch were so focused on maritime trade. The Low Countries are all below sea level, and their land has been painstakingly reclaimed from the sea by a series of dikes and walls built over centuries. On this reclaimed land sits a very dense population, surrounded by culturally different neighbors and connected by canals. The amount of fertile land was limited, and so the Dutch compensated with entrepreneurial skills. While Dutch farmers made the most of their limited land area, it was inevitable that the economy would come to center around commerce rather than agriculture or natural resources as in France and England. Merchants earned pride-of-pace here, unlike other cultures, and they became politically dominant. It was the early modern precursor to modern-day entrepôts like Hong Kong or Singapore. The wide, flat landscape also made Holland ideal for the innovative use of wind power, increasing their energy consumption. The Dutch were also early pioneers in the use of burning fossil fuel in the form of peat.

The amazing prosperity of the small ‘Republiek der Zeven Provinciën’ and its exceptional position among the European powers during most of the seventeenth century has fascinated generations of historians…The more comes in the open about the thriving Dutch Golden Age society, the more intriguing the question becomes, how so small a population (a million and a half at the vertex of its power) could manage to play leading parts on almost every scene of human activities…This study was motivated by the historical problem of why around 1600 the Republic assumed the mantle of leadership on the path of mankind’s economic and social development. The answer is: because it was able to extensively apply inland navigation and, by that, to fall back on its peat deposits when everywhere (also in the Netherlands itself) deforestation had progressed to such an extent, that wood had become an expensive fuel. Its exceptional position becomes even more evident, when it is considered that at the beginning of the Dutch explosion of prosperity each one of the cities in the ring Amsterdam, Utrecht, Gouda, Rotterdam, Delft, Leiden, Haarlem had an abundance of easily transportable (low peat) turf of excellent quality within a few kilometers of its gates. No wonder, that the centre of gravity of economic development became located in this part of the country.

Peat and the Dutch Golden Age (PDF)

Like Venice centuries earlier, the Dutch were a republic run by bourgeois merchant princes. By this time Protestantism, with its concept of an individual relationship to God supplanting older ideas of communal solidarity and mutual aid, had taken hold in Europe.

The Bank of Amsterdam (Amsterdamsche Wisselbank) was founded in 1609.The original conception of the bank was as a conservatively designed “exchange bank” –a ledger-money bank backed principally by coin–following the example of Venice’s Banco di Rialto. Through a series of innovations, however, the Bank of Amsterdam was ultimately able to achieve a greater degree of success than its Venetian predecessor. Almost until its demise in 1795, the bank was widely admired and served as an inspiration for public banks in other cities. The Bank of Amsterdam never issued notes, but by limiting its depositors’ withdrawal rights, was able to create a highly liquid, quasi-fiat asset in the form of its ledger money.

With the Protestant merchant coup d’etat in Britain known as the Glorious Revolution, the new Dutch king became subordinate to an English parliament increasingly aligned with mercantile, rather than traditional agrarian, interests (as demonstrated by the Corn Laws). The powerful English constitutional monarchy would reshape English society in the eighteenth and nineteenth centuries according the will of commercial interests, establishing the factory system, and consequently turning land and labor into commodities for sale to a greater extent than anywhere else. The rest, as they say, is history.

INDIA

The triangular Indian subcontinent, battered by monsoons and separated from East Asia by the Himalayas, and by deserts and mountains to the west, never had much of chance at conquering the world, despite its huge population. It’s contributions rest more in being the source of exotic products traded with both the Abbassid and European cultures.

One surprisingly important philosophical contribution, however, was India’s numerical system. The alphabet had first been developed in the Near East. But Indian mathematicians and philosophers came up with the idea of zero as a number. It is thought that the Hindu religious concept of “nothinginess” (shunyata) may have played a role in this. It’s hard to imagine the modern world without numbers, science and accounting.

“[T]he creation of zero as a number in its own right, which evolved from the placeholder dot symbol found in the Bakhshali manuscript, was one of the greatest breakthroughs in the history of mathematics. We now know that it was as early as the 3rd Century that mathematicians in India planted the seed of the idea that would later become so fundamental to the modern world. The findings show how vibrant mathematics have been in the Indian sub-continent for centuries.”

How India gave us the zero (BBC)

THE AMERICAS

North America had become populated at the end of the Ice Age when a corridor opened in the Canadian Ice Sheet, allowing migrants to march south into the North American continent from Beringia, an isolated Siberian region full of wild game (indeed, the last woolly mammoths would perish on Wrangel Island just as the first pyramids were under construction). Rising sea levels due to melting ice would submerge this region, permanently cutting off the the American population from Asia.

However, recent research has cast some doubt on the above theory. It now seems more likely that humans colonized the Americas by taking watercraft south along the western coast of North America, only later moving inland as the glaciers melted.

This research suggests there could have been two separate migration thrusts into North America, the first along the Pacific coastline around 15,000 years ago, and the second one when the ice-free corridor became habitable and human-friendly, around 12,600 years ago. But this new data presents another intriguing possibility. Perhaps there was only one single migration wave along the West coast, but once the ice-free corridor became habitable, these early settlers started to make their way northwards through the corridor all the way back into Alaska.

We Were Wrong About How Ancient Humans Colonized North America (io9)

Another controversial theory is that the Americas were at least partly colonized from Europe during the Ice Age:

The major evidence driving [the Soultrean] hypothesis is the presence of artifacts found in six sites in the eastern United States dating to somewhere between 18,000 and 26,000 years ago. These tools more closely resemble that of the Solutrean culture that endured in Europe between about 21,000 and 17,000 years ago than the Clovis culture that first appeared in North America about 13,000 years ago.

Could the first humans to reach the Americas have come from Europe? (io9)

The fact that North America was populated late in the game, due to its distance from the African homeland, along with its lack of domesticable herbivores (only llamas and alpacas), meant that civilization would inevitably be slower to take off here than in Eurasia; the thesis of Jared Diamond’s famous “Guns, Germs and Steel”.

The relative genetic isolation of the Beringian population would prove to be especially fatal, as this exacerbated their vulnerability to the relatively novel zoonotic diseases brought over by Old World colonists. North America became settled primarily by English, French and Dutch, while Central and South America became Spanish and Portuguese colonies. The two cultures took very different trajectories.

South America, despite its large land mass, has been relatively backward economically because of a combination of history and geography.
The limitations of Latin America’s geography were compounded right from the beginning in the formation of its nation states. In the United States, once the land had been taken from its original inhabitants, much of it was sold or given away to small landholders; by contrast, in Latin America the Old World culture of powerful landowners and serfs was imposed, which led to inequality.

On top of this, the European settlers introduced another geographical problem that to this day holds many countries back from developing their full potential: they stayed near the coasts, especially (as we saw in Africa) in regions where the interior was infested by mosquitoes and disease. Most if the countries’ biggest cities, often the capitals, were therefore near the coasts, and all roads from the interior were developed to connect to the capitals but not to one another.

Now Europeans themselves could grow the exotic items they so desired like sugar, coffee and cotton (along with new ones like cocoa). This would, in turn, spur the development of the factory system in Northern Europe. The potato would cause a population explosion, ensuring plenty of desperate factory workers. To replace the native workforce for their export plantations in the New World, the Europeans would resort to buying an enslaved workforce from the southern African continent.

AFRICA

So why did Africa, the birthplace of Homo sapiens, not became the center of world culture and trade, rather than the Near East, China or Europe? After all, it had the biggest head start of all! Plus, it has the greatest human genetic diversity, since everyone outside of the continent is descended from what is thought to be a relatively small population of migrants.

Given that Africa is where humans originated, we are all African. However, the rules of the race changed circa 8000 BCE when some of us, who’d wandered off to places such as the Middle East and around the Mediterranean region, lost the wanderlust, settled down, began farming, and eventually congregated in villages and towns.

But back south there were few plants willing to be domesticated, and even fewer animals. Much of the land consists of jungle, swamp, desert, or steep-sided plateau, none of which lend themselves to the growing of wheat or rice, or sustaining herds of sheep. Africa’s rhinos, gazelles, and giraffes stubbornly refuses to be beasts of burden–or as Jared Diamond puts it in a memorable passage, “History might have turned out differently if African armies, fed by barnyard-giraffe meat and backed by waves of cavalry mounted on huge rhinos, had swept into Europe to overrun its mutton-fed soldiers mounted on puny horses.”

But Africa’s head start in our mutual story did allow it more time to develop something else that to this day holds it back: a virulent set of diseases, such as malaria and yellow fever, brought on by the heat and now complicated by crowded living conditions and poor health care infrastructure. This is true of other regions—the subcontinent and South America, for example—but sub-Saharan Africa has been especially hard-hit, for example by HIV, and has a particular problem because of the prevalence of the mosquito and the tsetse fly. pp. 112-113

Most of the continent’s rivers also pose a problem, as they begin in highland and descend in abrupt drops that thwart navigation. For example, the mighty Zambezi might be Africa’s fourth-longest river, running for 1,700 miles, and may be a stunning tourist attraction with its white-water rapids and the Victoria Falls, but as a trade route it is of little use. It flows through six countries, dropping from 4,900 feet to sea level when it reaches the Indian Ocean at Mozambique. Parts of it are navigable by shallow boats, but these parts do not interconnect, thus limiting the transportation of cargo. p. 113

Another contributing factor, Marshall informs us, is simply the massive size of the African continent. Because maps are flat representations of a sphere, northern areas tend to be exaggerated in size, while those closer to the equator are depicted more realistically. While Prisoners of Geography has a good description of just how big Africa is, a picture is worth a thousand words, and this image went viral on the internet a while back:


The massive size of the continent, combined with variable microclimates and a complete lack of navigable rivers meant that civilizational development was held back.

Unlike in Europe, which has the Danube and the Rhine, this drawback has hindered contact and trade between regions-which in tum affects economic development and hinders the formation of large trading regions. The continent’s great rivers—the Niger, the Congo, the Zambezi, the Nile, and others—don’t connect, and this disconnection has a human factor. Whereas huge areas of Russia, China, and the United States speak a unifying language, which helps trade, in Africa thousands of languages exist and no one culture emerged to dominate areas of similar size. Europe, on the other hand, was small enough to have a lingua franca through which to communicate, and a landscape that encouraged interaction.p. 114

Even if technologically productive nation states had arisen, much of the continent would still have struggled to connect to the rest of the world because the bulk of the landmass is framed by the Indian and Atlantic Oceans and the Sahara Desert, The exchange of ideas and technology barely touched sub-Saharan Africa for thousands of years. Despite this, several African empires and city states did arise after about the sixth century CE: for example the Mali Empire (thirteenth to sixteenth century), and the city state of Great Zimbabwe (eleventh to fifteenth century), the latter in land around the Zambezi and Limpopo Rivers. However, these and others were isolated to relatively small regional blocs, and although the myriad cultures that did emerge across the continent may have been politically sophisticated, the physical landscape remained a barrier to technological development by the time the outside world arrived in force, most had yet to develop writing, paper, gunpowder, or the wheel p.114

When the Europeans finally made it down the west coast in the fifteenth century they found few natural harbors for their ships. unlike Europe or North America, where the jagged coastlines give rise to deep natural harbors, much of the African coastline is smooth. And once they did make land they struggled to penetrate any farther inland than roughly one hundred miles, due to the difficulty of navigating the rivers as well as the challenges of the climate and disease.p. 115

Southern Africa with its tropical diseases, lack of ports, and lack of navigable rivers, and cut off from the west of the world by the vast Sahara desert, remained divided and tribal, which it remains to this day. Even today its infrastructure remains underdeveloped.

But the most tragic part of Africa’s colonization by Europe (apart from the slave trade) was that countries were established solely on the basis of ensuring the political control of the colonizers.

In 1884 at the request of Portugal, German Chancellor Otto von Bismark called together the major western powers of the world to negotiate questions and end confusion over the control of Africa. Bismark appreciated the opportunity to expand Germany’s sphere of influence over Africa and desired to force Germany’s rivals to struggle with one another for territory.

The Berlin Conference was Africa’s undoing in more ways than one. The colonial powers superimposed their domains on the African Continent. By the time Africa regained its independence after the late 1950s, the realm had acquired a legacy of political fragmentation that could neither be eliminated nor made to operate satisfactorily. The African politico-geographical map is thus a permanent liability that resulted from the three months of ignorant, greedy acquisitiveness during a period when Europe’s search for minerals and markets had become insatiable.

At the time of the conference, 80% of Africa remained under Native Traditional and local control…Following the conference, the give and take continued. By 1914, the conference participants had fully divided Africa among themselves into fifty unnatural and artificial States.

How African countries got their borders (TYWKIWDBI)

CHINA:

At the other end of the Eurasian continent lay China, and complex civilizations formed very early here was well. Once again, the nucleus was the great river valleys where millet, and later rice, were grown:

The concept of China as an inhabited entity began almost four thousand years ago. The birthplace of Chinese civilization is the region known as the North China Plain, which the Chinese refer to as the Central Plan. A large, low-lying tract of nearly 160,000 square miles, it is situated below Inner Mongolia, south of Manchuria, in and around the Yellow River and down past the Yangtze River, which both run east to west. It is now one of the most densely populated areas in the world. p. 39

The heartland, as the North China Plain is known, was and is a large, fertile plain with two main rivers and a climate that allows rice and soybeans to be harvested twice a season (double cropping), which encouraged rapid population growth. By 1500 BCE in this heartland, out of hundreds of mini city-states, many warring with each other, emerged the earliest version of a Chinese state–the Shang Dynasty. This is where what became known as the Han people emerged, protecting the heartland and creating a buffer zone around them. The Han now make up more than 90 percent of China’s population and they dominate Chinese politics and business. p. 40

The Yellow River basin is subject to frequent and devastating floods, earning the river the unenviable sobriquet “scourge of the sons of Han.” Nevertheless, the Yellow River is to China what the Nile is to Egypt—the cradle of its civilization, where its people learned to farm, and to make paper and gunpowder. pp. 39-40

To the north of this proto-China were the harsh lands of the Gobi Desert in what is now Mongolia. To the west the land gradually rises until it becomes the Tibetan Plateau, reaching to the Himalayas. To the southeast and the south lies the sea.

The heartland is the political, cultural, demographic, and crucially—the agricultural center of gravity. About a billion people live in this part of China, despite it being just half the size of the United States, which as a population of 322 million. Because the terrain of the heartland lent itself to settlement and an agrarian lifestyle, the early dynasties felt threatened by the non-Han regions that surrounded them, especially Mongolia, with its nomadic bands of violent warriors…By the time if the famous Chinese philosopher Confucius there was a strong feeling of Chinese identity and of a divide between civilized China and the “barbarous” regions that surrounded it. There was a sense of identity shared by 60 million or so people. p. 41

China’s geography and history caused it to turn inward, instead of outward, and this has made all the difference.

By 200 BCE. China had expanded toward, but not reached, Tibet in the southwest, north to the grasslands of central Asia, and south all the way down to the South China Sea. The Great Wall (known as the Long Wall in China) had been first built by the Qin dynasty (221-207 BCE), and on the map China was beginning to take on what we now recognize as its modem form. It would be more than two thousand years before todav’s borders were fixed, however.

Between 605 and 609 CE the Grand Canal, centuries in the making and today the world’s longest man-made waterway, was extended and finally linked the Yellow River to the Yangtze. The Sui dynasty (581-618 CE) had harnessed the vast numbers of workers under its control and used them to connect existing natural tributaries into a navigable waterway between the two great rivers. This tied the northern and southern Han to each other more closely than ever before. It took several million slaves five years co do the work, but the ancient problem of how to move supplies south to north had been solved but not the problem that exists to this day, that of flooding.

The Han still warred with each other, but increasingly less so, and by the early eleventh century CE they were forced to concentrate their attention on the waves of Mongols pouring down from the north. The Mongols defeated whichever dynasty, north or south, they came up against, and by 1279 their leader, Kublai Khan, became the first foreigner to rule all of the country as emperor of the Mongol dynasty. It was almost ninety years before the Han would take charge of their own affairs with the establishment of the Ming dynasty.

By now there was increasing contact with traders and emissaries from the emerging nation states of Europe, such as Spain and Portogal. The Chinese leaders were against any sort of permanent European presence, but increasingly opened up the coastal regions to trade. It remains a feature of China to this day that when China opens up, the coastland regions prosper but the inland areas are neglected. The prosperity engendered by trade has made coastal cities such as Shanghai wealthy, but that wealth has not been reaching the countryside. has added to the massive influx of people into urban areas and accentuated regional differences. p.41-42

China’s vast distance from the New World was to prove fatal, as Ian Morris explains:

Before people could cross the oceans, it had not mattered that Europe was twice as close as China to the vast, rich lands of the Americas. But now that people could cross the oceans, this became the most important geographical fact in the world.

The Atlantic, 3,000 miles across, became a kind of Goldilocks Ocean, not too big and not too small…The Pacific, by contrast, was far too big. Following the prevailing tides and winds, it was an 8,000-mile trip from China to California—just about possible 500 years ago, but too far to make trade profitable.

Geography determined that it was Western Europeans, rather than the 15th century’s finest sailors—the Chinese—who discovered, plundered, and colonized the Americas. Chinese sailors were just as daring as Spaniards; Chinese settlers just as intrepid as Britons; but Europeans, not Chinese, seized the Americas because Europeans only had to go half as far.

Europeans went on in the 17th century to create a new market economy around the shores of the Atlantic, exploiting comparative advantages between continents. This forced European thinkers to confront new questions about how the winds and tides worked. They learned to measure and count in better ways, and cracked the codes of physics, chemistry, and biology.

As a result, Europe, not China, had a Scientific Revolution. Europeans, not Chinese, turned science’s insights onto society itself in the 18th century in what we now call the Enlightenment.

By 1800, science and the Atlantic market economy pushed Western Europeans into mechanizing production and tapping the power of fossil fuels. Britain had the world’s first Industrial Revolution, and by 1850 bestrode the world like a colossus.

One popular theory is that Grand Canal provided a substitute for outward exploration:

Was the Grand Canal a substitute for Chinese ocean exploration? (Marginal Revolution)

This comment to the above article does a good job of explaining why Portugal’s explorations were profitable enough to be self-sustaining, while Chinese “treasure ship” fleets were more about projecting power, and were not economically viable in the long term (even if Gavin Menzies claims are correct):

The way European and Chinese explorations were initiated was a bit similar, a state funded project to achieve non-economic goals. But China gave huge resources to the project, while Portugal had strictly limited resources, the land income of military monastic orders (Order of Aviz, Order of Christ) that became under-employed after Portugal ended reconquista. Crusades in Morocco were tedious and rather fruitless. Henry the Navigator, younger brother of the king got the history changing idea of sending ships further south than Morocco even though nobody knew what they will encounter. But risking few lives was exactly what military orders were doing: taking care of the younger sons of nobility so they would not become highway robbers, rebels etc. However, even “rich” orders had scant resources in a kingdom with one million inhabitants so as soon as possible explorations were aimed to give some profit and sustain themselves. One should also note that ships that were seaworthy in the stormy seas of western Atlantic were seaworthy pretty much everywhere. After some 30 years, explorations that had budget fitting the dedicated budget of the orders started to yield increasing profits, and after 70 years Africa was circumnavigated and reaching Asian trade routes and lucrative markets became imminent. Then the neighboring Spanish hopped onto the bandwagon etc. Later European monarchs from countries closer to the mercantile center of Europe actively supported piracy and other “omnivorous” sources of profit. In other words, the continuation of expeditions beyond the lifetime of Henry the Navigator had good economic case.

Zheng Ho was a friend of the Chinese emperor and he got approval and budget to build Treasure Fleet that informed barbarians about the glory of the Empire of the Center. The ships were huge and magnificent, but following the traditional Chinese shipbuilding that allowed to navigate without difficulty in the zone of Trade Winds, but probably not so much beyond that. Circumnavigation of Africa would require sustained effort and decades of initially fruitless technological progress. Ships were loaded with beautiful products from state supervised manufactories, e.g. porcelain, and were bringing back “gifts from barbarians”, that could delight the emperor but were not justifying the huge expense. Having a giraffe in the imperial menagerie was a success that Confucian scholars in the administration of the empire did not appreciate, they would rather trim the budget and decrease taxes. And once the patron and friend of Zheng Ho was replaced with his successor the program was abolished.

It is easy to see that China could not achieve through “explorations” what they were getting anyway by foreign traders visiting their ports. More irrational was the lack of military navy that would defend the coast against Japanese pirates. In the same time, that was actually related to the renovation of the Grand Canal. That renovation was related to the change of capital from Nanjing or Beijing, and the change of focus in the foreign affairs from the south-central sea cost to the steppe of Manchuria and Mongolia, and internally, the calamities faced by the coastal Chinese were neglected to focus on the danger from the nomads. Basically, for a huge empire internal politics are much more important that whatever happens beyond the borders, and the directions of foreign policy are mostly dictated by the internal circumstances of the ruling elite. Some contemporary states come to mind…

The most popular explanation for why it was foggy England rather than China (which had plenty of coal) that started the Industrial Revolution was articulated by the economic historian Kenneth Pomeranz, and also has to do with geography, specifically where those coal deposits were located:

What, then, does account for the “great divergence” of the book’s title? Pomeranz argues for the importance of two factors, essentially exogenous “shocks” outside the price system that had important effects on the economy: the distribution of energy-generating resources and the accident that Europe discovered the New World, whereas China did not.

The first argument might be termed “geology is destiny.” Coal was the chief energy-generating resource significant for the Industrial Revolution. The location of major coal deposits was a critical factor in determining the viability of industrialization. England’s coal deposits were located almost exactly where manufacturers would have placed them if they had had a say in the matter; transportation costs therefore were low and were made still lower by the ready availability of efficient water transport. Compare this development-friendly geographic distribution in Europe with the geographic distribution in China. Although China was blessed with large coal reserves, they were located for the most part in the thinly populated northwest, hundreds of miles from the potential manufacturing centers in the south and east. Thus, China was at a relative disadvantage compared to Europe in terms of the luck of the geological draw. At the same time that coal in eighteenth-century Europe was cheap and readily available to fuel industry, in China that resource remained relatively expensive and in large part a curiosity relegated to the collections of rock hounds.

The second argument is another variation on the “good luck versus bad luck” theme. The fortuitous (for Europe) circumstance of the discovery of the Americas and the subsequent availability of resources for the Industrial Revolution that this discovery entailed were the exogenous factors. The flow of cotton, sugar, timber, and tobacco to Europe from the New World gave economic development there a significant boost at a critical time; China enjoyed no advantage even remotely comparable.

The Great Divergence (The Independent Review)

THE MIDDLE EAST

Although the Near East was where complex civilization first emerged in Eurasia, it fell behind China and Europe in the Early Modern period for reasons which are still debated. The sack of Baghdad by the Mongols appears to have been a critical blow for Islamic civilization.

The most salient geographical fact about it in my mind has to be—that’s where the oil is! This factor was unimportant until liquid hydrocarbon fuels became essential to the Industrial Revolution, particularly for transport. Now it’s arguable the most important geopolitical factor in the world.

The Greater Middle East extends across one thousand miles, west to east, from the Mediterranean Sea to the mountains of Iran. From north to south, if we start at the Black Sea and on the shores of the Arabian Sea off Oman, it is two thousand miles long. The region includes vast deserts, oases, snow-covered mountains, long rivers, great cities, and coastal plains. And it has a great deal of natural wealth in the form that every industrialized and industrializing country around the world needs–oil and gas.

It also contains the fertile region known as Mesopotamia, the “land between the rivers” (Euphrates and Tigris). However, the most dominant feature is the vast Arabian Desert and scrubland in its center, which touches parts of Israel, Jordan, Syria, Iraq, Kuwait, Oman, Yemen, and most of Saudi Arabia, including the Rub al Khali or “Empty Quarter.” This is the largest continuous sand desert in the world, incorporating an area the size of France. It is due to this feature that not only the majority of inhabitants of the region live on its periphery, but also that, until European colonization, most of the people within it did not think in terms of nation states and legally fixed borders.

The notion that a man from a certain area could not travel across a region to see a relative from the same tribe unless he had a document, granted to him by a third man he didn’t know in a faraway town, made little sense. The idea that the document was issued because a foreigner had said the area was now two regions and had made up names for them made no sense at all and was contrary to the way in which life had been lived for centuries. pp. 135-136

As with Africa, it was the partitioning of antagonistic tribal cultures into modern nation states by European powers which set the stage for much of the chaos taking place in that region today. Climate change is certain to make this even worse in the future.

In 1916, the British diplomat Colonel Sir Mark Sykes took a grease pencil and drew a crude line across a map of the Middle East. Ie ran from Haifa on the Mediterranean in what is now Israel to Kirkuk (now in Iraq) in the northeast. It became the basis of his secret agreement with his French counterpart Francois Georges-Picot to divide the region into two spheres of influence should the Triple Entente defeat the Ottoman Empire in the First World War. North of the line was to be under French control, south of it under Brit:ish hegemony. p.136

…there was violence and extremism before the Europeans arrived. Nevertheless, as we saw in Africa, arbitrarily creating “nation states” out of people unused to living together in one region is not a recipe for justice, equality, and stability. Prior to Sykes-Picot (in its wider sense), there was no state of Syria, no Lebanon, nor were there Jordan, Iraq, Saudi Arabia, Kuwait, Israel, or Palestine. Modem maps show the borders and the names of nation states, but they are young and they are fragile.p. 137

RUSSIA

Finally, Russia, far to the north and east and mostly landlocked except for the ports on the Black and Baltic seas (until its later expansion across Siberia) was destined to be behind Western Europe. It formed a unique culture of its own, mixing East and West. Not until Peter the Great would it take its place among the great European powers.

But the biggest factor was it’s exposure to the nomadic pastoralist raiders of the vast Eurasian grasslands, most notably the Mongols. These steppe nomads would plague both Russia and China throughout their history. Not only would the wrenching changes of the North Atlantic pass by Russia by until much later in history (serfdom was abolished in 1861), but the leaders Russia to this day would obsess over establishing buffer zones to protect the Slavic heartland from invasion:

Russia as a concept dates back to the ninth century and a loose federation of East Slavic tribes known as Kievan Rus, which was based in Kiev and other towns along the Dnieper River, in what is now Ukraine. The Mongols, expanding their empire, continually attacked the region from the south and east, eventually overrunning it in the thirteenth century.

The fledgling Russia then relocated northeast in and around the city of Moscow. This early Russia, known as the Grand Principality of Muscovy, was indefensible. There were no mountains, no deserts, and few rivers. In all directions lay flatland, and across the steppe t the south and east were the Mongols. The invader could advance at a place of his choosing, and there were few natural defensive positions to occupy.

With no natural barriers, and surrounded by enemies, the Russians needed to develop a strong authoritarian state to survive at all.

Enter Ivan the Terrible, the first tsar. He put into practice the concept of attack as defense–i.e., beginning your expansion by consolidating at home and then moving outward. This led to greatness. Here was a man to give support to theory that individuals can change history. Without his character, or both utter ruthlessness and vision, Russian history would be different.

What they did was to spend several centuries developing a “buffer zone” around Moscow, at the same time establishing ports where this landlocked power could interact with the outside world via trade instead of just being invaded.

The fledgling Russia had begun a moderate expansion under Ivan’s grandfather, I van the Great, but that expansion accelerated after he carne to power in 1533. It encroached east on the Urals, south to the Caspian Sea, and north toward the Arctic Circle. I r gained access to the Caspian, and later the Black Sea, thus taking advantage of the Cau .. casus Mountains as a partial barrier between it and the Mongols. A military base, was built in Chechnya to deter any would … be attacker, be they the Mongol Golden Horde, the Ottoman Empire, or the Persians. There were setbacks. but over the next century Russia would push past the Urals and edge into Siberia, eventually incorporating all the land to the Pacific coast far to the east.
When they finally got to the Baltic Sea and established St. Petersburg, the rulers decided that it was time for Russia to become a great European power.

In the eighteenth century, Russia, under Peter the Great-who founded the Russian Empire in 1721-and then Empress Catherine the Great, looked westward, expanding the empire to become one of · the great powers of Europe, driven chiefly by trade and nationalism. A more secure and powerful Russia was now able to occupy Ukraine and reach. the Carpathian Mountains. It took over most of what we now know as the Baltic States-Lithuania. Latvia. and Estonia. Thus it was protected from any incursion via land that way, or from the Baltic Sea.

This chapter of the book was excerpted by The Atlantic, and be read here:

Russia and the Curse of Geography (The Atlantic)

Next time we’ll take a closer look about how a few accidents of geography led to the formation of capitalist markets in Western Europe based on a new theory.

Stock-ing the Deck

Bonds aren’t the only way the One Percent are screwing us over. We already looked at bonds, but stocks, too, are being manipulated by the rich to their benefit and our detriment, as Mark Blyth explains in the podcast we heard from last time:

[11:30]What’s the marginal value of a dollar to someone who’s got a hundred bucks? That dollar means something. What about 1000,000 bucks? What about a billion; a thousand million? And yet they’re the same people that refuse to pay any taxes. They’re the people that refuse to have any stake in their communities. They’re obsessed in their companies with shareholder value and returns constantly going back to the same people.

Think about Apple. Everybody’s favorite company, right? These guys have got a 250 billion dollar pile of cash they don’t know what to do with. They keep it on balance sheets abroad; they don’t use it. They then issue bonds, because their stock is so valuable because it’s in every single [exchange-traded fund] imaginable, so it’s impossible for the value of their stock to go down. So they then issue bonds, take the money from that, buy back their stock, watch it go up in value–because, of course, there’s less stock so that means it’s more valuable–and then they reward themselves more salary gains because their price went up!

Here’s a good video from Robert Reich explaining the concept:

It’s a common refrain that the fortunes of the rich make us all better off. That is, we are not made poorer by their riches. But this is patently untrue! The money that goes to stock buybacks is money NOT going to employee salaries (or R&D or productivity enhancements or…).

Stock buybacks are the product of two relatively modern economic features. One was the fact that it was illegal until the Reagan administration, where it was an early form of deregulation. Then came the idea that corporations should maximize shareholder value to the detriment of all else, and the tying of executive compensation to stock price. These factors collected to form a witch’s brew of bad incentives.

Finally, add decades of tax cuts for the wealthiest Americans, who have no productive investment options (because they have more money than they know what to do with while everyone else is broke). So what to they do? Buy back stocks to artificially raise their value, of course! And most of the wealth of rich comes from stocks and bonds (not “hard work”). What do they NOT do with the money? Raise their workers’ salaries. As for R&D, they can always count on the taxpayers to foot that bill, while forcing those same taxpayers to pay through the nose for any profitable invention that might result.

So there’s a good case to be made that the main end product of the latest round of tax cuts is a stock market bubble, along with the price inflation of assets that the rich mostly buy (like art and real estate). Meanwhile, wages remain stagnant, even in a “tight” labor market.

No one is hurt by the fortunes of the rich, eh?

Stock buybacks are eating the world. The once illegal practice of companies purchasing their own shares is pulling money away from employee compensation, research and development, and other corporate priorities—with potentially sweeping effects on business dynamism, income and wealth inequality, working-class economic stagnation, and the country’s growth rate…Companies are working overtime to make their owners richer in the short term, more so than to improve their longer-term competitiveness or to invest in their workers.

The restaurant industry spent 140 percent of its profits on buybacks from 2015 to 2017, meaning that it borrowed or dipped into its cash allowances to purchase the shares. The retail industry spent nearly 80 percent of its profits on buybacks, and food-manufacturing firms nearly 60 percent. All in all, public companies across the American economy spent roughly three-fifths of their profits on buybacks in the years studied. “The amount corporations are spending on buybacks is staggering,” Milani said. “Then, to look a little deeper and see how this could impact workers in terms of compensation, was staggering.”

How much might workers have benefited if companies had devoted their financial resources to them rather than to shareholders? Lowe’s, CVS, and Home Depot could have provided each of their workers a raise of $18,000 a year…Starbucks could have given each of its employees $7,000 a year, and McDonald’s could have given $4,000 to each of its nearly 2 million employees.

“Workers around the country have been pushing for higher wages, but the answer is always, ‘We can’t afford it. We’d have to do layoffs or raise prices,’” Tung said. “That is just not true. The money is there. It’s just getting siphoned out of the company instead of reinvested into it.”

The report examines the period just before President Donald Trump’s $1.5 trillion tax cut came into effect, leading to an even greater surge of buybacks and thus an even greater surge of new wealth for the owners of capital, as wages have continued to stagnate. The tax legislation cut both the top marginal corporate tax rate from 35 to 21 percent—dropping the estimated effective tax rate on profitable businesses to just 9 percent, well below the effective tax rate for households—and encouraged firms to bring money back from overseas.

What did publicly traded corporations do with that money? Buy back shares and issue dividends, mostly…analyses from investment banks and researchers have estimated that 40 to 60 percent of the savings from the tax cut are being plowed into buybacks. One analysis of companies on the Russell 1000 Index—which consists of big firms, much like the Standard & Poor’s 500 does—found that companies directed 10 times as much money to buybacks as to workers…Companies do not get better because of buybacks; it is just that shareholders get richer.

Both by increasing inequality and reducing corporate investment, and thus productivity gains, buybacks might be bad for the overall economy, too. A high-inequality economy is one with less consumer spending and demand across the board, thus one with a lower GDP. A low-investment economy is a more sclerotic and less innovative one, and thus one with a lower GDP.

Are Stock Buybacks Starving the Economy? (The Atlantic)

Despite historically high profits and trillions in cash, corporations refuse to pay workers more. Instead, they use their earnings to buyback stock or increase dividends. The Trump tax cuts are magnifying this behavior, which is what happened after the 2004 American Jobs Creation Act, another time when corporations repatriated foreign cash holdings at a lower tax rate.

These decisions are short-sighted. Workers are also consumers. If they have more money, they will spend it, and consumer spending is a boon to economic growth and job creation. Corporations can afford to invest in their people and choose not to, hindering the health of the economy overall.

By Tripling Its Stock Buybacks, Apple Robs Workers And The Economy (Forbes)

ADDENDUM:

Not only are there more stock buybacks, but there are fewer publicly-traded companies overall. The stock market is shrinking, and profits are only being earned by a small fraction of them. And investing is increasingly becoming an insiders game, even more than it already was:

In the mid-1990s, there were more than 8,000 [publicly traded companies]. By 2016, there were only 3,627…Because the population of the United States has grown nearly 50 percent since 1976, the drop is even starker on a per-capita basis: There were 23 publicly listed companies for every million people in 1975, but only 11 in 2016…

■ The companies on the market today are, on average, much larger than the public corporations of decades ago. Fast-rising upstarts are harder to find.

In 1975, 61.5 percent of publicly traded firms had assets worth less than $100 million, using inflation-adjusted 2015 dollars. But by 2015, that proportion had dropped to only 22.6 percent.

■ Profits are increasingly concentrated in the cluster of giants — with Apple at the forefront — that dominate the market. For a far larger assortment of smaller companies, though, profit is often out of reach. In 2015, for example, the top 200 companies by earnings accounted for all of the profits in the stock market… In aggregate, the remaining 3,281 publicly listed companies lost money.

In theory, as a shareholder, you are entitled to a piece of a company’s future earnings. That’s one of the main arguments for buying stock in the first place. But the reality is that you often are buying a piece of a money-losing proposition. Aside from the top 200 companies, the rest of the market, as a whole, is burning, not earning, money.

■ A quirk of accounting is at the root of some of that profit deficit, especially for smaller and younger companies. Increasingly, value resides in intellectual property — “intangibles” like software and data and biological design — rather than in the production of physical objects like cars.

But under generally accepted accounting principles, or GAAP, which American companies must follow, research and development must be deducted from corporate income — and those charges can reduce or eliminate profits. (Capital expenditures — in physical things like factories — appear on corporate balance sheets, not income statements, and don’t reduce profits.)

Without deep knowledge of a company’s critical research — which businesses may be reluctant to share, for competitive reasons — it’s difficult for outsiders to evaluate a start-up’s worth. That makes it harder to obtain funding, and it may be partly responsible for certain trends: why there are fewer initial public offerings these days, why smaller companies are being swallowed by the giants, and why so many companies remain private for longer.

The Stock Market Is Shrinking. That’s a Problem for Everyone (New York Times)