Via Arts & Letters Daily, an interesting but flawed approach to revising economic history. The author is interested in where we are going -- what economics will look like as scarcity becomes less important as a principle, and wealth increases. He is unsatisfied with previous attempts to map that, and looks backward for guidance. That is usually a sound policy.
However, while I found his thoughts interesting, there are several problems he will need to address before we can know to what degree he has said anything truthful and reliable. There are some serious problems, as well as insights:
The economy in which we operate is not a natural system, but a set of rules developed in the Late Middle Ages in order to prevent the unchecked rise of a merchant class that was creating and exchanging value with impunity. This was what we might today call a peer-to-peer economy, and did not depend on central employers or even central currency.I'd like to see some references for all of these claims. Still, assuming for the sake of argument that they are true, they still don't yield his conclusions, which follow:
People brought grain in from the fields, had it weighed at a grain store, and left with a receipt — usually stamped into a thin piece of foil. The foil could be torn into smaller pieces and used as currency in town. Each piece represented a specific amount of grain. The money was quite literally earned into existence — and the total amount in circulation reflected the abundance of the crop.
Now the interesting thing about this money is that it lost value over time. The grain store had to be paid, some of the grain was lost to rats and spoilage. So each year, the grain store would reissue the money for any grain that hadn't actually been claimed. This meant that the money was biased towards transactions — towards circulation, rather than hording. People wanted to spend it. And the more money circulates (to a point) the better and more bountiful the economy. Preventative maintenance on machinery, research and development on new windmills and water wheels, was at a high.
Many towns became so prosperous that they invested in long-term projects, like cathedrals. The "Age of Cathedrals" of this pre-Renaissance period was not funded by the Vatican, but by the bottom-up activity of vibrant local economies. The work week got shorter, people got taller, and life expectancy increased. (Were the Late Middle Ages perfect? No — not by any means. I am not in any way calling for a return to the Middle Ages. But an honest appraisal of the economic mechanisms in place before our own is required if we are ever going to contend with the biases of the system we are currently mistaking for the way it has always and must always be.)
Feudal lords, early kings, and the aristocracy were not participating in this wealth creation. Their families hadn't created value in centuries, and they needed a mechanism through which to maintain their own stature in the face of a rising middle class. The two ideas they came up with are still with us today in essentially the same form, and have become so embedded in commerce that we mistake them for pre-existing laws of economic activity.There are three sizable problems with what he has just said.
The first innovation was to centralize currency. What better way for the already rich to maintain their wealth than to make money scarce? Monarchs forcibly made abundant local currencies illegal, and required people to exchange value through artificially scarce central currencies, instead. Not only was centrally issued money easier to tax, but it gave central banks an easy way to extract value through debasement (removing gold content). The bias of scarce currency, however, was towards hording. Those with access to the treasury could accrue wealth by lending or investing passively in value creation by others. Prosperity on the periphery quickly diminished as value was drawn toward the center. Within a few decades of the establishment of central currency in France came local poverty, an end to subsistence farming, and the plague. (The economy we now celebrate as the happy result of these Renaissance innovations only took effect after Europe had lost half of its population.)
1) 'Feudal lords, early kings, etc., did not create wealth.' It's remarkable to me that you would view the trade of locally-issued currency as 'wealth creation,' but not the acivity that allowed that trade to occur without the markets being burned. This claim is somewhat akin to saying that the modern US military is simply a hole into which we pour money. Rather, it guards the physical borders, the trade routes, and particularly the US navy guards the sea routes. The Medievals did the same, and in a fashion at least as critical for the survival of economic activity. Their efforts were quite sophisticated, even early, in the face of threats more immediate to the towns and merchants of the day. (Footnote 1)
Indeed, as we look toward a 'post-scarcity society,' I submit that one of the goods that people will continue to have to pay for is physical security. It is as much a part of the wealth-creation process as anything else: without that security, wealth cannot long exist, let alone can new wealth be created and built.
2) "...and the plague." Woah! The Plague was the central economic event of the period. You don't get to write an article on the subject of economics in the late Middle Ages and simply elide past it as if it were a minor matter. It completely altered the face of society. When it broke out, governments that did not understand its cause attempted all manner of new controls on trade in the hope of limiting its spread. Such commerce across great distances had boomed during in the High Middle Ages, after a sharp decline following the collapse of Rome's ability to provide security in the West. That's something an essay of this sort ought to consider, since it intends to consider the very issue of how trade restrictions in the Middle Ages affected economic growth.
3) "The first innovation was to centralize currency. What better way for the already rich to maintain their wealth than to make money scarce?"
In the Plague's aftermath, too, there was a fairly impressive increase in social mobility across Europe. The sharp decrease in the supply of labor meant that the agricultural laborer -- formerly a minor player as an individual -- had a new power to negotiate his status. But while his status increased along with his wages, the wage increase was undercut by other forces:
Grave mortality ensured that the European supply of currency in gold and silver increased on a per—capita basis, which in turned unleashed substantial inflation in prices that did not subside in England until the mid—1370s and even later in many places on the continent. The inflation reduced the purchasing power (real wage) of the wage laborer so significantly that, even with higher cash wages, his earnings either bought him no more or often substantially less than before the magna pestilencia (Munro, 2003; Aberth, 2001).Before you simply paint the currency policy of the Middle Ages as an attempt to control the merchants, it's worth considering how powerful these forces were. Most likely, in the face of the chaos being caused by the Black Death, the issue of keeping merchants in their place was hardly at the forefront of anyone's thought process. "Making money scarce" was of benefit to the workers in the fields, as much as it was to any king or nobleman.
Besides which, I'm deeply suspicious of the claim that 'centralizing currency' was an innovation of the period. The first coins in Britain date to the first century BC, before the Romans took control of the island. Centralized currency was the law of the land during the Anglo-Saxon period:
Aethelstan (925-39) continued the fight against the Danes and the title AETIIELSTAN REX TOTIVS BRITANNIE is to be found on some of his later coins. It was Aethelstan who decreed at a Witanagemot at Grately in 928, that every burgh or town should have a mint with from one to eight moneyers depending on its importance, thus providing that a single coinage should be current throughout the country, and that the dies were to be engraved in London. Thus eight moneyers were appointed to London, seven to Canterbury, six to Winchester, etc. At Grately, too, it was decreed that the penalty for forgery should be the loss of a hand which was then to be nailed up in the smithy or, if the accused desired to clear himself of the charge, the hand that struck the coin should be submitted to `the ordeal of the hot iron'.So, why should I believe that this was an anti-merchant policy of the Late Middle Ages? I'd like to see some additional evidence and argument before I accept any part of that claim.
There's a great deal more to the essay, and some of it is really quite valuable. I don't mean to dismiss or demean the argument. However, I think that a number of the claims require greater investigation by the author, and some of them ought to be reconsidered entirely. That, though, is what debate is for: to challenge ideas, and thereby improve them.
Footnote 1. For a very good example of a response to Viking piracy and sea-based invasion, see Nicholas Hooper, "Some Observations on the Navy in Late Anglo-Saxon England," Anglo-Norman Warfare, ed. Matthew Strickland (Suffolk: The Boydell Press, 1992).
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