Historical Markets

Arnold Kling over at TCS had a nice column last week about the economic benefits of a "great power" enforcing the peace. In short, such a power, or hegemon, is necessary for the benefits of trade and exchange to take place between the peoples of the globe.

"Trade flourishes under hegemony. That is the lesson I took from Power and Plenty, a dense, arduous survey of economic history written by Ronald Findlay and Kevin H. O'Rourke. In addition to the Mongol empire, they describe the increased trade under the hegemonies of the Romans, the Muslim Caliphate, and various dynasties in China and Latin America during the first millenium. Of course, the most recent example of trade under hegemony has been what Walter Russell Mead in God and Gold calls the maritime powers of Great Britain and the United States.

It makes sense once you think about it. Disparate peoples can coexist in three ways: in isolation, under hegemony, or at war. In the absence of hegemony, peaceful intercourse is an elusive ideal."

Kling notes that geopgraphic isolation has been the norm throughout most of human history, sometimes due not only to vast intervening distances between cultures but also at times through political or military reasons, such as Tokugawa Japan. This isolation generally results in economic and technological inferiority to those cultures that embrace trade and exchange. Whenever and however a major power asserts itself over a wide region, trade begins to flourish within that region, and often between regional hegemons - the hegemon(s) prevent pirates, bandits and the like from stealing a merchant's goods.

Where I disagree with the column is in the appendix, where Kling argues (fairly well, I might add) that the market economy to which we have become accustomed is a relatively recent phenomenon. He suspects that most households throughout history produced their own goods for internal use, with relatively small amounts for exchange. He also states that most people over the historical frame weren't just illiterate, but innumerate - they wouldn't be able to count or estimate much past their fingers. I would agree with this to a some degree - but depending on the time period, location and the culture in question, there would be some notable exceptions to this thesis.

He also refers to what he calls the production/plunder ratio - with few people involved in the production of goods for exchange, he believes the markets that archaeologists find in ancient cities were generally empty except when the legions came home from foreign adventures. He also believes that cities shrank dramatically in population whenever the legions weren't returning with this plunder, becoming far smaller than their geographic size would indicate. I'd agree this would certainly happen at times, but ignores that these hegemonic entities were often regional powers for quite lengthy periods, often hundreds of years. All historical polities have undergone an expansion, stability and contractionary decline phase - perhaps even our own will do so in the coming century as places such as India, China and Brazil modernize.

He believes the ratio of production to plunder is much higher in modern societies, and I would have to agree - the productivity gains over the last ten or so generations has been unprecedented. However, I wouldn't say that there were no periods in which a market economy took place before this period. He notes that urbanization is the opposing force to his thesis, but appears to believe it wasn't widespread for very long anywhere. I'd say there are several instances when it was, and we often have either the written records or the remains to prove it.