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)

Of Human Bond-age

I’ve often said that collectively we’ve made the decision to borrow from the rich instead of taxing them.

The thing is, when the government borrows, it isn’t actually borrowing. After all, it is the sole issuer of the currency, so why would it have to borrow it’s own currency? From whom? From itself? Where else would the currency come from?

It’s as if you had to “borrow” your paid-off car and drive it into work every day. How can you borrow something you already own?

Who are the “lenders” to government? Why are they loaning their government it’s own money? How can that be? Where does the money that the private sector is “making” come from? After all, they are not literally “making” it, which would technically be counterfeiting. There is no alternate source of dollars “out there” that the government must work to procure (although private loans in banks DO create money, something I’ll discuss in another post).

And so how, then, can the U.S. government be consistently broke as we’re often told?

Anyway, all this questioning was confirmed for me by an appearance by Mark Blyth on the Mixed Mental Arts podcast. Blyth wrote a book about austerity, which he calls a “dangerous idea.” He wanted to go all the way back to discuss the source of this idea, and here’s what he found:

[43:19-46:36] Mark Blyth: “So the basic problem is this. If you go right back—because I wanted to do the intellectual history of what I call this dangerous idea —where do you start? Well, you start with John Locke. You start out with Locke’s chapter on property. He starts with this puzzle: Everything is held in common and we’re all creatures under God. How can we have unlimited wealth and private property?”

Well, let’s do this thing about improvements, so he does this thing, and that’s how he gets it. And then he realizes very quickly that you’re going to end up with an incredibly unequal world, and that might be bad, so then he has to do something he hates because he’s a Liberal. He invents the state. Because if you don’t have a state that’s strong enough to protect your property rights, then why would you ever invest to get your property, right? But if the state’s strong enough to do that, then it can take your property.

So this is the tension. This the American constitution, and everything is written in this sort of classical frame. So the problem is, when you come along and you get to [David] Hume and [Adam] Smith and others a hundred years later—those Scottish Enlightenment figures—what they’re figuring out is that this whole thing called debt is kind of interesting. Because what you can do is you can issue bonds now and somebody will give you real money which you can then spend on a promise that you will pay it back later on.

Well, if you give that to any politician, you know that’s going to be abused. You know that’s the case. But here’s why they like it. You see, because you’ve got this highly unequal world now, and because you’ve got lots of private property, you need a big state to protect that, and police it, and all the rest of it. But you don’t want to pay any taxes. So if you don’t want to pay taxes to protect your property, then you’re going to have to get the income to do it somewhere else. Well, how about bond markets? Because then the state can issue bonds, and it can tax future taxpayers. And I—the guy who’s already got all the private property—I can buy those bonds.

So in a sense, I’m giving the state a loan that I get back all the money with interest, and the state then is able to protect my property rights. That’s awesome!

Hunter Maats: And also it’s sufficiently complicated that probably the people that you’re fucking over won’t understand [what’s going on]…

MB: To recap: I have a problem. I need the state to protect my property rights. I don’t want to pay any taxes and I hate the state. But I need a state otherwise I won’t have any income or any property. So I’ve got to pay for that and I don’t want to pay taxes, so what am I going to do? I’ll invent a bond market. I’ll get the state to issue bits of paper; I’ll lend it the money; I’ll get all the money back with interest, and then future taxpayers—not me—will pay for it.

HM: So you’re setting yourself up for the ultimate human experience: I get to own everything, I get to have my property secure, and I pay for nothing.

MB: Now let’s jump forward to today. There’s a piece in Foreign Affairs by a guy called Sandy Hager that points out that for all the shitting and panic and dire [warnings] that go on about the U.S. national debt, most of it’s owned by the one percent. Why? Because it’s an interest-bearing asset that’s actually incredibly secure because If the United States defaults on its debt, we’re already in Mad Max world. So we have this story about debt as being unproductive and bad and it’s from excessive spending, and blah, blah, blah. You follow the history all the way through, this is basically Liberalism trying to pay for itself on the cheap.

[…]

[50:47] Mark Blyth: …So debt’s basically a class-specific put option to use the language of finance. I get to have the asset and the asset security and you pick up the insurance if it all goes wrong. And that’s true. But there’s also a productive story here.

So let’s go back to me being able to go to a decent school, going to a public university, and becoming a professor from what are very humble origins. Well, that’s because governments issue debt, and then they build infrastructure and they hire teachers, and they invest in schools, and they do good shit with it. And then you end up with a virtuous circle world—and here’s what I mean by this. Imagine if I stayed in Britain. If there were no welfare state, what are my most likely outs? I’m in the army or I go to prison. Lots of kids that I went to school with went both of those ways. But a lot of us managed to get out.

Now at the level of income I am now in Britain, I would be paying 40-45 percent of my income in taxes straight to the government. So over a five-year period at that bandrate, given what I am now, I have paid back every single cent that was invested in me, and then some. So you can have public debt and public financing which is incredibly productive of human and physical capital assets. We’re in the worst possible world—we generate debt, but we don’t do the investment.

Mixed Mental Arts #320: Not So Austere – Mark Blyth (YouTube)

We generate the debt, but we don’t generate the investment. Yep. And therein lies the problem. We’re in hock to the one percent who own all the bonds, but we’re getting nothing in return!

Then, as Blyth points out, the one percent use the deficit “we” are leaving to “our grandchildren” to justify destroying the already threadbare social safety net–the only thing keeping huge amounts of Americans from being even poorer and more destitute than they already are (many Americans have little to no savings).

And expanding the safety net is impossible, we’re told by the powers-that-be, because “where will the money come from???” Watch any interview with Alexandria Ocasio-Cortez, for example, and I guarantee you will hear this question. I’ll address that in a bit.

It’s clear that this whole operation–borrowing from the rich instead of taxing them, and using the resultant debt to claim that government is ‘bankrupt’–is a core strategy under Neoliberalism. I wasn’t able to find the exact article Blyth referenced above, but I did find another very good one by the same author–Sandy Hager, who has written an entire book about the politics behind bonds and who owns them.

In the article, he talks about a concept I first read about in Wolfgang Streeck’s terrific collection of essays, How Will Capitalism End? In that book, Streeck talks about the rise of Neoliberal debt states. From the end of the Second World War through about the 1980’s, governments more-or-less raised taxes on their wealthy citizens to fund their operations without relying too much on borrowing. Then, with the rise of Neoliberalism, states began reducing taxes on the wealthy and corporations, and funding their operations more and more through debt.

The Politics of Public Debt (Public Seminar)

Across the globe, taxes on corporations plummet (Washington Post)

In essence, what the transition from the tax state to a debt state means is that the Federal Government chooses to borrow from the bondholding classes rather than taxing it. And in deciding to furnish wealthy households and large corporations with risk-free assets instead of levying taxes on their incomes, the debt state reinforces the existing pattern of inequality. This raises further questions about the long-term stability of current arrangements. The debt state is likely to persist into the foreseeable future, and the reason has to do in large part with the role played by foreign ownership of the public debt.

The problem I highlight in the book is not a large public debt. As Abba Lerner first demonstrated in the 1940s, the outstanding level of public indebtedness is inconsequential so long as it is being accumulated as part of a macroeconomic strategy to achieve non-inflationary full employment. In fact, for a monetarily sovereign entity like the US Federal Government, which issues debt in a currency it fully controls, bankruptcy is never really an issue because the Federal Reserve can purchase government bonds when the private sector does not want them. The existence of a powerful bondholding class should provide no solace for “deficit hawks” eager to find evidence to support their fear mongering about the supposed unsustainability of the public debt.

The real problem, then, is a large unequally distributed public debt. This distinction is absolutely crucial. From an emancipatory point of view, the point is not to try to eliminate or even reduce the public debt, but to find ways to tackle the inequality that underpins the public finances. As mentioned earlier, the emergence and consolidation of the debt state was driven primarily by tax stagnation and declining tax progressivity. The debt state, in other words, has come into being because the Federal Government has come to rely on borrowing from the bondholding class instead of taxing it. Restoring progressivity to the federal tax system, by increasing tax rates on wealthy households and large corporations, would therefore go a long way in addressing the growing inequalities in ownership of the public debt and in the ownership of wealth and income more generally.

https://roarmag.org/magazine/sandy-hager-public-debt-bondholding-class/

Of course, this problem could easily be solved. The one percent has accumulated more than enough wealth and assets—including incalculable shadow wealth hidden in offshore accounts—to deal with the global debt. And besides, they own the debt, remember? A lot of their wealth is due to the fact that they are the creditors of this debt. Remember, the state’s liabilities are someone else’s assets, and assets and liabilities always sum to zero, as Blyth points out.

[47:00] Mark Blyth: The United States has never been richer. It’s got a 17 trillion dollar debt in an 18 trillion dollar economy. The net figure is probably about 12 trillion, right? Here’s the thing—that’s an interest-bearing asset. When the treasury says, “Who wants to buy our debt?,” it never fails; everybody wants to buy it. Why? Would you like to buy a Euro bond? The Euro might not be there in five years. That’s toilet paper. You want to buy a Chinese bond? Oh, you can’t.

So if you want a safe, secure asset where you give somebody 10,000 dollars and ten years later you get it back and they pay you interest in the meantime, it’s us, and it’s always been us. The majority of that debt is owned by big financial institutions and the one percenters in the income distribution. Over 70 percent of that debt is held domestically in the United States. We talk a lot of crap about debt—it’s stuff we owe to ourselves. It’s rich people lending the government money so the government can give them back money so they can hand them back their own money.

Why does nobody talk about this? How come a blogger like me can figure this out, but the entire mass media is silent? (this is a rhetorical question, of course; I know the answer).

A good insight into how government “borrowing” works (and my overused quotation marks really are appropriate here) is provided by this episode of the Odd Lots podcast. A side note—this was posted on Naked Capitalism. Although the podcast is still available as of this writing, when I went to the official podcast page of the Odd Lots Podcast (produced by Bloomberg), this episode was mysteriously not there. Not to get all conspiratorial here, but maybe this is information they don’t want the general public to hear? Anyway, here’s some of the conversation with bond trader Brian Romanchuk. Listening to the interview should hopefully make it clear that government “borrowing” is not really borrowing at all. Here’s their introduction:

Joe Weisenthal: There is a sort of naïve view about how people talk about government debt. Particularly with US government debt, there’s often this view that sees the government as a typical borrower like a household or a person trying to borrow money to buy a car. And as we know, it doesn’t really work that way and that can really lead people to a lot of false assumptions about what interest rates are going to do and what the Market is going to do.

Tracy Alloway: Deep down in my gut I have always been uncomfortable that the US can borrow extraordinary amounts of money and not have major, major impacts…

And the interview:

Joe Weisenthal: Now, one of the things we talked about in the intro is we have to dispel the myth that the U.S. is just like any other private sector borrower. So we’ve established that the bonds on paper look the same. It looks like any other corporate bond or a loan that might get turned into a bond-like instrument. But its fundamentally different and the key difference is the source of funds. So explain to us structurally why the U.S. is a different type of borrower.

Brian Romanchuk: Well, the key difference is the U.S. controls its central bank. The horrible counterexample is a place like the Euro area where the countries don’t control their central bank. Ultimately, all the bonds say, ‘We’re paying you U.S. dollars.’ The U.S. dollar is a liability of the US Federal Reserve, and the US Federal Reserve—the Fed—is owned by the Treasury. So that gives you the one big picture difference than any other borrower.

The other issue is, for the government, they’re more concerned about the macro consequences of spending and not so much the financial. A smaller borrower—an individual bank, no matter how big they might be—aren’t really worried about the effect of their spending on the overall economy. And that is a key difference.

Tracy Alloway So, why can’t the US government just borrow as much as it wants—enormous amounts of money? What are the negative effects that are going to happen if it does that?

BR: It’s not the borrowing per se that’s the problem. If there’s a problem, it would be on the spending. Because what is the government buying? Maybe they’re buying good things, maybe it’s bad things. One can always debate what to spend money on. But from a macro perspective, what the worry is, is that if the government starts buying too much stuff, it will drive up the price of everything, i.e. there’s inflation. But the borrowing is the flip-side of the spending because if they’re spending…it’s a mistake to worry about what they’re borrowing; what are they spending on?

JW: …Why is it not a risk that on day lenders just won’t show up?

BR: The reason why governments can get away with this is—their spending creates the money that then is sucked back in by the bond auction. It’s a circular flow. And this is why, yes, there’s a demand for borrowing by the government, but at the same time they’re supplying money that then is recirculated back into the bond market.

JW: So let’s say the government want to spend ten billion dollars more on some new aircraft program for the military. That ten billion dollars that they spend winds up in the bank account of some private defense contractor. And then that money in the bank–perhaps via a circuitous route–ends up being back invested in government bonds. Do I have that right?

BR: Yeah, that’s basically it…what happens is, if the government sends a defense contractor ten billion, they’ll have a ten billion deposit on the bank, the bank in return will get 10 billion transferred to them from the Fed, and they have 10 billion as a deposit at the Fed. These are reserves; because the Federal Reserve is a bank. The customer might want that 10 billion in the bank account because they have expenses.

But the bank itself, what’s it going to do with the 10 billion? It has an asset on the balance sheet which is a deposit at the Fed which is a low risk asset which used to pay nothing but now very little. And they want to do something else with that asset on their balance sheet and so they then go out and say, ‘We want something that gives a higher return.’ Essentially, how the loop gets closed is, they say, ‘Look, there’s Treasury Bonds. We buy them.’ They should have an expected return higher than leaving the money on deposit at the Fed. And so the bank will go out and buy the Treasury Bonds in the auction, because otherwise they’re stuck with a deposit at the Fed that’s paying them very little.

…For every buyer there’s a seller, and scare stories often revolve around forgetting that basic principle. Someone with a dollar has to buy. Pricing can change, of course. If you’re worried about pricing, Treasury prices would go down relative to other things, but the flows will still cancel out.

We’ve talked about this before—the basic difference between holding money in a bank account and in bonds is just that one has a higher return. All you do is shift funds between one account and the other via keystrokes, much like you might transfer your money from a checking account to savings account (checking being more liquid since checks can be written against it). It’s just that one account is considered ‘money’ and the other as ‘debt’. But, basically, the debt is just a place to store cash, and hence a higher-yielding but less liquid form of money (money is debt, remember?). Bonds are also an alternative to stocks, which are also lending money, just lending ti to private-sector entities rather than public-sector ones. From a different episode of this podcast:

In long-term rates [bonds] are an alternative to stocks. The difference between stocks and bonds is if you buy a bond and hold it to maturity you’ll earn the coupon, and depending on whether inflation is or isn’t a problem you’ll give some of it back in purchasing power. Stocks on the other hand, give you a yield based on their dividends, but they also have a lot more upside if things work out pretty well, and then of course they have a downside if they don’t.

Back to the interview:

JW: So we’ve established that for the US, credit risk isn’t really a thing because the dollars that come to buy treasuries come from [government] spending. We’ve also established that you don’t even need to be a reserve currency for this phenomenon to exist because it’s [also] in Japan which also has lots of debt, and Canada and Australia and New Zealand [which are not anyone’s reserve currency]. Then the question is, why can’t all countries do this? Think of a country like Venezuela and the debt they have. Why can’t they just spend and keep a stable currency and a stable market?

BR: There’s policy differences between Venezuela and the U.S. coming down to the strength of the tax system. The IRS, as everyone knows, is a powerful organization. Income tax has the effect of damping economic activity, and so it controls inflation better than in a country with a weaker tax system. My pet theory is that the difference comes down to the effectiveness of the tax regime for inflation control. That’s a major difference.

There is also a question of what is produced. If you’re dependent on foreign imports for a lot of goods, then your domestic inflation is driven by your exchange rate. Whereas the US is relatively a closed economy when compared to other countries. Changes in the exchange rate don’t have much of an effect on prices. If the US dollar falls 10 percent, it’s not really noticeable in domestic prices.

And their conclusion:

So the big picture is that, it’s not the borrowing per se; it’s not the gap between government’s expenditure and its revenues; it’s really about the capacity of the economy to absorb all that spending. That’s what theoretically would drive inflation. And then the link between inflation and what the Fed does, that would be what ultimately determines what long-term rates are going to do. Once you answer that, then you can decide whether it makes sense to buy a bond.

And then also just this idea that there’s different growth or inflationary impacts of different kind of fiscal policies. If you were to give Bill Gates a one billion dollar tax cut or whatever it is, it’s probably not going to do much because Bill Gates has more money than he knows what to do with. Whereas if you were to put it towards consumption, and typically something that we don’t have much capacity in like housing or something like that, then you might see a real inflationary impact.

One other point I think is key is that there has this question of the tax cuts are blowing out the deficit and who is going to buy all that debt? And the simple answer is: a bunch of people just got tax cuts, and so they’re going to have a lot more money. So we already know who’s going to buy it—it’s those people that have more money in their bank account. If you think of this closed loop phenomenon, it allows you to anticipate who is the new entity that’s going to be doing the buying.

This Is What’s Actually Happening When The Government Auctions Bonds (Odd Lots)

Which brings us back around to the core point. Cutting taxes on the already wealthy won’t stimulate the economy. What it will do is allow them to buy the government’s debt and get paid back with interest, rather than paying taxes. It also allows them to fund political campaigns.

As advocates of Modern Monetary Theory point out, it’s not a theory—it’s descriptive of how the monetary system actually works. One of its originators, Warren Mosler, was a bond trader who saw how all this operated and put the pieces together.

Are We Really Broke?

So if debt is actually money, are we truly ‘broke’ as we keep hearing from certain  politicians? Is the U.S. really on the verge of bankruptcy as some would have it?

The MMT Podcast episode 5 has a lot of good stuff in it. Although it’s mainly about the Job Guarantee (again, a topic for another post), it has this exchange which is relevant to our discussion. If the government goes into “debt” by enhancing the productive economy, say, by providing people with jobs, it need not be inflationary—no more than hiring any other Federal Employee or crediting government contractors:

[1:16:39] Rohan Grey: To go to the question of, What if we set up a public policy regime where governments felt able to create money? The first thing about that is, government debt is a form of money! If you’re a sophisticated pension fund manager with 100 billion dollars of assets, you’re not storing your cash in twenty-pound bills; you’re storing it in Treasury securities.

So if you’re holding Treasury securities of, say, three month duration, you’re holding that to satisfy your cash holding needs in your portfolio allocation. So when a government runs a deficit of 100 billion dollars and it finances that by issuing 100 billion dollars of treasury securities, that’s a form of “printing money” not dissimilar from issuing 100 billion dollars of cash or 100 billion dollars of reserves.

Christian Reilly: The thing that makes the dollar bill good is the same thing that makes the dollar bond good.

Rohan Grey: That’s right, that’s what Thomas Edison said a while back in a great article for the New York Times. So that exact point is understood by sophisticated financial players and not necessarily something that gets articulated to the average person, particularly by the Right wing who love to talk about how we’re ‘burdening our grandchildren’ and ‘spending beyond our means’ and this type of stuff.

A Job Guarantee vs a Universal Basic Income (MMT Podcast)

I looked up that Thomas Edison quote above. I found this page about it, and what Edison was essentially arguing was that going into debt to financiers to build a new power station at Muscle Shoals (which Henry Ford was proposing) was pointless when the government could just issue the money! That’s why he said that the same thing which makes a bond valuable (the ability to tax) also makes a dollar valuable:

…any time we wish to add to the national wealth we are compelled to add to the national debt…If our nation can issue a dollar bond, it can issue a dollar bill. The element that makes the bond good makes the bill good. The difference between the bond and the bill is that the bond lets the money brokers collect twice the amount of the bond and an additional 20 per cent, whereas the currency pays nobody but those who directly contribute to Muscle Shoals in some useful way.

” … if the Government issues currency, it provides itself with enough money to increase the national wealth at Muscles Shoals without disturbing the business of the rest of the country. And in doing this it increases its income without adding a penny to its debt.

“It is absurd to say that our country can issue $30,000,000 in bonds and not $30,000,000 in currency. Both are promises to pay; but one promise fattens the usurer, and the other helps the people. If the currency issued by the Government were no good, then the bonds issued would be no good either. It is a terrible situation when the Government, to increase the national wealth, must go into debt and submit to ruinous interest charges at the hands of men who control the fictitious values of gold.

Of course, this money was going to productive investment: a new power plant. As Blyth says above, this productive spending would not be inflationary. It’s what you actually want the government to do (infrastructure development).

What excessive bond debt does do, however, is give the moneyed elite control over the state.

Countries that do “too much spending” on their own citizens, for example, housing, schooling, infrastructure and health care, find themselves punished by what are called “bond vigilantes” who object to governments operating what they call “loose” monetary polices.

This Odd Lots podcast (which IS still available on their site) talks with the initiator of the term “bond vigilantes.” Here we see how foreign bondholders exert control over internal political decision-making:

Tracy Alloway: Over in Turkey we’ve also seen some financial drama where president Erdogan is basically exerting influence over the central bank and trying to prevent them from hiking interest rates at a time when there is a lot of inflation and they should be hiking interest rates. So if you were to ask Erdogan about bond vigilantes I’m sure he would probably shake away any of their concerns and say that the bond market isn’t the right entity to be exerting fiscal influence over political decisions. Do you think the bond market should be influencing political or fiscal decisions?

Ed Yardeni: I’m not a preacher; I don’t do good or bad; I do bullish or bearish. I deal with fact on the ground. The facts on the ground are that Turkey is dependent on capital inflows from abroad, and that partly because their yields have been higher because they are deemed to be a credit risk. But they weren’t terribly higher. Turkey was getting some pretty good rates until Ergogan decided that he didn’t like an independent central bank.

Now, look, the bond vigilantes always have an issue with the central banks, but it gets to be much, much worse in terms of their reaction if the central banks is believed to not be independent, or to be blatantly politically driven. So what we’re seeing here is global bond vigilantes. It’s certainly not locals in Turkey who’ve pushed their interest rates up and their currency into the abyss, it’s been foreigners who have been looking for good opportunities, and thought that Turkey was relatively stable and that their fiscal and monetary policies were relatively acceptable. And when they turned unacceptable, they left. This is an example of the posse saddling up and leaving the country which is what happened in Turkey and as a result rates spiked up dramatically and the currency took a dive.

The bond market first and foremost wants to make sure that inflation remains down. Maybe I shouldn’t say first and foremost, because much more important is making sure that you get your money back. It’s both the inflation rate and the credit risk. Very often what happens is the bond market gets its way, the policy makers hear the message being sent by the bond vigilantes, they put up their hands and say, ‘All right well give you what you want!’

’Bond Vigilantes’ Inventor Explains Why They Showed Up In Italy (Odd Lots)

What he’s saying about the central bank being “politically driven” is code-speak. If the Central Banks bail out bankers and bondholders, that’s not political, but if the government spends money on its own people, the vigilantes will draw their weapons and punish that government. Yet it’s funny that they never do that if taxes are cut on the very rich (would would also theoretically undermine the currency). That sort of policy is “acceptable.” And that’s how turning from tax collection to funding state operations via debt gives the moneyed interests control over the state, as Streeck points out. Austerity is really the result of a coup d’etat by big finance.

The Most Important Lesson In (Macro)Economics

Finally, circular flows are important in another way. Whistling in the Wind had a good article about the most important lesson in economics, which is: Your Spending is my income.

Economics is a broad and vast field comprising intricate areas that would take years to master. This makes it very hard to summarise or reduce it to a simple point. However, if there was one simple lesson that I wished everyone knew about economics, one easy sentence or sound bite that could explain the essential core to people who know nothing else about economics, it would be: “My spending is your income”. This simple point, properly understood, explains everything you need to know about the important policy issues of the economy. It doesn’t explain everything, but it explains the important parts.

The Most Important Lesson of Economics (Whistling in the Wind)

However, I would call this the most lesson in Macroeconomics. Macroeconomics considers the operating behavior entire economies. Your household is one element in an economy. The Macroeconomy is the sum total of everybody—all businesses and housholds—which we divide into three sectors: public, private and foreign. These sectoral balances must all sum to zero, due to accounting identities. This is necessary to understand how economics works at the nation-state level.

Here’s Mark Blyth making the exact same point on MMA.He also points out what heppens when most of income goes to one tiny segment of the population–demand is suppressed and you wind up in a slump:

MB: Here’s a very simple way about how I think about the world. Is it good to save? Yes. Is it good if everybody saves all at once. Well, then what would happen? Then nobody would be in the shops spending. It’s a very simple thing, right?

So the more we save, the less domestic demand we’re going to have. Now, if you’re the Germans you can create artificial demand by selling the rest of the world BMWs. But we don’t all have that trick. And the United States is a very large domestically-focused economy.

So if the income and wealth in the country is very skewed into very few hands—a great line that a friend of mine who owns a pillow factory said, ‘I only need one pillow. I’m not going to buy a thousand a day; I own the factory.’ How many fridges is Mitt Romney going to buy? I bet he’s got a SubZero; he doesn’t need two. So where do you expect the demand to come from if everybody else has basically got $500.00 in checking and is terrified that if they get a medical bill they’ll be in bankruptcy court?

So then we have to say to ourselves—if that’s just a series of factual statements, then why is it so hard to realize that if the investments that are supposed to be done in society to create jobs and growth and all the rest of it aren’t creating jobs, aren’t creating growth, why do we allow these people to have the right to do this

This is the basic understanding of Keynesianism. If the price” of money is already free–the so-called “zero lower bound–then government spending, not austerity, is the only thing that will re-employ the masses, whether on jobs or just welfare (e.g. a UBI). This is hardly non-mainstream; Paul Krugman, for example, has repeatedly made this argument from his perch at the New York Times:

For the essence of what’s happening now — the key to understanding the mess we’re in — is that sometimes the economy is not like a household, that our individual choices sometimes lead to outcomes that are in nobody’s interest.

In particular, when you have economy-wide deleveraging — when everyone is trying to spend less than his or her income, so as to pay down debt — you have a fundamental adding-up problem. My spending is your income, and your spending is my income, so if both of us try to spend less at the same time, what we end up achieving is mutual impoverishment.

Ah, you say, but the price mechanism will take care of that. Indeed: in normal times interest rates rise or fall to match desired spending to the economy’s productive capacity. But what if the interest rate needed to achieve this outcome is negative? Well, that can’t happen — so when the deleveraging shock is big enough, the economy goes into a depression.

And that’s the world we’re in!

The Economy is not like a Household (New York Times)

Because debt is money we owe to ourselves, it does not directly make the economy poorer (and paying it off doesn’t make us richer). True, debt can pose a threat to financial stability — but the situation is not improved if efforts to reduce debt end up pushing the economy into deflation and depression.

Nobody Understands Debt (New York Times)

Accounting Identities (New York Times)

Why are own politicians–theoretically public servants and “our employees” lying to our faces about how U.S.A., Inc. operates? This should be the biggest scandal of our time. Instead, we’re distracted by hot-button social controversies while the One Percent truly put our entire society in a state of bong-age.

Fun Facts

Average water system rates rose 41 percent between 2010 and 2015, and experts predict the average monthly cost of water will increase by $49 over the next five years, up from the current national average of about $120 a month. If that happens, water will become unaffordable for one-third of American households. (According to the EPA, the threshold for water affordability is 4.5 percent of household income.)

The American Society of Civil Engineers estimates that 2 trillion gallons of treated water are wasted each year owing to main breaks.

https://www.thenation.com/article/pittsburghs-water-system-is-why-we-shouldnt-run-america-like-a-business/

Each day, the United States loses an estimated 6 billion gallons of clean drinking water to leaks – roughly enough to supply all the homes in Chicago, Detroit, Houston, Indianapolis, New York, Los Angeles, and Seattle combined – some 15 million households in total.

https://www.csmonitor.com/Environment/2018/0205/The-Oklahoma-leak-busters

Currently we are having (as a species) over 120 million babies per year. This works out to over 335,000 human babies born every day – compared to a total extant population of all the other Great Apes (bonobos, chimpanzees and gorillas) of about ~200,000!
https://cassandralegacy.blogspot.com/2017/11/why-do-we-need-jobs-if-we-can-have.html

There was no marriage gap between rich and poor a couple of generations ago, but one has been opening up. The Office for National Statistics divides Britain into seven social classes. According to a study prepared for The Spectator, someone in the top class (i.e., company directors, university lecturers, etc) is 48 per cent more likely to be married than someone in the bottom social class (builders, office cleaners). At the turn of the century, the gap was 22 per cent. To those who think marriage is a quaint irrelevance, such figures don’t matter. But if you think that marriage is the most powerful sponsor of health, wealth and education, then it ought to be alarming. A new inequality is being bred in our society. Why?

Figures for the proportion of children born outside marriage seldom rose above five per cent from the Victorian era right up to the 1960s. Then things started to change. By the time of Prince Charles and Lady Diana’s wedding, in 1981, it was 13 per cent. Since then, it has almost quadrupled. And the decline of marriage has been far more pronounced in working-class areas than in genteel middle England. The Marriage Foundation recently discovered that 87 per cent of mothers from higher income groups are married today, compared with just 24 per cent of those at the other end of the social scale

https://www.spectator.co.uk/2017/12/why-marriage-is-increasingly-for-the-royals-and-the-rich/

Men travelling first class tend to weigh more than those in economy, while for women the reverse is true.
http://www.bbc.com/news/business-41835933

180.8 million people are represented by the 49 senators who caucus with the Democrats.
141.7 million people are represented by the 51 senators who caucus with the Republicans.
65.9 million people voted for Hillary Rodham Clinton and Tim Kaine to be their president and vice president
63.0 million people voted for Donald Trump and Mike Pence to be their president and vice president.
http://www.bradford-delong.com/2018/02/note-to-self-this-is-your-reminder-1784-million-people-are-represented-by-the-48-senators-who-caucus-with-the-democ.html

Title: Why Cities Boom While Towns Struggle Wall Street Journal. Kevin W: “Important takeaway – ‘From 2010 to 2016, large cities generated 73% of the nation’s employment gains and two-thirds of its output growth. A study by the Economic Innovation Group found that from 2010 to 2014 just 20 counties accounted for half the new business formation in the entire U.S.’”
https://www.nakedcapitalism.com/2018/03/links-3-16-18.html

The subprime car-lending industry — charging exorbitant rates for car-loans to people least suited to afford them, enforced through Orwellian technologies, obscuring the risk by spinning the debt into high-risk/high-yield bonds — is collapsing. The three most prominent lenders in the subprime auto sector shut down spectacularly and suddenly through bankruptcies and fraud investigations (and the bankrupt ones are said to have been fraudulent!).

Meanwhile, the borrowers — lent money that everyone understood they couldn’t afford, backed by assets that depreciated by 50% the day they were acquired — are defaulting and missing payments like crazy, at a rate that puts the subprime housing bubble in the shade.
https://boingboing.net/2018/04/09/self-driving-off-a-cliff.html

Facebook donated to 46 of 55 members on the committee that questioned Mark Zuckerberg
https://www.reddit.com/r/worldnews/comments/8aj0gw/facebook_donated_to_46_of_55_members_on_committee/

Americans waste a whopping 38 billion tons of food every year. That’s equivalent to nearly 170,000 Statues of Liberty, or 19 billion Ford F-150s.
https://www.treehugger.com/green-food/were-thinking-about-food-waste-all-wrong.html

If plastic waste in the ocean were recycled into LEGO bricks, it could build 19 Empire State Buildings.
https://www.treehugger.com/plastic/how-many-skyscrapers-could-be-built-years-worth-ocean-plastic.html

Doctors have the highest suicide rate of any profession. In the United Sates, it’s estimated that one doctor dies by suicide every day.
https://cmajnews.com/2018/05/29/has-suicide-become-an-occupational-hazard-of-practising-medicine-cmaj-109-5614/

22% of men without college don’t have jobs.
https://theconversation.com/22-of-men-without-college-dont-have-jobs-heres-why-theyre-being-left-behind-97055#link_time=1528114899

…no progress has been made in reducing income and wealth inequalities between black and white households over the past 70 years, and that close to half of all American households have less wealth today in real terms than the median household had in 1970.
http://www.wiwi.uni-bonn.de/kuhn/paper/Wealthinequality_7June2018_edt.pdf

“By 2050, the world’s air conditioners would be using the current electricity capacity of the US, the European Union and Japan combined.”
https://www.bbc.com/news/business-44466214

Taken together, it seems that the majority of our U.S. population is currently under the influence of some form of psychoactive substance or drug, whether prescribed or not, or whether legally used or not, that changes brain function, mood, consciousness and behavior. And, let’s not forget alcohol in this context since 70 percent of U.S. adults drink alcohol, and more than 1 in 4 binge drink.
https://theconversation.com/suicide-nation-whats-behind-the-need-to-numb-and-to-seek-a-final-escape-98137

J.R.R. Tolkien and Adolf Hitler both fought at the battle of the Somme.

There are whales alive today that were born before Moby-Dick was written in 1851.

A decapitated planarian flatworm grows a new brain complete with all its old memories.

Splenda was an insecticide that became a sweetener when an assistant misheard an order to “test” it as “taste” it.

http://tywkiwdbi.blogspot.com/2017/12/things-you-wouldnt-know.html

Random Forbidden Thoughts

Today, no main theme, just some random forbidden thoughts:

1. Communism has lifted more people out of poverty than any other economic system!

Boosters of capitalism like to say that it has “Raised more people out of extreme poverty than any other system!” They never tire of repeating this claim. But, technically, shouldn’t that distinction really belong to Communism? I mean, not just the Soviet Union and China, which went from essentially feudal monarchies to industrial and military superpowers in the twentieth century, but in the last twenty years or so, China has lifted almost 800 million people out of poverty. And as we all know, China is ruled over by Communists! That’s just a fact.

In other words, technically, we have the Communists to thank for alleviating world poverty!

Now, of course, I’m trying to be a bit provocative here. It’s an effort to “Own the Libs” (i.e. Libertarians).

Now, to deal with the obvious arguments: Capitalists will say that China only became rich when it abandoned doctinaire Communism and embraced Western-style capitalism. And, of course, that’s partially true. But there are a couple of subtle distinctions to be made here.

First, is Chinese “capitalism” anything like what we see in West? If it is, then you’ve got to acknowledge the HUGE role the state plays in it (state capitalism). If it’s not, then you’ve got to admit that “Capitalism with Chinese Characteristics” has done the lion’s share of lifting people out of poverty during the reign of global Neoliberalism, not laissez-faire or Neoliberal austerity as applied in the rest of the developed world.

So you can’t have it both ways. You can’t tout the glories of laizzez-faire Neoliberal night-watchman capitalism AND at the same time tout statistics about global poverty alleviation. That’s completely disingenuous.

Not only that, but you also have to acknowledge that this version of capitalism has little to do with “freedom,” and is, in fact, highly authoritarian. What if it is found that capitalism works better under oppression than under democracy? What then? What will “classical liberals” use to justify their preferred economic arrangments? And will they continue to pretend that the state is somehow not involved in making it work?

What happens if and when capitalism becomes more oppressive than communism ever was?

2. Capitalism in the supermarket aisles

And, speaking of simplistic arguments, one of the other things capitalist boosters always point to are the supermarket shelves overflowing with food. This is tangible proof of capitalism’s superiority, they say, and who can argue with that? There are many stories of Communists defecting to the West and literally falling down weeping the minute they enter a supermarket. I call this the “Capitalism delivers the goods”™ argument. But were those communists of yore really gazing upon the results of the completely unfettered “free market?” Or was it something else entirely?

If you look closely at the products on the shelves, nearly all of them got there in one way or another thanks to extensive government intervention in the economy!

It’s a fact that almost none of the stuff on the supermarket shelves groaning with food got there thanks to the “natural” workings of the free market. Rather, it is a mixture of regulated markets, private and public land ownership, and government intervention that has evolved over time. Furthermore, this hybrid system has evolved without any sort of central planning or conscious top-down design, meaning it—and not “free and unfettered “markets—could be described as the best reflection of the bottom up empirical knowledge so famously touted by the Austrian economists like Mises, Hayek, et. al. It’s the ultimate source of our plentiful, cheap, and affordable food.

So if we’re thankful for the cornucopia we discover every time we enter a supermarket (and we should be), then I think we should drop the idiotic pretension that it’s all down to the “free market” and acknowledge the hybrid system we’ve developed precisely by ignoring free market fundamentalism and its purblind advocates. And maybe we should acknowledge that system and its successes instead of advocating a return to the first principles espoused in Econ 101 which have been shown by experience not to work.

When it comes to the food supply, is there any arena where the completely free market is allowed to operate with no state intervention? Perhaps local farmers markets. But if we really had to depend on those alone for all our groceries, would we have the same level of capitalist plenty to brag about? I mean, even Communist states eventually embraced local farmers markets, gardens and roadside stands. If we had to pay small farmers the true cost of the food they produce, would there be as much gloating by capitalists about our superabundance? After all, some of these same free-market-libertarian capitalists will complain when they have to pay $5.00 for kale or $3.00 for carrots at their local farmers markets. Now Imagine if they had to buy all their groceries that way like their great-grandparents had to. Maybe that would temper their enthusiasm for the free market.

Libertarians love the free market as an intellectual exercise, but they are fortunate that they don’t actually have to live in their imaginary world.

How much it’s really the government that is responsible for our bounty really deserves an entire book written about the topic. I can’t do the subject justice here, but let’s just take a few examples to illustrate the point.

I’ve written before about all the ways dairy (milk, cheese, butter, yogurt, etc.) is regulated and subsidized in the U.S. (I live in Wisconsin, after all). Basically, supply and demand are “smoothed over” by government buying up excess supply to keep prices reasonably high for producers. The excess is eventually sold off if and when prices spike too high for consumers. The end result is that you can buy a gallon of milk for more or less a stable and remarkable cheap price at the supermarket.

But what if that didn’t happen—what if we kicked away all those subsidies as the libertarians advocate? Well, it’s not a theoretical exercise—that’s the way it used to be in the bad old days. What happened was wild price swings, gluts, and oversupply. Then, as dairy farmers went broke and threw in the towel (adding to unemployment), prices rose, so consumers couldn’t afford it anymore. After all, it takes decades to start a functioning dairy farm. It’s not something that can just be ramped up and down at as spot prices dictate in the real world outside of libertarian fantasies.They reason it’s not done that way anymore is because it didn’t work!

Compare that to today where I can reliably expect to walk into my local supermarket and expect to pay about $2.50 for milk year-round. That’s where your bounty comes from. But we all have to pretend it’s all down to the blind workings of the free market and impersonal supply and demand forces thanks to misinformation and ideology promulgated by Econ 101 courses. As David Graeber points out, these are taboos–things that “everybody knows” but no one is allowed to say out loud.

People used to pay a much higher percentage of their income for food. The average worker at the time of the French Revolution spent half their daily wage on bread. That had to be driven down in order to develop a viable consumer economy. Cheap food was a state-driven project to help the capitalists from the beginning. Richard Manning goes into some of the details in his landmark book Against The Grain. He quotes the departing head of agribusiness monolith ADM, Dwayne Andreas, admitting that any CEO dumb enough to think that the free market operates in agriculture is incompetent and should be fired: “[the] Free market is a myth. The reason we don’t call it socialism is that socialism is a bad word.” (p. 144)

Now multiply that by every major commodity you care to imagine, from corn to peanuts to sugar. If you seriously do a deep-dive like a professional agricultural economist would, I’m willing to bet that you find almost nowhere where the free market operates as portrayed in Econ 101 indoctrination textbooks.

Not to mention that one of the things that keep good so artificially cheap for consumers in the U.S. today is explicitly a market failure—monopsony! If I recall correctly, there are only two milk buyers in the United States for dairy farmers to sell their product to, so they can put the squeeze on strapped farmers, transferring the risk from consumer to producer. As I recall, a similar situation exists for beef and pork–only 3-4 companies exist to buy them from the producers, keeping prices artificially low. I’m willing to bet that something similar is true for just about every agricultural product on the shelves today.

My point is that its disingenuous to deploy the “Capitalism delivers the goods”™ argument and point to our current system which exists almost entirely in opposition to free market principles as espoused by libertarian market fundamentalists.

Why does this matter? Because libertarians like to promote a “rugged individualist” approach to life for us wage earners, where no one should ever become “dependent” on government for “handouts.” At the same time, corporate producers are utterly dependent upon handouts–writeoffs and subsidies which we all benefit from–but which we have to pretend don’t exist. This is what is meant when people like me use the phrase “socialism for the rich; capitalism for the poor.”

After all, the government could theoretically do for us workers what it does for dairy–and all the other commodity producers. It could buy up excess labor supply in down times and discharge in it in flush times, keeping the “price” for labor—i.e. wages—high and steady. Instead it does no such thing. It lets labor “find its price” justifying it’s non-interference according to free market principles and dogma.

I first heard this idea espoused by the Australian MMT economist William Mitchell. He used the example of the wool industry in Australia. He called such government subsidies and interventions a “full employment of wool scheme,” which benefited the politically powerful commodity producers, and realized it could just as easily be applied to labor (since labor is commodified under capitalism). This assumes, of course, that government wants high wages and not low ones; that is, it works for the good of society in general and not for the narrow corporate interests who fund political campaigns (who overwhelmingly benefit from bargain basement wages). I think we all know the reality behind that one. But then, isn’t that the real problem we need to solve?

In fact, the whole idea of occupational licensing, as economist Dean Baker often points out, is to keep the supply of the licensed occupations limited, and keep hence wages higher than they otherwise would be in globalized labor markets. That’s why urban, educated “professionals” have not seen their wages crater the way their working class brethren have. Thus, they have an easy time touting the benefits of capitalist free markets.

Which raises another issue:

3. Is the modern nation-state strong or weak???

It’s conventional wisdom that national governments have been hollowed out thanks to globalism. That is, in a globalized world, no single nation state has the power to do much of anything anymore—guarantee high wages, safe working conditions, provide generous social benefits, etc. No nation state can raise taxes on corporations in a globalized world, the argument goes, because transnational corporations can always move their headquarters or shift money abroad beyond the reach of parochial taxing authorities.

The Powers that Be (TPTB) constantly inform us that this is a “historical inevitability” about which nothing can be done, ironically deploying a Marxist-style dialectical materialist argument. The nation-state is a slow-moving dinosaur bound for extinction, they say; the fast-moving globalized corporation has all the real power. It’s simply “the March of Progress,” aided and abetted by technology, and those left behind in the expanding sacrifice zones of the Post-Industrial world must either move, adapt, or be left in the dust.

It leads to what’s been termed the Hollow State. The Hollow State is still a sovereign entity in outward appearance—it still has a standing army, a national legislative body, regulations, circumscribed borders, police, a flag, and so on; but it no longer has any real control over its economic affairs. Instead, that’s been delegated to the anarchic global marketplace and supranational economic institutions beyond the reach of the voting public or local politicians. Countries need to be competitive with the lowest taxes and least amount of regulations anywhere on earth in a neverending race to the bottom. There’s nothing that can be done about this, argue TPTB—it’s as inevitable as the moon or the tides, and besides, it’s already raised millions of people out of poverty! (see topic #1 above).

But a potent counterpoint to this case is made by the same economist I mentioned earlier, Australian William Mitchell, in a powerful book co-written with Thomas Fazi called Reclaiming the State: A Progressive Vision of Sovereignty for a Post-Neoliberal World. He argues that the state apparatus is still potent, despite what Neoliberals claim, and that it is still the best weapon in the progressive arsenal for systemic reform. He argues that the “weak” state articulated by Neoliberals is really just an illusion. In reality, the state is just as powerful as it ever was, it’s just that the state apparatus has been appropriated by financial institutions and retooled for the benefit of a small circle of transnational business elites rather than the citizenry:

The authors show how neoliberal ideology, in its official anti-State guise, has been little more than a convenient alibi for what has been an essentially political and State-driven project aimed at placing the commanding heights of economic policy in the hands of capital and especially Finance Capital.

Far from neoliberal globalisation making the Nation State out of date, all its key elements were the result of choices deliberately and consciously made by national governments as their ruling elites set out to limit State sovereign rights.

The authors call this a process of “depoliticisation” of policy. Its principal elements were: the reduction of the power of parliaments via-a-vis the executive; making central banks formally independent of government; adopting constitutional limits on debt-to-GDP ratios and public spending, as with the 2012 Stability treaty, thereby limiting what politicians can do at the behest of their voters; enforcing free movement of goods and capital, and, above, all shifting government powers from the national level to the supranational.

‘Reclaiming the State – a Progressive Vision of Sovereignty for a Post-Neoliberal World’ (Village Magazine)

C. P. Chandrasekhar gives the best one-sentence definition of Neoliberalism I’ve yet seen: “…the framework of measures that preaches market fundamentalism but uses the state to engineer a redistribution of income and assets in favour of finance capital and big business.”

Here’s Mitchell himself, taking on the conventional wisdom espoused by the corporate media and economists in his blog:

Here are a few simple questions to start with:

If the nation state is dead why does Wall Street spend billions of US dollars trying to influence who wins government and once government is decided on influencing the outcome of specific legislation.

Over the period that…the nation state has [supposedly] lost relevance, the total spending in the US on lobbying has gone from $US1.45 billion (1998) to $US3.36 billion (2017) and the number of unique, registered lobbyists who have actively lobbied has risen from 10,404 to 11,502.

Why does “Dark Money” exist? Billions are spent in an effort to influence elections for the ‘nation state’. Why, if the nation state is dead?

[…]

Why do organisations such as the Dow Chemicals spend $US13.6 million lobbying government in 2016, if the state no longer has the capacity to limit their activities?

Why do “Many of the UK’s largest companies shroud their lobbying efforts in secrecy and do not disclose their political engagements to the public or shareholders” and spend billions of pounds lobby government?

Why did “six of the big energy companies” spend “tens of millions of dollars for a climate change denial campaign, despite knowing the claims were false”?

Even though the Greek government surrendered its currency sovereignty upon joining the Eurozone, why did the ECB essentially threaten to bankrupt its financial system in 2016 at the time of the referendum if they didn’t think the government had any legislative capacity to take independent decisions?

Tobacco, gambling, medicines, energy, and the rest – why do they outlay billions to influence government legislation if the state has withered away?

The answers to all these questions are obvious and seem to have evaded …many on the Left who have bought the globalisation has undermined the state hype.

The Left propaganda that the state is powerless – continues (BillyBlog)

I think Mitchell and Fazio’s arguments are pretty potent and deserve consideration for those of us who want to halt or reverse the damage Neoliberalism has wrought on the societies across the world, especially here in the United States.

4. The Left “Has No Ideas”

And while I’m at it, I’d like to give a shout out to the Left Out podcast which I’ve been listening to recently. They’ve been focusing on economics as of late, and here are a few of the interviewees they’ve had on:

Michael Hudson

Steve Keen

Stephanie Kelton

David Harvey

Anne Pettifor

They are hosted by Democracy at Work, which also hosts Richard Wolff’s Economic Update podcast.

Isnt it interesting how the Left supposedly “has no ideas?” At least that’s what we’re told, anyway.

And isn’t it also interesting that you won’t hear any of these public intellectuals—often with prestigious university posts and large followings—in any of the so-called “Intellectual Dark Web” podcasts, videos or live events despite its claim to be simply a post-partisan, non-ideological intellectual movement centered wholly around the principle of “free speech”? You hear a lot from the IDW about embracing alternative viewpoints and how the Left wants “safe spaces” and “hates free speech.” Yet it seems to me like there are some opinions that they don’t want more widely disseminated. For example, I wonder if we’ll see them taking up the cause of this silenced individual who was the victim of blatant state censorship:

West Point graduate who wore Che Guevara T-shirt discharged (BBC)

If they do, indeed, do that, it might change my opinion that they are mostly a stalking horse for discredited reactionary ideas like Social Darwinism and Neoliberal economics. I won’t hold my breath.

If you want to know what alternatives there From the article above, the book by Mitchell and Fazio belies the lack of ideas on the Left:

Reclaiming the State analyses the elements of such a nationally-based progressive socio-economic programme – central to which is State control of currency, credit and banking. The authors are confident that in the coming years the growing mass of citizens threatened by the forces of neoliberalism will more and more choose the reality of national democracy, imperfect though it may be, over the fantasy of a democratic global society of atomised individuals, which is the implicit vision of neoliberalism.

They recognise, however, that a compelling socio-economic programme is not enough to enable progressives win the hearts and minds of the people. If the political Left is to become relevant in the form of successful mass political parties again it needs to make its own the rhetoric of nationhood, as Ireland’s James Connolly and countless pioneers of the classical Labour and socialist movements did in their day.

They conclude: “Beyond the centrality of the State from a political-economic point of view, the Left has to come to terms with the fact that for the vast majority of people that do not belong – and never will belong — to the globe- trotting international elite, their sense of citizenship, collective identity and common good is intrinsically and intimately tied to nationhood… In this sense, a progressive vision of national sovereignty should aim to reconstruct and redefine the national State as a place where citizens can seek refuge in democratic protection, popular rule, local autonomy, collective goods and egalitarian traditions, rather than a culturally and ethnically homogenised society. This is also the necessary prerequisite for the construction of a new internationalist world order based on interdependent but independent sovereign States”.

‘Reclaiming the State – a Progressive Vision of Sovereignty for a Post-Neoliberal World’

These economic ideas are already commonly deployed in the service of the military industrial complex, the financial industry, banks and transnational corporations. It’s only us workers and citizens who are told that we must “live within our means” and “tighten our belts.” There’s no reason we can’t lift our own people out of poverty as effectively as the Chinese Communists have been able to.

5. The Battle for Money Has Begun

And speaking of ideas about money, I had meant to write about the various currency and banking reform proposals floating around Europe, but in the interim one was already voted down–the Vollgeld proposal in Austria. The other one is in Italy.

Was that a good thing? I don’t know. It seemed like there were some very good ideas, and some questionable ones. My knowledge of Vollgeld comes mainly from this piece by Martin Wolf in the Financial Times, which makes it seem like a good idea. Given what I know about the private banks’ ability to “create money” and how that leads to handicapping the state and causing speculative bubbles, I’m tending to think that these proposals might be beneficial:

According to a database compiled at the IMF, 147 individual national banking crises occurred between 1970 and 2011. These crises afflicted small and poor countries like Guinea, and big and rich ones, like the US. They were colossally expensive, in terms of lost output, increased public debt and, not least, political credibility. Within just three years from 2007, cumulative output losses, relative to trend, were 31 per cent of gross domestic product in the US. In the UK, the recent crisis imposed a fiscal cost only exceeded by the Napoleonic war and the two world wars…

So how does [the financial/banking] industry create mayhem on this scale? And why is it allowed to do so? It does so — and is allowed to do so — because…banks create money, which is an essential public good, as a byproduct of their lending, which is an important economic good.

We want banks to have risky assets and safe liabilities. Yet the liabilities of a highly leveraged, risk-taking institution cannot be safe and will unavoidably seem least safe during a crisis. Yet it is then that people want their money — their reserve of purchasing power in a frightening world — to be at its safest. Worse, it is often easiest for banks to justify lending more just when they should lend less, because lending creates credit booms and asset-price bubbles, notably in property.

The willingness of the public to treat bank liabilities as stores of safe purchasing power provides stable funding, until panic sets in. To reduce the likelihood of panic, governments insure bank deposits, liquidity and even solvency. That makes crises rarer, but bigger. The authorities are simultaneously supporting banks and reining in the excesses created by support. This is a system designed to fail.
An alternative way to make the system safer is to strip banks of the power to create money, by turning their liquid deposits into “state” or “sovereign” money. That is the idea backed by the Vollgeld initiative.

An alternative way of achieving the same outcome would be via 100 percent backing of deposits by claims on the central bank — an idea proposed by free-market Chicago School economists in the 1930s. The rest of the financial system would then consist mainly of investment banking and mutual funds. The latter shift risk on to the investors automatically. The former might need to be regulated, but mainly on capital…the proposal raises questions about the purposes to which the new sovereign money might be used.

The obvious possibility is to use the money to finance the government. This idea is highly objectionable to some: it would surely create big challenges. Yet those challenges are nothing like as fundamental as was transferring responsibility for a core attribute of the state — the creation of sound money to a favoured set of profit-seeking private businesses, co-ordinated by a price-setting government institution, the central bank. In no other economic area is public power so mixed with private interests…

There are many other ideas in this broad area that seem worth pursuing. One would be to allow every citizen to hold an account directly at the central bank. The technological reasons for branch banking are, after all, perishing quickly…no private institution should have better access to the public’s central bank than the public itself does. Furthermore…the central bank could operate monetary policy by lending freely against safe mortgages. The central bank would not need to lend to banks per se at all. It would focus on assets.

The fundamental point here is that the burden of proof should not be on those who favour change. After a long series of huge and destructive crises, it falls rather on those who support the status quo, even today’s modified status quo…

Why the Swiss should vote for ‘Vollgeld’ (Financial Times)

The Italian proposal is somewhat different. It looks like a way to create an alternative government-backed sovereign for state spending to currency to compete with (and ultimately supplant) the Euro:

We present here the mini-BOT proposal drawing principally from the book of Borghi Aquilini.

Mini-BOT are planned to be a type of IOU (“I owe you”) that will be issued in paper form and small denominations (€1 to €500). Borghi even presents facsimiles of the new mini-BOT mimicking the euro banknote in his book. In a first step, the government would use mini-BOTs to pay public arrears. Mini-BOT, unlike traditional BOT, would pay no interest and would have no maturity.

The government would guarantee accepting mini-BOT for future tax payments, thereby implicitly safeguarding, according to its proponents, its value. Proponents also hope that mini-BOT would be used for payments between private agents. That being said, parties other than the government would not be obliged to accept mini-BOT. It is planned, however, to accept mini-BOT as legitimate mode of payment to settle energy bills or buy train tickets or other goods and services supplied by publicly owned companies.

The crucial idea of the mini-BOT is that it would be used as means of payment. Due to their character (paper form, small denominations) it is hoped that they will be spent locally, thereby stimulate growth in the Italian economy. Thus, Borghi sees mini-BOT as a tool of fiscal expansion without relying on the euro.

However, there is also another side to the mini-BOT which is important to highlight. Borghi explicitly points out that mini-BOT are seen as a necessary step to the abandonment of the euro by Italy: “It’s true that mini-BOTs are in euro but once they will be widespread they will form a sort of ‘spare wheel’ that will make the transition to our currency much easier. [ …] the day of the passage [to the new currency] it will suffice to declare the mini-BOT the new money.”

A Hard Look at the Mini-BOT, the Parallel Currency Idea of Italy’s New Ruling Coalition (Naked Capitalism)

‘Mini-BOT’ money & debt cancellation: Are Italy’s populist ideas worth hearing? (Glint)

One thing I do know is that money evolves over time, and we currently have many problems with the status quo. It’s time for a change. There are also very good proposals for debt abolition out there from Michael Hudson and Steve Keen:

Some ways to introduce a modern debt Jubilee (VoxEU)

‘Quantitative easing for the people?’ (BBC)

6. The Internet is finally going away.

It’s finally happening – the internet is going away. I’ve noticed that there are very few places I can visit anymore. More and more sites are being paywalled (Financial Times, WSJ).

I installed Adblocker on the advice of a reader because all the software bloat was literally crashing my computer on most news sites. Now, however, those news sites are blocking anyone with the Adblocker plugin installed from visiting their site and I refuse to disable it. (Business Insider, the Onion, etc.)

Combine those two and there are very few news sites I can visit anymore. I estimate that about 50 percent of the links on Naked Capitalism are off limits to me. Some sites can still be visited by browsing “incognito,” (NYT, WaPo) but I doubt even that will work forever.

Not to mention all the spyware, malware and viruses that are ubiquitous. My computer acts up constantly, and my virus/malware checkers can find nothing.

What does that mean? I don’t know. It’s a lot harder blogging today, that’s for sure. It probably means I’ll spend more time analyzing books and working on long-form essays, and even less time on the news of the day.

7. Peak Oil is Dead! Long live Peak Oil!!

It seems like the whole idea of Peak Oil disappeared after Armageddon failed to materialize on schedule in 2008. Then the Mayan 2012 apocalypse came and went. Everyone breathed a big sigh of relief. It was all just chicken little hysteria.

Or was it?

I started to wonder when I read this in the Washington Post. Wage gains are being wiped out by inflation driven by oil prices (shades of the 1970’s):

In May, U.S. inflation accelerated to its fastest pace in more than six years — and wiped out what little wage growth the typical American worker had seen over the past 12 months in the process.

The consumer price index was 2.8 percent higher this past pay May than it was the same month one year ago; that increase leaves real average hourly earnings for production and nonsupervisory workers (a.k.a. the vast majority of workers) 0.1 percent lower than they were 12 months ago.

Notably, while wage growth was infamously tepid during the Obama years, the low-inflation environment of 2015 and 2016 did allow ordinary workers to secure real raises. Part of the uptick in inflation this year is a product of rising oil prices, a phenomenon over which the American president has little control…Regardless, the fact that workers aren’t seeing any real wage gains at … the peak of an economic expansion is a crisis. … If workers can’t secure a bigger slice of the economic pie at a time of 3.8 percent unemployment, when can they?

The reason there was no pressure on oil prices for the last decade or so is because the economy was in the shitter. But now it’s coming back, although I doubt trump has anything to do with it—it’s just the cyclical nature of capitalism. But now that net demand is increasing, there is once again upward pressure on oil prices, just as the experts predicted. And it’s apparently increasing inflation and eating up wage gains. Add to that the fact that it’s happening at the same time as people are dropping out of the work force and housing is becoming unaffordable almost everywhere in the U.S. leading to an acute housing crisis.

Peak Oil was once resigned to the dustbin. But it was just resting. I suspect that we will once again be having more uncomfortable discussions about high energy prices in the very near future.

8. Housing Bubble 2.0?

It’s petty obvious we are in the midst another housing bubble. I get offers to buy my houses nearly every single day.

But when I saw a handwritten sign recently offering to teach people to “be their own boss” by learning how to flip houses, I realized how bad it is.

It’s 2008 all over again. House prices rising at ridiculous rates, speculators rushing in, houses changing hands in a matter of days. Easy money. No doubt it will end the same way. How much of this great economy is due to another wave of false enthusiasm and speculative bubbles? Perhaps all of it. How long can we go on like this?

9. Mini-Bleg

I have a problem on my computer where the cursor will randomly jump to another location on the page while I’m typing. Has anyone even heard of this problem anywhere else? You could not design a more exquisite form of torture of a writer than this, and ironically I use this computer mainly for writing this blog. It’s pretty frustrating to have your thoughts end up in the middle of another sentence and entire paragraphs randomly disappearing. Any ideas how to fix it?

Also, does anyone know of a cheap and easy way to digitize books. I have some rare used books that I can’t get newer copies of that are falling apart, and I’d like to have them for reference. I see scanned books on the internet, but I’m not sure how it’s done. Any advice? Thanks.