The Great Depression in a nutshell

This was based on a comment I made here.


In the late 1920s, most developed economies were on the gold standard. The Bank of France and the Fed took gold out of (pdf) the monetary system, driving up the price of gold inside the monetary system, which drove up the price of money (since gold set the price of money) which drove down the price of everything else, and so people’s incomes. A significantly leveraged economy suffering an income crash (for debt, nominal income is what counts) leads to bankruptcies and bank failures in a disastrous downward spiral in economic activity.

The quicker countries left the gold standard, which the Bank of France and the Fed had turned into a doomsday machine, the quicker they recovered from the Great Depression. (If they were not on the gold standard, they did not suffer it at all.) There does not seem to be much mystery to all this.

R. G. Hawtrey (pdf) and Gustav Cassell (pdf) accurately predicted the danger in the early 1920s and explained what was going on at the time. Alas, Hayek was a brilliant economist who brilliantly expounded the Austrian (the real one, not the internet one) theory of the business cycle at precisely the wrong moment. Alas, Keynes was a brilliant economist who decided to revamp macroeconomics in quite unnecessary ways, when a Swedish economist and a British Treasury official had already got it right. But a Swede and a bureaucrat were not nearly as well placed as Keynes-the-public-intellectual and brilliant (if not always entirely honest) rhetorician to capture the debate.

It is strange, how much people seem to want complicated or new, or complicated and new, explanations for grand disasters in preference to a simple one already available.

Amazing

It is a striking thing, that those who look for racism always seem to find it.

Another triumph of human analytical ingenuity and confirmation bias.

Bad metaphysics parading as economics

Based on a comment I made here.


Bill Woolsey made the observation that: Critics treat nominal GDP as the product of real output and the price level.

We do not live in a barter economy with money add-ons, we live in a thoroughly monetised economy where prices, contracts and debts are set in money terms. I find this thinking that there is a "real" economy that generates monetary "epiphenomena" just bizarre. It is bad metaphysics parading as economics.

(As I discuss in my previous post.)

Money is not an epiphenomenon: the unreality of the “real”

There is no such thing as “real wages”. Economists talk about “real wages” but what do they mean by that? In a monetized economy, prices and costs are measured in money terms. So, a firm has to worry about the terms of labour—the ratio of labour costs to the prices of what it sells (weighted by how much labour produces how much product: so constraints on the use of labour will still affect the terms of labour). It experiences these things, and makes judgements accordingly. If the ratio moves adversely (which might be because the prices of its products have fallen, or because they have risen less than labour costs: any movement in either labour costs or output prices is potentially compatible with an adverse shift in its terms of labour, since it is the ratio of the two that matters) the firm will tend to cut back on hiring. If the ratio moves positively, the firm will tend to increase hiring.

But the terms of labour are not the same was the terms of wages—the ratio of payment to the worker to the prices of what the worker purchases. First, because wages received are not the only labour costs. Second, because what a worker purchases has no particular connection to what the firm sells. Indeed, different workers will have different terms of wages, since they will not have exactly the same pattern of purchases; just as the terms of labour will vary between firms and, even more, between industries.

So, when economists talk of “real wages”, what do they mean? Do they mean the terms of labour or the terms of wages? If they mean both, they effectively mean neither but instead some mystical (because very unclear) amalgam of both which is not specifically either.

And how do we measure “real wages”? By “deflating” wages (which are not the price of labour, but leave that aside) in terms of some general price index? If it is some specific index, such as the CPI, then that is yet another general amalgam which, at best, crudely correlates to what either the worker or the firm is experiencing and making their judgements about. If it is a general measure, such as a GDP deflator, it has less arbitrary selection problems but still has only a crude connection to what the worker or the firm experiences and makes judgements about.

But, why bother going to that effort? The process of deflating adds nothing to the information to be had from terms of labour and terms of wages. Indeed, it is worse than that, because it actually takes information away. Sticking with the money prices and costs both reflects what people actually make judgements about and does not lose information.

The underlying idea that the notion of “real wages” taps into is that money is some epiphenomenon which overlays a “real” economy. But, as we have seen, trying to postulate something called “real wages” fails to pick out a specific phenomenon, suppresses information as it does so and does not capture what people actually make judgements about. If our concern is with human behaviour then the issue becomes what information do people use to make their decisions. The notion of “real” wages fails to accurately capture any specific thing.

Consider the asymmetry between increases and cuts in (money) wages. If money was an epiphenomenon over some “real” economy, there should not be any difference between raising money wages when the price level is rising and cutting money wages when the price level is falling. But contracts, debts and financial obligations are set in money terms and operate across time periods, so there is a clear difference between the two. Cutting money wages increases the burden of existing debts and obligations. So, it is perfectly rational for workers to resist cuts in money wages even if their general terms of wages are rising. Looking at “real wages” again suppresses information; indeed, it seriously misleads.

Nor is the notion of “real prices” any better. There are only two sorts of prices: money prices and barter prices—prices in terms of money and prices in terms of other goods and services. The first can be expressed in a common range of numerical values, a measure of prices that operates across goods, services and assets. It is one of the great advantages of money. The second can only be expressed in terms of other goods and services. The notion of “constant price” is not a “real” price: it is simply prices expressed in “frozen” money abstracting away from general shifts in money prices/the barter prices of money. One is using a key characteristic of money while pretending to get “past” it. To so attempt to use money to get “underneath” to the “real” economy is to, in fact, express how much money is not an epiphenomenon. One is still using money, just in a particular way.

Yes, people are aware of shifts in the barter prices of money: which is to say, the inverse of money prices. But there is not some “real price” beyond that.

Money is a transaction good: people use it to transact to get the goods and services they want. So, if we have three goods in an economy (consumption, assets and money) then we have two markets (money for consumption goods, money for assets). The process of transacting uses a medium of account (money) and does so for good reasons. The advantages of money over barter are not some epiphenomenon. They are major advantages that change how people behave and so how the economy works, particularly given money operates across time periods (we can spend now or later; we have previous entered into obligations expressed in money terms).

Using the concept of "real" prices abstracts away from “actual” money while continuing to invoke its functions. This is not analytically helpful, for we then make money what it is not—immediately, transparently “neutral” about prices in terms of goods and services. Cognitive simplification—being able to express prices in common numerical values—means precisely that and is a genuine economic function. It takes time to register general shifts in the barter price(s) of money and for credit, contracts and other prices to adjust. Which means that shifts in spending have effects on output, until people adjust for any general change in what money buys (in terms of goods, services and assets). By "abstracting away” from money (even though we are actually not fully doing so) we also abstract away from money being a cross-temporal constraint due to contracts, debts and other financial obligations.

The notions of “real wages” and “real prices” do not get to “underlying” realities, they obscure economic realities because they abstract away from how people are actually making decisions and constraints on those decisions. Money is the prime form of information in a monetised economy. By treating it as some epiphenomena, we are not revealing, we are obscuring.

Money is not an epiphenomenon and it is actively misleading to use economic language that implies it is: particularly when such language ends up suppressing relevant information.

A Socratic dialogue with the inflationphobics

This is based on a comment I made here.


Perhaps we need a bit of Socratic dialogue with the inflationphobics.

Q: What has caused more damage; entrenched inflation (the 1970s) or massive deflation (1929-32)?
A: Deflation. But that is not what we face.
Q: What has caused more damage; entrenched inflation (the 1970s) or unexpected disinflation* during a leveraging crunch (2008-?).
A: But inflation is evil.
Q: Why is inflation bad?
A: Because it distorts private decisions.
Q: Does it do that making basic parameters for judgement unreliable?
A: Yes.
Q: So it is about creating a clear and reliable framing for private decisions?
A: Yes.
Q: So, a central bank should provide a reliable framework for private decisions?
A: Yes.
Q: So it is about framing expectations in a credible way?
A: Yes.
Q: So, what is more important to people, expectations about income or expectations about prices?
A: [Some obfustication]
Q: So, should not a central bank seek to credibly generate expectations about income?
A. [Some more obfustication]
Q: In a highly leveraged age with many wages set by contracts operating across time and a range of "sticky" prices, which is more important to people, expectations about money income or "real" income?
A. [Even more obfustication]
Q: So, would not a clear target about aggregate income (aka NGDP aka Py) create a framework to anchor expectations in what people actually care about?
A: [Meltdown]

* Yes, other things are going on, but the surreptitious disinflation was when the US economy really nosedived.

ADDENDA Lars Christensen was good enough to repost the comment as a blog post.

Forms of employment, unions and wages

Loath as I am to disagree with an economic historian as eminent of Peter Temin, his paper The Great Recession in Historial Context (pdf) has a claim about wage stickiness and its source I disagree with.

In explaining the development of stickiness of wages and the rise of unions. Temin writes:

As the size of production units, whether mines or factories, became larger, the ability of labor markets to be optimally competitive also diminished. Large employers yielded little bargaining power to workers to negotiate wages and working conditions. If a factory, for example, was the only large employer in town, the options for workers were even more limited and the market power of the employer more obvious. Workers formed unions to countervail the market power of employers, and wage bargaining and strikes supplanted the individual wage negotiations implicit in Hume’s and Smith’s analyses.

This is a wonderful (indeed popular) “just so” story. The trouble is, it is clearly wrong. Large employers tend to pay more than small employers, just as large supermarkets tend to be cheaper than corner stores. Size does not equal market power and does not determine comparative wages or prices.

There is a much simpler reason why unions arose in response to large employers. The workforces of large employers are easier to organize. The rate of unionization increases with the size of the employer (hence the public sector is far more unionised than the private sector) because the bigger the employer, the easier its to organize the employees—they are easier to identify, collectively talk to and have more commonality of interests. Moreover, the power of unions comes from their ability to exclude competing workers. The true enemy of a union is not the company, it is the “scab”, the non-unionised competing worker. The more centralised the workplace, the easier to exclude.

Similarly, wages are “sticky” outside unionised workplaces and across employers regardless of size. The “stickiness” comes from the labour relations being across time periods and asymmetric information. Reliable workers who understand how the firm operates are worth keeping, are valuable. Massively undermining their status as bargaining agents—and your own reliability as a bargaining agent—by unilaterally cutting wages is not the way to have a good relationship with your employees. Particularly given they have obligations set in money terms, so cutting their money income makes their situation worse regardless of what money prices are doing generally. Nevertheless, that money is how contracts “keep score”—so go directly to employee status as bargaining agent and employer reliability as bargaining agent—is even more important.

Moreover, with the development of extensive regional, national and global markets, and increased complexity of products, it becomes harder to workers to judge employer claims. A medieval peasant could see how good the harvest was, and could observe grain prices, so variability in income was much more manageable because far less trust was involved. A modern employee has far less information to directly observe about inputs and outputs in what they produce. That leads to more emphasis on what workers can judge as “proxies” for what they cannot. The reliability of employer behaviour, the respect (or lack) of employee status as bargaining agents has to be increasingly relied upon in an ongoing interaction (a repeated game, if you like).

It is not the size of the company that determines “stickiness”, but the form of the employment contract. “Spot” markets in labour allow much more flexibility in wages since there is no ongoing relationship. It also provides an example where unionisation provided large gains to (some) workers—the unionisation of the waterfront. But that is a case where unionisation changed the form of the labour contract. It is also a case where exclusion of competing labour is particularly intense—employment on the Australian waterfront, for example, has practically become hereditary.

It was not unionisation, but changes in the forms of labour contracts, in the structure of labour relations so that labour became much more an across-time interaction with increased information asymmetries, which increased the “stickiness” of labour. Unions are a symptom of that change far more than they are a source of wage “stickiness”.

Contemporary unions confront a range of problems. First, with the growth of two-income households, variation in income became rather less of an issue for many households, so workers become more willing to shift to forms of labour provision not susceptible to unionisation. Second, the increase in incomes and growth of regulation and other government interventions has meant that legal mechanisms (lawyers) and political ones (politicians and media) became increasingly competitive to unions as bargaining mechanisms. Third, the interests of unions is to make employment remuneration as complex as possible—both because that increases the need for a bargaining agent and because that provides various “victories” for unions to trumpet. The problem is that such a strategy increasingly generates wasted resources that can be harvested by moving to different forms of labour provision or contractual arrangements. Just as it was not employer market power which drove the rise of unions, nor is it driving their decline.

As to why large corporations tend to pay more than small employers, consider why large supermarkets have lower prices than the corner shop. The corner shop is, indeed, the corner, that is local, shop. A large supermarket has to make it worth your while to go that extra distance. Once you have decided to travel further (typically drive) to shop, then it is competing with all the providers in reasonable driving distance. It offers range and low prices to compensate for more travel time and less personalised service.

A large corporation finds it easier to spread/manage risk than a small employer but harder to tie worker effort to productive outcome. So, it pays a “hostage premium”—more than the employee can get elsewhere so that they police themselves more, as they have more to lose. This “hostage premium” is not merely basic salary; it includes a range of benefits and common activities to try and encourage self-policing. So, even in the absence of a unionised labour-exclusion premium, wherever the corporation finds it hard to tie employee effort to productive outcome, we can expect a “hostage premium” to encourage self-policing.

This does not explain what we observe of CEO pay, however. Tying the pay of CEOs to performance should be a lot clearer than executives further down the corporate hierarchy. Yet, what we observe is pay rates that seem unconnected to performance. A (very high) premium that is apparently often not hostage to productive behaviour.

So, consider the mechanism that selects pays for CEOs. In political science terms it is like rigged election autocracies. What we get is an "insider's game": insiders agree that you should be rewarded for being an insider, a game they all hope to benefit from so seek to maximise the return for being an insider. Benchmarking just increases the “gaming” (pdf), since it just increases information to insiders without increasing effective accountability since it does not breach the insider dominance of such decisions: the problem is not information asymmetries, it is insider privilege. The real puzzle is not why CEOs are paid so much, it is why their compensation can be notoriously unconnected to actual performance.

Forms of employment (including expected length of interactions), degree of centralisation of workplaces, information assymetries, insider privilege/outsider exclusion: they explain a lot more of how labour markets work than alleged employer market power. Including wage stickiness and the rise and decline of unions.

Of human bondage and history’s selection processes

In farming (i.e. agrarian) societies it has been standard for about 8 out of 10 people to be farmers. The land/labour ratio is a crucial determinant of social patterns in such societies. For example, which of the two factors – land or labour – is more constrained affects profoundly the use of human bondage.

If land is more constrained than labour (i.e. the fertile area is densely populated for the existing technology level), then the cost of labour will be low and control of land will provide the basis for extracting a surplus (for production above the level required to support the producers). Any use of slavery is likely to be limited to households, specific forms of production that dangerous or unpleasant and easily supervised (e.g. mining, cotton production, rowing galleys) or to tie loyalty to rulers by eliminating family ties (eunuchs, state slaves, slave warriors).

If labour is more constrained than land (i.e. the fertile area is lightly populated for the existing technology level) then the cost of free labour will be high, the return to control of land low and there is likely to be extensive use of bondage to extract a surplus, since the cost of subsistence plus supervision and lessened productivity will still less than that of free labour. Some form of bonded farming (such as serfdom) is likely to be used, since it has lower supervision costs and productivity loss than outright slavery and, unlike slave populations, serf or similar populations will reproduce themselves, so provides more reliable continuous labour supply than outright slavery.

(The only substantial slave population which might have reproduced itself is that of the antebellum American South and, even there, is seems likely that slave smuggling was significantly larger than has been commonly admitted. Elsewhere, the total lack of family rights usually pushed slave fertility well below replacement. Even in the Roman Empire, the significant prospect of manumission [pdf] is unlikely to have substantially improved fertility before freedom was gained.)

Some classic examples where loosening of the land constraint led to mass use of human bondage are the Americas after the importing of the Eurasian disease pool decimated the existing population, enserfment in Eastern Europe after the defeat of the “Tatars” and blocking of the Ottoman Turks freed large tracts of land for farming and the development of coloni in the later Roman Empire after the devastation of the Antonine plague and the Cyprian plague, a process which accentuated after the population crash at the end of the Western Roman Empire. Demand for staple products such as grain, sugar, tobacco (production of which are easily supervised) accentuated the process.

There is one great exception to all this: post Black Death Latin Christendom. Attempts to re-imposed serfdom failed, because the various Crowns refused to provide the necessary enforcement. The most obvious reason why they failed to do so is that knight’s service (i.e. military service by landlords) was no longer their key source of military power: taxes paying for the hire of free peasants was a crucial part of their forces and their men-at-arms were often contracted rather than feudal levies. (In Eastern Europe, by contrast, the reliance of the local Crowns on the military service of the servitor class meant that the Crowns were willing to enforce serfdom.)

But even among the knightly class of C14th Latin Christendom, the pressure for re-enserfment was uneven. This was not merely a matter of great magnates having other options (they were to be also less interested in enserfment in Eastern Europe than the lesser servitors) or the uneven impact of the Black Death (which just encouraged labour to “spread out”). It was also that tenancy and capital substitution provided alternative ways landowners could respond to labour shortages. The technological and capital market dynamism of medieval Europe, along with the depth of available skilled (i.e. “craft”) labour, the range of enforceable contracts and forms of property, made capital substitution a much more “live” option than it was in any of the other cases.

In other words, C14th Latin Christendom had, far more than the others, more intensive use of capital as an alternative to imposing bondage on human labour. Social capital in the form of effective laws and range of property rights; human capital in the form of skilled labour; financial capital in the form of sophisticated capital markets; and physical capital in the form of a machine-oriented production. The efficiency of mixed production (pigs, sheep, cattle, crop rotation), by raising supervision costs, may also have been a factor.

One might object: why did this not happen in the later examples of the Americas and Eastern Europe? To which the answer is: it did, eventually. As the institutions of the Commercial and then Industrial Revolutions seeped into Central and Eastern Europe, serfdom decayed and was eventually abolished. Greater New England adopted the free labour/capital intensification approach while the antebellum South remained with the “tropical zone” pattern of cheap labour and concentrated wealth. Unfortunately, the combination of British institutions and American practicality led to slavery becoming more profitable and efficient, hence the resistance to any abolition of slavery (which would have wiped out about a third of the wealth of the South and reduced significantly the value of white votes). Latin America lagged somewhat, as one would expect from its lower level of capital intensity. Islam lagged further still, in part due to slavery having Sharia endorsement. Conversely, densely populated and comparatively capital-intense Japan was one of the first non-Christian countries to abolish slavery in the medieval and post-medieval era.

The Soviet Union re-introduced both slavery (state slavery, in the forced labour camps) and serfdom (as workers were banned from leaving their workplaces without permission: the essence of serfdom). Neither proved particularly efficient and the man who oversaw them longest – Lavrentiy Beria – moved to abolish both as soon as Stalin was dead.

The shift to the capital/labour ratio playing an increasingly important role in society (generally) encouraged the abolition of bondage. (The antebellum South, the Soviet Union under Lenin and Stalin and Nazi Germany being conspicuous exceptions to the general trend: In the first and last case, the arbitration of war resolved the issue.)

Selection processes
To put the early exceptionalism of Latin Christendom another way, there was a lot more for the selection processes of history to work upon in C14th Latin Christendom than there was in the other cases (such as the later Roman Empire). Which is a general reason for the rise of North-Western Europe and its descendant societies. A significant number of competitive jurisdictions in close proximity between which ideas, capital and skills were relatively mobile; displaying a range of institutional forms; with legal and cultural diversity plus a rich intellectual and historical heritage from its Classical predecessor civilisation to draw upon. There was both more for the selection processes of history to work upon and more intense selection processes which were nevertheless operating within sufficient political stability for institutional learning and evolution to take place.

No other civilisation centre in Eurasia had that mix of features. Most others were dominated by autocracies as essentially the sole (or overwhelmingly dominant) form of government. Many had long periods of a single, dominant, autocracy. Even when that was not so, the ability of ideas, capital and skills to move between jurisdictions was often somewhat limited. In the case of Islam and Hindu India, laws being held to be of divine origin (Sharia, the laws of Manu) limited the possibilities of legal evolution.

The civilisation centre which had the largest overlap in features was Japan, with its competing daimyo—unsurprisingly, it was the non-Western civilisation which was most easily able to adapt Western methods because it already had the most similar institutional structure. But it lacked the cultural diversity of Europe or the intellectual depth provided by the Classical heritage incorporating memory of institutional variety and mathematised abstract theorising about the structure of things. It was unable to achieve the take-offs North-Western Europe did: but it was able to be first to catch up.

Having much more for the selection processes of history to work from, and a competitive-but-continuing institutional framework for them to work in, proved to be a world-beating advantage for North-Western Europe and its descendant societies.

On the stupidity of (some) Central Banks

The short answer from history to the question of how stupid can a central bank be? is: a central bank can be really, really stupid.

I am using ‘stupid’ in a technical sense: doing things that seriously adversely affect lots of people with no justifying benefits to any wider public good—that is, which show a lack of intelligence, understanding, reason, wit or sense. The actions may seem a good idea to the central bank at the time—due to perverse incentives, policy framings disconnected from economic reality or whatever—but in terms of wider public policy, they are (to varying degrees) disastrous. Central banks exist to serve, so how that “serving” is framed can make a great difference.

For example, hyperinflation is usually a deliberate attempt to inflate away government debt and/or generate revenue well beyond the willingness or ability to tax. It may be wicked, but it is not stupid in quite the above sense. (There are justifying benefits for decision-makers, without necessarily justified benefits.)

Beware of the French and central banks
Among stupid central banks, the all-time winner is the interwar Bank of France turning the gold standard into a doomsday device (pdf), helped by the US Federal Reserve, by building up its gold reserves without issuing money to match, so taking gold out of the monetary system, thus driving up the price of gold in the monetary system (and so the price of money, as such gold set the price of money) and thus driving down the prices of everything else. It and the Fed created the Great Deflation of 1929-32 we call ‘the Great Depression’ and so mass unemployment, the impoverishing of millions, the unravelling of much of (pdf) the world trade system, the fall of Weimar Germany and the rise of Nazism (followed by the Fall of France). It was a disaster of monumental proportions.

It was hardly the only disaster of central banking, however. Another (in)glorious episode also came from France with John Law’s Banque Générale gaining the right to issue paper money, which stimulated economic activity. The Regent, the duc d’Orleans, decided that if some paper money was good then even more paper money must be even better, leading to the truly spectacular Mississippi Bubble. This French disaster was based on the same logic (using that term loosely) as that which created the Great Deflation/Depression namely, “if some is better (some paper notes, some level of gold backing of the franc) then more is better and even more is better still.” One is reminded of the Abbe Sieyes dismissing the argument for bicameralism on the grounds that if the upper house agreed with the lower it was pointless and if it disagreed it was pernicious. Pernicious simplification passing itself off as sophistication: how very French. (Perhaps the baleful influence of Cartesian rationalism?)

By contrast, the Bank of England has a long history of considerable policy success, starting with vast improvement in management of government debt. The South Sea Bubble was rather less of a problem than the Mississippi bubble precisely because the Bank of England had disapproved from the beginning. While the Bank’s management of the gold standard over the two centuries up to 1914 suffered various bumps and problems, it had nothing to equal the aforementioned French disasters.

In our own time, the Bank of Japan’s management of the yen since the collapse of the bubble economy has come in for much criticism. However, the demographics of Japan make some of that criticism less clear-cut than is often suggested.

Even though some of the ECB’s problems are “built in”, there are also plenty of grounds for criticism for the European Central Bank (ECB), until recently with a French head (perhaps not encouraging; especially as the euro is effectively an artificial gold standard for its member countries).

Doing right
A contemporary example of successful central banking is the Reserve Bank of Australia. It has run an inflation target since 1993 (pdf). Its website is very clear on its policy target. In the words of the Reserve Bank:

The Governor and the Treasurer have agreed that the appropriate target for monetary policy in Australia is to achieve an inflation rate of 2–3 per cent, on average, over the cycle. This is a rate of inflation sufficiently low that it does not materially distort economic decisions in the community. Seeking to achieve this rate, on average, provides discipline for monetary policy decision-making, and serves as an anchor for private-sector inflation expectations.

The minutes of its Board meetings are published two weeks after each meeting: this matters much less than that it has a clear monetary policy regime.

The Reserve Bank sees its role as providing an anchor for private sector inflation expectations and it does so by being upfront about its policy target. That it has an explicit target since 1993 is no coincidence: the experience of the severe 1992-93 recession where inflation was squeezed out of the Australian economy in a particularly costly way made it clear to policy-makers that being explicit about monetary policy was preferable. As had the problems with monetary policy in the 1980s:

In the early 1990s, the Reserve Bank did not enjoy the largely uncritical press it receives today.
The conduct of monetary policy in the 80s was fundamentally incoherent, unsuccessfully pursuing multiple objectives and shrouded in a veil of secrecy.
Without a policy commitment to price stability, the Australian economy lacked a nominal anchor.

(Does any of this sound familiar, by chance, to American readers?)

The success of the Australian economy since then has provided strong evidence for the good sense of this approach of a clear monetary policy regime via an explicit target. But there is also no mystery about why being explicit has been a successful approach. The point of money is to facilitate transactions by massively decreasing transaction costs. Not only are the search costs that barter imposes avoided by use of money, but there are a range of problems with barter than using money eliminates or greatly ameliorates, thereby greatly facilitating transactions.

If people have reasonably accurate expectations of how (money) prices in general will go, they can make arrangements (including contracts) based on those expectations. As Canadian economist Nick Rowe points out, inflation targeting in Canada came out of pressure from the private sector. They wanted reliable expectations about prices so as to set wage contracts.

Sudden, unexpected changes in prices can leave these arrangements misaligned with actual prices. If, for example, that results in changes in the terms of labour—the ratio of labour costs to the price(s) of what the firm sells—so that wages become seriously over-priced (in normal, somewhat imprecise, economic speak, “real wages have risen”) then firms will stop hiring, workers may be sacked, firms may collapse (i.e. they absolutely stop hiring and all their workers lose their jobs). It is not good to have significant, unexpected downward shifts in price movements, since that essentially guarantees that the terms of labour will rise unexpectedly. (So unexpected disinflation can have similar effects to deflation.)

Doing wrong
Which is what happened at the beginning of the Great Recession in the US. When uberblogger Matt Yglesias calls it a “huge failure of central banking” he is absolutely correct. To put it another way, serious expectation failures were imposed on the US economy, resulting in a dramatic drop in transactions. (That the Federal Reserve decided to surreptitiously disinflate as a financial crisis—the sub-prime crash—was building made things much worse: including the financial crisis, providing some reprise [pdf] of the Great Depression.)

How did this happen? Have a look at the US Federal Reserve website. There is no statement about what the specific aim of US monetary policy is. The US Federal Reserve provides no explicit anchor for expectations in the economy. So, the US Federal Reserve can decide to disinflate—to significantly reduce the inflation rate—and there was no warning for private agents that this was happening. To act in this way is to actively degrade the level of information in the economy and so misdirect expectations.

This is deeply stupid in both theory and practice. There is no economic gain from changing monetary policy surreptitiously, there are only unnecessary costs. Australian policy makers found this out the hard way in 1992-93. They learnt the lesson and have moved on. But, alas, almost no one takes what Australia does seriously: we are too small, too far away, too “lucky”, too “colonial”. Europeans and Americans tend to be deeply parochial people, seeing themselves as the measure of all things, and so are rather bad at learning from the policy experience of others.

[Read the rest at Skepticlawyer or a slightly revised version at Critical Thinking Applied.]

Understanding history differently

This is based on a comment I made here.


The big divide between the Sceptical Enlightenment and the Radical Enlightenment is that the former believes in a constant human nature, so history provides lessons, and the latter believe in a malleable human nature (either in the sense of a "true" nature which is being horribly distorted or a "better" nature which can be created) so history has no lessons, it is merely a legacy of oppression and failure to be transcended. In the former, human reason discovers and (hopefully) acts upon those discoveries. In the latter, human reason (properly directed) can direct and transform human history. The Glorious and American Revolutions were Sceptical Enlightenment Revolutions, and succeeded. The Jacobin French Revolution (and its descendants) were Radical Enlightenment Revolutions, and so failed.

Mainstream economics is very, very Sceptical Enlightenment, since a constant human nature is taken as a fundamental premise. But something to keep in mind about radical critiques of economics is that such folk typically believe in malleable human nature--which is part of what offends them about mainstream economics: it "celebrates" things which (allegedly) block positive human transformation.

But one reads history very differently if one views human nature as constant than if you believe it to be malleable. ('Constant' meaning 'have enduring structures and patterns', even if beliefs, framings and expectations can vary widely--such as, between those who view human nature as constant and those who view it as malleable.)

Viewing human nature as malleable also leads naturally to demonisation of those who disagree (they are "blocking history") and massive discounting of existing human preferences (they are pre-transformation).

Which makes me wonder about the Euro project. Is it pushing the envelope of "transforming people"? Or are we in a form of Counter-Enlightenment, where faith, emotion & will trump reason? Maybe it is just a form of Machiavellian arrogance: create a structure which can only work with full political union so that people are driven to go all the way. Or possibly it is just the continuing consequences of a flawed conception of European history.

The profoundly differing implications of ideas about human nature is just a particularly powerful example of ideas having consequences.

Barter

Wikipedia claims that:

Contrary to popular conception, there is no evidence of a society or economy that relied primarily on barter.[2] Instead, non-monetary societies operated largely along the principles of gift economics. When barter did in fact occur, it was usually between either complete strangers or would-be enemies.[3]

It cites the work of two anthropologists (Marcel Mauss, The Gift: The Form and Reason for Exchange in Archaic Societies and David Graeber, Toward an Anthropological Theory of Value) in justification.

The claim is misleading. There was extensive trade, across long distances, in societies without money (which, in the world before printing, essentially meant before/without coins). This was so in hunter-gatherer/forager societies: there is evidence of long distance trade in Australia before European arrival, for example. It was even more so in agrarian societies. Thus the Khmer Empire had no coinage but the testimony of Chinese ambassador/commercial attache Zhou Daguan—the only eyewitness evidence we have for the Empire—is that there were vigorous markets and a significant foreign trade community.

It is perfectly true that gift-connections and guest-host connections could be very important in pre-money societies, but these were often implicit exchanges: a form of mediated trade. The almost universal arrangement in forager societies of men hunt and women gather was precisely such an implicit exchange. (The one known exception was a society where the foragers exchanged meat for the produce of the neighbouring farming society: so both men and women hunted and then traded—i.e. bartered—what they caught.)

Similarly, when Chinese sources talk of ‘tribute’ what they are often doing is reconstruing trade relations as an acknowledgement of Chinese superiority, of China being the “Middle Realm”. Notably in the exchange of horses-for-silk that was so central to the trade networks of Eurasia for so long.

The reason why rulers could introduce coins so successfully is precisely because there were already considerable barter-trading which coins make dramatically cheaper and easier. When Adam Smith wrote of:

a certain propensity in human nature … the propensity to truck, barter, and exchange one thing for another.

he was far more accurate than what Wikipedia™ is trying to claim.

Perhaps someone can explain this

A common comment on the eurozone crisis is that it would be very difficult for any country (say Greece) to leave the eurozone. There is even a prize for someone to come up with a good way, which Tim Hartford tells us would be very hard to win.

That the debt problem in itself would not go away by changing currencies is clear. But decolonisation involved literally scores of new countries issuing new currency in replace of the imperial currency. (Not India, it was always on the rupee, but plenty of African countries, for example and including by countries such as Canada, Australia, the US if you go far enough back ....) Why is leaving a currency zone and adopting a new currency regarded as so hard? It has been done many times.

UPDATE. Ed Dolan sets out the mechanisms by which countries have exited from currencies.

Angkor and the Khmer Civilization (2)

This concludes my review of Michael D. Coe’s Angkor and the Khmer Civilization. The first part of the review was in my previous post.


Classic Angkor: society
Having traced the path of the Khmer Empire, Coe now takes us through the society of the Empire in The Life and Culture of Classic Angkor. After a survey of the sources (Pp131ff), we start at the top with the imperial compound, which probably had so many people resident (“bureaucrats, servants, slaves, guards, religious specialists and others … including a sizeable corps of pages”) as to resemble a small city. Khmer society lacked a hereditary nobility: instead, royal officials were appointed (mostly from the major landholding families). Membership of the royal family was only recognised out to the fifth degree and entailed “little authority except that conferred by the monarch”. The appointed officials had the title khlon (in the C19th, they were known as okna).

This bureaucratic class was enormous, and existed on all levels of administration from the capital down to the smallest village (p.134).

Caste was never adopted in Khmer society: the notion of varna was used to grade folk at the royal court, but membership was allocated by the king. The king:

seems to have combined the secular, military role of a Kshatriya with the religious functions and ideology of a Brahmin (p.134).

The virtue of being able to pick and choose which parts of Indian culture and civilisation one found useful: the monarchs being the dominant pickers and choosers.

As for the peasant farmers (about 80% of the population in most agrarian societies), such rice farmers were:

subject to regular corvee labour and to occasional military service, and obligated to provide goods and services to the religious foundations, to landlords, to the mandarin bureaucracy, and to the king. Many of these laboured on the estates of large landholders, while others were attached to specific temples; and some were dedicated to providing the palace with certain types of products. Some of these sound like serfs, but little is known about serfdom in ancient Cambodia (p.134).

Where wealth comes from control of labour rather than (plentiful) land, some form of bondage is likely: if they were forbidden to leave without permission, then they were serfs. Either way, it seems likely that labour service was how land rent was paid.

Which leads to the issue of khnum “usually translated as ‘slave’”. In the C19th, outright slaves were of two sorts:

1) debt slaves, a theoretically temporary category, and 2) slaves for life, who were far less numerous, and who were either those who had been sold by their parents during childhood, or aboriginal Mon-Khmer tribesmen captured in the eastern highlands (these were treated abominably by the Khmer majority). The Classic inscriptions describe three kinds of slaves: 1) slaves legally acquired, 2) slaves who are inherited, and 3) religious slaves (p.134).

. Chinese chronicler Zhou Daguan says of the full slaves:

If young and strong, slaves may be worth a hundred pieces of cloth: when old and feeble, they can be had for thirty or forty pieces (p.134).

This being a barter economy based ultimately on control of labour. Indeed, it seems likely that khnum actually described “obligated provider of labour”:

The reality is that while khnum could never be aristocratic or bureaucrats (no individual khnum ever belonged to the varna), the term covered a wide spectrum of society from peasant commoners to the most abject tribal chattels living in degradation on the ground floor with the animals (p.135).

The ultimate font of authority was the raj (Sanskrit) or stach (Old Khmer). He was executive ruler, chief judge and law-giver. He had to rule through agents, who had their own kin and other networks: a clear limitation on his power, a limitation that varied with the “vigour” and circumstances of particular monarchs. There are few surviving portraits of monarchs, who lived in the centre of thousands of servitors. A teenage prince would have a Vrah Guru, a Brahmin teacher entrusted with his instruction according to the classic Indian texts (Pp135ff).

The empire was divided into provinces (likely 23 at its height) that were divided into villages (sruk or grama):

At every level there were mandarin bureaucrats (khlon, ‘chiefs’) representing the central administration, and who ensured that revenues (rice, goods, corvee labour, and the like) flowed smoothly upwards through the system. Most or all of these were appointed by the king (p.141).

The village headman (khlon sruk) was a royal agent: the village elders (mavrddha) represented the village.

An ambitious individual from a prominent family could by a tract of unoccupied land or obtain it from the king, then found a new (sruk with royal approval (p,141).

The incomes of many villages could support wealthy landholders: one C12th monastery within Angkor (Ta Prohm) received the revenue of 3,140 villages. Since Classical inscriptions were overwhelmingly religious in nature, knowledge of the religious hierarchy is much more extensive than that of the secular hierarchy. The latter included a corps of travelling royal inspectors (p.142).
As for law and order:

As in the rest of the Indic world, the Angkor state and empire were governed by rules laid down in the Code of Manu, a great compendium of Brahman law probably composed in the fourth century BC. Of course, modifications had to be made to a legal system that had been devised for the rigid four-caste system of Vedic India. … The Khmer king was the defender of law and order in Cambodia. His law courts, present on every administrative level right down to the village, instituted criminal proceedings against transgressors and guaranteed the integrity of landholdings and the settling of boundary disputes. Not even religious institutions such as temples were immune, since they as well as private individuals could be sued over land.
In theory, the king owned all land in the empire, but in practice he did not … his main function was to serve as umpire in unresolved land disputes, and to sanction transfers of rights to religious foundations and private individuals (p.144).

Much of the countryside is likely to have been largely controlled by such. Zhou reports there was an annual census in the 9th month: if control of labour is central, then keeping track of it would clearly be important.

The economy was an agrarian rice economy. Since the only surviving writings are on stone, there is a great deal that is not known. Including the actual function of the baray, the vast water features regularly constructed by rulers (they covered millions of square metres with volumes of millions of cubic metres). Coe reports the competing scholarly positions (Pp145ff), though recent evidence has confirmed they were used in irrigation.

Zhou was Chinese commercial attaché, so an authoritative contemporary source on such matters:

Because it was generally the women, not the men, who had charge of trade, Chinese merchants … took care to get a Khmer wife (p.149).

According to Zhou:

In small transactions barter is carried on with rice, cereals, and Chinese objects; fabrics are next employed, and, finally, in big deals, gold or silver is used (p.149).

Zhou’s list of trade goods is reproduced: unsurprisingly, the list of Khmer exports is rather shorter than the list of imports (a common situation when production is dominated by primary products).

As for taxes:

The Classic Khmer state was an immense revenue-gathering machine, and every individual in Cambodia except religious functionaries, priests, monks and slaves was subject to taxation, which was paid in kind, since there was no system of coinage. The king was the supreme receiver of taxes—there was a Khmer formula that went svey vrah rajya, ‘he eats the kingdom’ … but officials at every level participated in the system … The king also benefited by revenues from his immense landholdings, as well as from at least part of the booty gained from military victories.
There seem to have been taxes on everything – on land, on rice, on salt, wax and honey, and so forth. Land taxes were based on paddy size and productive capacity … Payments could be made in all kinds of goods, including not only rice but also slaves, buffaloes, elephants and especially cloth (p.150).

The religious exclusion was deemed a metaphysical exchange.

Drawing on Hindu precedent, Brahmins were excluded from taxation by virtue of the theory that they transferred one sixth of their spiritual gains to the king, a notion that was extended to exempt the great private religious foundations, themselves the recipients of vast revenues from land grants (p.150).

There appears to have been a considerable network of roads and bridges as well as use of horses, elephants and carts. Elephants travel around 24-40 km a day, and consume vast quantities of water—supplying the royal elephant herd must have been part of the purpose of the baray. Elephants and two-horse chariots were used in war (Pp151ff).

Wooden buildings do not survive, so inference from stone construction is required. Of such there is a vast amount, all mortarless. Khmer civilisation produced amazing sculpture, not a single piece of which is signed. Many aspects of Khmer civilisation remain little studied (Pp155ff). Zhou Daguan is the main source on daily life in Angkor and there is a clearly an element of exoticism in his descriptions (not to mention projection). He seems to have been particularly struck by the sexual openness of Khmer society, especially the women.

The region’s humidity is not kind to much of human creation:

No costumes, dress or textiles of any kind have survived from Classical times (p.175).

Zhou describes strict sumptuary laws in C13th Angkor. Sculptures depict no one with upper body covering except warrior kings and soldiers, who often have jackets or bodices ending above the waste. Coe takes us through the (limited) information on aspects of daily life (Pp184ff).

The scholarly debates on Khmer history are interwoven into Coe’s narrative. The anthropologist Clifford Geertz developed the notion that the Indic states of SE Asia were theatre states where display was the purpose; that, in his words, ‘power served pomp, not pomp power’ (p.179). Zhou’s quoted descriptions vividly describe massive ritual and ceremonial display centred on the monarch (Pp179ff). The history of modern totalitarianism suggests that display can very be much an aspect of power: of manifesting and expressing a converging set of expectations based on the prestige and dominance of the ruler—given that much more intensity if the ruler is seen as the conduit through which grand cosmic purpose flows.

Coe notes that:

There never seems to have been a time in Cambodia’s history when Khmers were not fighting each other, or waging war on foreign enemies (p.185).

This is hardly surprising, since there was such an enormous, concentrated extraction of surplus to fight over. It does mean there is a great deal of sculpted pictorial material on Khmer warfare, which Coe takes us through. Zhou was less impressed, saying “generally speaking, these people have neither discipline nor strategy” (p.187). It very much seems to be the warfare of “biggest wins”, with little evidence of a dedicated warrior class, rather than paid officers mobilising (possibly conscripted) peasants. Such a mode of warfare encouraged imperial dominance: the universal monarchs would have had little interest in creating a warrior elite that might be difficult to control.

There are over 1,200 surviving inscriptions from ancient Khmer, almost all in the early Kingdoms and Khmer Empire periods. Those in Sanskrit tend to be in poetic form. There was much concern for the cosmological, including astrological but no evidence that literacy extended beyond a small elite: on the contrary, the vast pictorial displays very much are what would impress and communicate to largely illiterate peasants (Pp188ff).

Coe notes John Miksic division of SE Asian cities into the heterogenetic, found along coastlines and borders of ecological zones, with few public monuments, but intensive trade, entrepreneurship and high population densities and the orthogenetic:

… located well inland, and were correlated with the production of a surplus staple crop – that is, rice – which could be commandeered by the authorities. Stability and ritual were the prevailing order, and there were impressive monuments of a religious nature. There was no money and little evidence of large markets and significant trade. … overall population density was very low. From everything that we know about Angkor, it would appear to have been orthogentic (p.191).

The old Thai capital of Ayutthaya (founded 1351, destroyed by the Burmese in 1767) was a “conscious clone” of Angkor. From this city, still little understood as a lived-entity but well-mapped as an archaeological one, the Khmer monarchs ruled an Empire that lasted as long as Rome’s (p.194) (at least the Western Empire).

And after
In the final chapter, The post-Classic Period: Decline and Transformation, Coe takes us through the distinguishing characteristics of post-Classical Khmer civilisation and the many theories (but little clear knowledge) of how and why the Empire collapsed.

Post-Classic Khmer civilisation was marked by:

The monarch is no longer a chakravartin, but merely king of Cambodia.
The capital in various locations between the Great Lake and the Delta.
Theravada Buddhism as the state religion, with Pali rather than Sanskrit as its language.
Stone temple architecture and prasats replaced by wood-built viharas (‘pagodas’) and other monastic buildings.
State and ancestral temples in disuse; or converted to Buddhist worship and made the object of long-distance pilgrimages.
Predominance of the Sangha (Buddhist order of monks) in all aspects of life.
Middle Khmer replaces Old Khmer as the language of the people and the court.
Written royal chronicles, but few contemporary stone inscriptions.
Absence or abandonment of large-scale public works, such as the barays and the major canals in Angkor and elsewhere.
Strong development of maritime trade with China, Japan, and parts of Southeast Asia.
Marked Thai (Siamese) influence in art, architecture, theatre and court life (p.195).

Clearly, the level of extractable surplus was much less. As Coe points out, the expansion of maritime trade gave Khmer monarchs could reason to move their capital to the “Quatre Bras” region “easily reached by junks coming up from the Delta” (p.197). Trade was “almost entirely in the hands of foreigners” (p.210): predominantly Chinese (and Japanese, before the Tokugawa bakufu closed off Nippon to the outside world) but also Malays, Arabs and various Europeans. The lack of a Khmer merchant class may well have seriously limited the standing of mercantile interests at court. The continuation of barter (i.e. the failure to adopt a coinage) probably limited the monarchy’s capacity to profit from maritime trade. While the continuation of monarchical domination of surplus extraction may well have helped foreclose the rise of a Khmer merchant class. (The monarchy displayed a remarkably cavalier attitude to Vietnamese migration into the Delta in the late C17th: this resulted in the subsequent loss of major direct access to oceanic maritime trade with the Vietnamese takeover of the Delta around 1700.)

Coe concludes that:

… civilizations – like biological species – usually fall from multiple causes, not single ones. Alterations in the religious paradigm, military incursions, over-population and ecological collapse, and the shifting of trade routes and patterns, finished off the Classic, monsoon-forest cultures of both Cambodia and the Maya area (p.197).

A civilisation is a system (or, if you like, an interlocked network of systems): if any key part starts to unravel, interactions can easily widen the pattern of unravelling. Resilience in the face of stress can require openness of thinking at least as much as institutional responsiveness and centuries of success can easily close off both.

Coe summarises the sources available for the post-Classic period (p.197ff), examines Theravada Buddhism and its role in Cambodia (Pp201ff), the use of Angkor as a Theravada centre (Pp204-5), Cambodia’s precarious place between Thai and (particularly) Vietnamese expansion (Pp205ff), the course of post-Classic history until Cambodia became a French Protectorate in 1863 (Pp208ff), the operation of post-Classic life and administration (Pp213ff), trade and commerce (p.219), post-Classic warfare:

There was no standing army – in times of war, the patron was expected to muster a force of his clients, and place himself or an officer designated by the king at its head (p.219)

post-Classic art (Pp220-1) and mental life (Pp222ff). This includes the Reamker, a reworking of the Ramayana to reflect Khmer culture and Theravada Buddhism. The chapter finishes with a one-page epilogue of Cambodian history from 1863 to the present, noting that Angkor’s five towers are on its flag, a descendant of its rulers is the monarch and Buddhism is again the state religion (p224).

Coe concludes with a list of rulers of Angkor and known pre-Angkor rulers (p.225) and a note on visiting Angkor (p.226).

Michael D. Coe’s Angkor and the Khmer Civilization is a very accessible survey of a civilisation which did so much to set the patterns of SE Asian history and culture: one that managed great architectural achievements while remaining a barter economy.

Angkor and the Khmer Civilization (1)

Michael D. Coe’s Angkor and the Khmer Civilization is “volume one hundred and nine in the series Ancient Peoples and Places” (p.4), a numbering which nicely indicates how large Khmer civilisation does (not) loom in the Western historical consciousness. Most people would be aware of the Angkor ruins, but have only the vaguest notion of the civilisation that produced it, except as the forerunner of modern Cambodia.

Which is a bit like saying the Roman Empire was the forerunner of modern Italy. Khmer civilisation during its classic period (802-1327) was the seminal civilisation of mainland SE Asia, dominating modern Cambodia, southern Laos, the Mekong delta and central Thailand. Coe’s book is an excellent survey of the rise and decline of this civilisation.

Coe’s scholarly speciality is “the other great monsoon forest civilisation” (p.7), the Maya of Mesoamerica, a comparison that informs his treatment. He divides the trajectory of Khmer society into Early Farmers, Early Kingdoms, Classic and post-Classic (p.9) with a useful full-page timeline (p.10).

The Introduction deals with European discovery and engagement with Angkor and Khmer history (Pp11ff) concluding with a full-page explanation and potted summaries of the various periods: hunters and gatherers to c.3600-3000BC, early farming period to c.500BC, Iron Age to c.200-500AD, early kingdoms to 802AD, Classic 802-1327 and post-Classic 1327-1863 (p.20): or, to put it another way; foragers, farmers, chiefdoms, states, empire, aftermath.

The ruins of Angkor are vast: the first colour plate is a synthetic-aperture radar image of Angkor from the space shuttle Endeavour:

The entire urban complex covers about 1000 square km (386 square miles), and its core area c.200 square km (77 square miles). There is nothing else to equal it in the archaeological world (p.11).

Coe then moves on to the geographical setting (Pp21ff) – the various black-and-white illustrations throughout the book and magnificent colour plates are helpful. So, for example, the picture of the massive Khong Falls (the modern day boundary between Laos and Cambodia) makes it quite clear why they “effectively block all boat communication between the lower and upper reaches of the river” (p.21), which makes the Mekong far less of a conduit for human traffic than it might be. The great waterway of Angkor was not the Mekong but Tonle Sap (the Great Lake) on the Tonle Sap River, a tributary of the Mekong.

The setting
Like much of Asia, Khmer was and is a rice civilisation. Khmer is one of the many Asian languages where the word for ‘food’ is ‘cooked rice’ (bai). Rice and fish are the basis of the economy (p.29), Coe taking us through the varieties of rice cultivation; dry rice, bunded field, flood-retreat and “floating” rice (Pp30ff).

Then it is on to peoples and languages (Pp33ff). A map of languages (p.35) makes it clear that linguistic boundaries do not entirely coincide with modern political boundaries. There is a significant Khmer borderland in Thailand and a minority remnant in southern Vietnam.

In modern Cambodia, there are some Tai (Thai, Lao) speakers along the upper Mekong, significant areas of Mountain Mon-Khmer as well as Mountain Cham and Cham enclaves. But language boundaries have also changed over time. The Mekong delta was Khmer until the late C17th, when the Vietnamese influx began, while the Tai peoples migrated down from Southern China in the C12th and C13th (displaying some similarities in their role vis-à-vis the Khmer Empire as that of the Germanic peoples vis-à-vis the Western Roman Empire). There is also the normal history of language mixing:

It is now generally recognised that Vietnamese is a Mon-Khmer language that shows the effect of long contact with Chinese in its vocabulary, in its use of tones, and its tendency to be monosyllabic (p.36).

The animist-shamanistic Mon-Khmer mountain peoples have been traditionally despised by the Khmer and subject to slave raids. The Cham had a significant rival kingdom before being conquered by the Vietnamese in 1471: the Cham had been Hindu-Buddhist but converted to Islam from the C11th onwards (Pp36-7).

The Khmer script (the first inscription of which dates from 611) is Indic in that it is far more complex than a simple alphabet. The language itself tends to be very concrete, borrowing abstract terms from Sanskrit and, after the adoption of Theravada Buddhism, Pali (still the main source of neologisms in contemporary Khmer). We have about 1200 surviving rock inscriptions, most in Sanskrit, and religious: the surviving Khmer script, while still largely religious in context, tends to deal with more mundane administrative matters (Pp40-1).

Foragers, farmers and early kingdoms
The fourth chapter, The Khmer before history (Pp43ff), deals with foragers, farmers and chiefdoms, the latter apparently the result of the advent of iron tools and weapons and increased social differentiation:

Onto this Iron Age ‘basement culture’ was to be grafted a belief system that had its origins over two millennia ago in the plain of India’s Ganges River, laying the foundation for what was eventually to become the civilisation of Angkor (p.56).

Moving on to the early kingdoms period (Pp57ff), Coe notes that the region known as ‘Indochina’ has culturally far more that comes from India than China: the exception being ‘Tonkin’ or the Red River valley (i.e. the proto-Vietnamese), which was sinicised.

Ironically, there are almost no Indian texts on the region (apart from reference to risky-but-high-return trading opportunities) but several Chinese texts which, given the linguistic difficulties of transliterating from non-tonal polysyllabic languages (Khmer, Sanskrit) to a tonal monosyllabic language (Chinese), and Chinese disdain for ‘barbarian’ peoples, are more ethnographically revealing than historically so (p.57). Coe quotes at length from various Chinese reports on the Mekong Delta Khmer cities and societies:

They have neither rites nor propriety. Boys and girls follow their penchants without restraint (p.59)

conveys the general tone. (The relative freedom of the sexes—and so sexuality—is a recurring comment on Khmer society by outside observers.)

The picture the Chinese chronicles give of a dominant state or states (‘Funan’, ‘Zhemla’) is contradicted by contemporary Khmer inscriptions, which indicate no dominant state or rulership. Scholars relying more on the latter (i.e. contemporary) records have built up a picture of a series of Iron age chiefdoms which, as Chinese demand for luxury goods increased, coalesced in the Mekong delta into trading ports with local rulerships:

The chiefs of these palisaded settlements bore the Mon-Khmer title of pon, an office that was passed down matrilineally (passing from the deceased to sister’s son). The population of a core pon-dom formed its own lineage or clan, with its own deity whose representative was the pon himself …
There was a hierarchy of pon, probably based on wealth and political influence. As early as the fifth century AD, superior pon started claiming kingship, taking on Indian names and titles … although Khmer names linger (Pp61-62).

The earliest Khmer king whose existence is firmly historically established, Rudravarman, ruled the Delta pon in the first half of the C6th (p.62).

This was the period in which Hinduism and Buddhism became firmly established in the region, particularly amongst the Khmer. Indian traders operated from the Red Sea (linking with the Roman Empire) to the Mekong Delta (thereby linking to Chinese trade). Buddhism spread easily along trade routes, being both a congregational and proselytising religion, comfortable with trade. That Brahmanism also spread was more surprising, since it is highly agrarian in its origins and structures (p.62).

It is less surprising if one considers that what actually spread was worship of the Hindu gods, particularly Vishnu and Shiva—figures of awe, power and prestige—and Brahmin status and learning. The caste system never established itself in Khmer society (p.63), except as a vehicle for court language. To put it another way: what spread was those parts of Vedic Brahmanism that were most compatible with royal status-seeking and Buddhism, particularly Mahayana Buddhism. Even better, the Indian states and principalities were not expansionist outside India, so Khmer rulers could pick and choose which aspects of Indianisation suited them: coins, for example, never took on, the Khmer lands remaining a barter economy until the arrival of the French in the mid C19th (Pp62-3). The archaeology of the Delta has been much disrupted by the violence of its C20th history (Pp64ff).

Being a barter economy was another similarity with Pharonic Egypt and Mayan Guatemala—barter societies whose rulers produced great monumental architecture. As the Khmer lands were barter societies, they lacked mechanisms to transfer obligations across time, with (given the hot and humid climate) particularly poor ability to store produce over the longer term. One can see the appeal to Khmer rulers of great projects that soaked up surpluses in ways the kings controlled: hence the constant building by the rulers of the later Khmer empire of yet new “temple mountains”, complexes and artificial lakes.

By the early C7th, political power seems to have shifted from the maritime cities of the Delta to inland cities controlling rice surpluses. Societies became more stratified, kings became more powerful, the pon title faded away, temple foundations spread. This is the period when the first Angkor site, Angkor Borei, was established, linked to the Delta by a long canal, with considerable striking Hindu and Buddhist sculpture based on lively reinterpretation of Gupta styles. Coe takes us through the archaeology of this and other Khmer sites from the period (Pp68ff). Several page inserts take the reader through the central points of Hinduism (Pp80-4) and Buddhism (Pp85-8).

Classic Angkor
Then it is on to the classic Angkorean period of Khmer Empire. Coe lists the defining characteristics (even though some also pre-dated or post-dated the period) as being:

A universal monarch as head of an imperial state.
The capital of the empire almost always based in Angkor.
Hinduism and/or Mahayana Buddhism as the state religion.
Religious architecture primarily in stone (sandstone and laterite) rather than wood.
State and ancestral temples.
Workship of the linga.
Prasats (shrine towers) housing images of the gods, often arranged in quincunx and supported by stepped pyramids.
Massive and extensive public waterworks, including canals and vast reservoirs (barays).
A network of highways, causeways and masonry bridges.
Inscriptions in Sanskrit, as well as Khmer.
Iconography primarily Hindu, mainly derived from the epics and from the Puranas. (p.97)

With no serious geographical barriers to unity, the warring minor kingdoms eventually produced a warlord able to conquer them all. This was Jayavarman II (‘protected by victory’) known posthumously as Parameshvara (‘supreme lord’) whose crowning as universal monarch in 802 in a Brahmin rite is taken as the establishment date of the Khmer Empire (Pp97-100).

An inset explains the somewhat chaotic dynastic succession processes in Cambodia whose tendency to fratricidal conflict was somewhat balanced by a tendency to select for competence (p.100). Jayavarman II established his capital at Hariharalaya (named after the deity that unified Vishnu and Shiva). His son Jayavarman III engaged in significant building in stone in the new capital, establishing styles that persisted through the history of the Khmer Empire including the building of an ancestral temple and a state temple, the last including a representation in stone of Mount Meru, home of the gods (Pp.101-2).

After a fratricidal conflict over the succession, Yashovarman I won and, after building 100 ashrams across his empire and embellishing further his father’s capital, moved to the capital to Angkor, where it remained for the next five centuries, except for “one brief lapse”:

There were probably several compelling reasons for this move – economic, socio-political, military and probably religious (undoubtedly he was advised by Brahmin gurus where and when this should take place), but suffice it to say that the Angkor region is strategically located about halfway between the hills of Kulen and the margins of the Great Lake, on the right bank of the Siem Reap River – not only an abundant source of water for whatever hydraulic schemes the ruler might be contemplating, but also a waterway as holy to the Khmer as the Ganges still and is to Indians (p.103).

A two-page map conveys the scale of what was eventually constructed on the site (Pp104-5). There was much construction:

Each of the major chakravartin who ruled the Khmer Empire felt it necessary to build important public waterworks, an ancestral temple, and a state temple, usually in that order (p.107).

Hence, given the resources at their command, the architectural splendours that so impress to this day in Yashodharapura (‘Glory-bearing City’). One of Yashovarman’s waterworks was 7.5km (4.7m) by 1.8km (1.1m): one estimate is that it must have taken 6 million man-days to build its embankments alone (p.107). In an agrarian barter economy, labour service cannot be “held over”: it must be used each year or lost.

Kings followed kings, until Jayavarman IV (reigned c.928-41) moved the capital to Koh Ker (Chok Gargyar), 90km (56m) to the NE. Why, we do not know. As the site provided easy access to sandstone, the monumental and other statues of this interlude have produced many of the admired masterpieces gracing various collections around the globe. After a period of weak rule and disintegration, Rajendravarman II (r. 944-68) moved the capital back to Angkor and reimposed imperial rule on the breakaway rulerships. He built Banteay Srei, a Shivaite complex that gets its own two-page insert (Pp110-1). He and his son and successor Jayavarman V (r. 968-c.1000) were both pious Buddhists, but Mahayana Buddhism is a tolerant and syncretic faith (p.112).

Then followed a 9 year civil war, won by Suryavarman I (r.1011-49), who demanded of 4,000 officials an oath of loyalty (that if one broke it one would be “reborn in the thirty-second hell as long as the sun and moon shall last”) that was still being used by the Cambodian crown in C20th. Suryavarman also required it be sealed in blood.

The wealth of the Khmer Empire rested on extraction of surplus from rice-growing peasants. Goods and labour service sufficed for the needs of its monarchs: particularly as the surplus was “soaked up” in uses controlled by the monarchs—notably huge building projects. This did, of course, mean that the Khmer Empire’s history was dominated by using and fighting over that surplus—foreign invaders attempting to loot the products of that surplus or acquire surplus-generating territory, internal rebels seeking to gain control of the surplus in their region, usurpers seeking to gain control of the surplus for the entire empire.

The succession of kings continued, marked by grand building projects, revolts and wars. Rulers of such power had to be praised. One inscription tells us of Undayadityavarman II (r.1050-1066 ) that:

He excelled in seducing women to his will by his beauty, warriors by his heroism, sages by his good qualities, the people by his power, Brahmins by his charity (p.114).

The ‘cult of personality’ is a perennial feature of autocracy for, when loyalty is compulsory, how does one successfully signal loyalty? Playing the game of excessive public flattery is a form of signalling that has some costs involved, so is more reassuring. Various kings succeeded to rule of the Khmer Empire. Some were successful, some less so; some favouring Buddhism, some Shiva or Vishnu. Success and grand building projects tended to go together. So, Suryavarman II (r.1113-c1150) extended the empire, defeated the Cham enemies, invaded the Vietnamese realm based on the Red River by land and sea repeatedly (if unsuccessfully) and built Angkor Wat, which gets its own multipage insert (Pp117-121).

A Cham invasion threatened the continuity of the Empire, but Jayavarman VII (r.1181-c.1215):

arguably not only the greatest of all the Khmer kings but also the greatest personage in Cambodian history (p.122)

restored the power of the Empire, crushingly defeated and conquered the Cham, avidly promoted (Mahayana) Buddhism and engaged in the normal grand building projects: including the grandest of all, Angkor Thom (Pp122ff).

Rulers after Jayavarman VII found keeping the Cham within the Empire proved too hard (though the Cham later succumbed to the Vietnamese). At some point in the C13th, there was a massive (royal) reaction against Buddhism, since every single Buddhist sculpture in Angkor was smashed or defaced while Angkor was “re-Hinduised”: this was iconoclasm on a massive scale and a manifestation of religious intolerance previously foreign to the region. Meanwhile, chiefdoms of the Tai people migrating down from Southern China began to put pressure on the Empire’s northern frontiers. In the early C14th, the Empire rapidly declined. The last Sanskrit inscription was carved in 1327, which is taken to be the end of the Khmer Empire. But not, of course, of Khmer civilisation, which transmuted into something different. In particular, it became overwhelmingly Theravada Buddhist, the first Pali inscription being carved in 1309 (Pp128ff).

Rulerships are based on patterns of expectations, incorporating particular framings (such as religion). Stress can lead to shifts in those patterns that can encourage the adoption of new framings. Alternatively, shifts in those framings (such as religious changes) can themselves cause stress that may undermine expectations rulership relies upon. With our limited information, it is very hard to see whether the shift to Theravada Buddhism was a response to stress, a cause of stress or both.


This review will be concluded in my next post.

Civilisation and surplus

I once asked an Israeli archaeologist why archaeologists (and historical anthropologists) seem to be so influenced by Karl Marx. He replied that it was because Marx talked about economic surplus and they study the products of economic surplus. Makes sense.

Civilisation rests on the production of surplus—that is, the production beyond the needs of subsistence. In agrarian civilisations, typically 8 out of 10 people worked as farmers. That meant that they produced enough surplus food (and other agrarian products such as material for clothing) for 1 in 5 people to do something else. That "something else" being all the things that make a civilisation (which may include farmers working on other things in down times).

Early civilisations start off in warm climes near water (i.e. river valleys towards the equator) because you can have a concentrated population cultivating fertile land and less effort is put into staying warm, so it is easier to produce a surplus.

Surplus is not exploitation as such (although there are certainly exploitative ways to extract surplus: the most efficient ever exploitative extractor of surplus being Stalin's regime—he could make mass starvation work for him). Surplus is the basis of civilisation.

As technology improves, being in a warm area becomes less important as better technology means it becomes easier and cheaper to stay warm. Indeed, there is some tendency for the technological "cutting edge" of civilisation to move to colder climes, since they get more pay-off from technology and tend to be more time-conscious due to the need to store food and other supplies over winter. (Climate's effect on temporal outlooks may have had something to do with which parts of Europe adopted the Reformation and which did not, though distance from Rome and consequent command-and-response issues were clearly also important.)

With the transformation of production we call the Industrial Revolution, the ratio of people needed to produce food dropped dramatically as technology allowed more to be produced with less human effort. By 1920, primary production stopped being the biggest employer in the US. (By 1930, services were the biggest employer, so the "manufacturing moment" in US economic history—when secondary industry dominated employment—lasted 10 years.)

Institutions make a difference; some sets of institutions are much better at facilitating transactions (and so gains from trade and thus the production and use of surplus) than others. Clearly, the British institutional heritage of US and Canada works better than the Iberian institutional heritage of Latin American. (Which is why Hispanics flood North: they can earn more income simply by being in a different institutional context.) Scandinavians in the US do considerably better (in terms of average incomes) than do (pdf) Scandinavians in Scandinavia.

Culture (which overlaps with institutions and is profoundly affected by religion) also makes a difference as it affects attitudes to time, willingness to transact, etc. Hindus and Sikhs from South Asia, on average, do considerably better in the UK (in terms of employment and income) than do Muslims from South Asia.

Combinations of differences within cultures and institutional contexts also make a difference: Muslims in the US do considerably better (in terms of income, employment and integration) than do Muslims in Europe.

Geography can make a difference beyond producing food and staying warm. Water transport is generally much cheaper than land transport. It is easier to produce a surplus operating out of water hubs than relying on land transport. Capital markets are about trading in surplus: ideally, directing it to more productive ends. And, if you are a trade hub, the demand for capital will be greater. There is a reason why the Serene Republic of Venice was a persistent financial innovator (inventing bonds in 1171, for example).

So, Marx was correct in that surplus matters: but he was utterly wrong in what it represents and the implications thereof.

[Cross-posted at Critical Thinking Applied.]

Why did the Middle East select for monotheism?

A variation on the Whig interpretation of history that still has surprising sway is of human religious history as having a “natural” progression from animism through polytheism to monotheism. It has led to such nonsense as the psychotic tyrant Akhenaton being written up positively solely because he was monotheist (or, at least practised monolatry: Kerry Greenwood’s Out of the Black Land provides a revealing fictional treatment). This animism-polytheism-monotheism “progression” is an interpretation that has nothing to recommend it, apart from monotheist self-satisfaction.

If one doubts that polytheism is perfectly compatible with highly sophisticated societies, I refer you to classical Rome and Greece; to India, China and Japan. If you doubt it is perfectly compatible with thoroughly modern societies, I refer you to Japan, Hong Kong, Singapore and Taiwan. If you think monotheism is necessary for a highly compassionate morality, I refer you to Jainism and Buddhism.

Not only does the animism-to-polytheism-to-monotheism progression fail as a moral and intellectual claim, it fails as history in the quite basic sense that monotheism is purely a product of the Middle East. It spread from there around the globe (indeed, it is still doing so), but it evolved nowhere else.

The Middle East itself produced not one but several forms of monotheism: the proto-monotheism of Zoroastrianism; the monolatry-turned-monotheism of Judaism; the universalising monotheism of Christianity; the universal dominion monotheism of Islam; plus various offshoots of the above. Monotheism in its various forms now thoroughly dominates the religious landscape of the Middle East. So, what is it about the Middle East that it has repeatedly selected for monotheism?

Social geography
When looking to a recurring pattern in a particular region, it is a good idea to start with social geography; the patterns of interactions of people with the terrain.

By the time monotheism first arose, the enduring patterns of Middle Eastern social geography were already in place. River-valley civilisations dominated by major urban centres interacted with herding pastoralists living in the surrounding deserts, mountains, plateaus and plains. Their interactions were those of trade, raid and conquest: interspersed with retaliation and protection payoffs. The fear of the settled (and thus vulnerable) farmers had for the mobile (and thus dangerous) pastoralists is well expressed in the Biblical story of Cain and Abel.

The great conquering peoples of the Middle East after the demise of the last Mesopotamia-originating empire (also subject of a famous Biblical story)—the Iranians, Arabs, Turks and Mongols—were all pastoralist peoples. Pastoralist conquest became so much a pattern of the region that Abd-ar-Rahman Abu Zayd ibn Muhammed ibn Muhammed ibn Khaldun, statesman, jurist, historian and scholar, in his The Muqaddimah: An Introduction to History, written in 779 AH (1377 AD), famously developed his cycles of history based on it.

His analysis is that rule is based on the rise of group feeling (asabiyyah) that leads to rulership over others (pp 107-8). Having conquered urban lands, the ruling group becomes distracted by the luxuries available that weakens group-feeling and courage. This proceeds until it is swallowed up by other nations or dynasties (p.109).

Ibn Khaldun’s theory is based on internal dynamics and external response. Expenses grow (p.134), the ruling group become complacent and lose their edge (p.135), rulers become more isolated seeking people directly beholden to them (p.137) leading finally to dynastic senility and wastefulness, making them ripe for eventual replacement (p.142). Decay in authority usually starts at the edges of the dynasty’s territory (p.250). He repeats the theory in different words at various places (e.g. p.246ff), usually providing historical examples of the various processes. Russian demographer Peter Turchin has developed the theory further.

A review essay on a book on tribalism in the Middle East puts ibn Khaldun's model well:

… outlying tribes tied together by traditional kinship solidarities conquer, settle, and rule a state. In time kinship loyalties loosen, the rulers urbanize and grow effete, their state loses control over distant tribes, and the cycle begins again.

Precisely because herding life is mobile, kinship and lineage provide protective and support services. This provides a strong, but constrained, source of social solidarity. As the Arab proverb goes “me against my brother, my brother and I against our cousin, my brother and cousin against the stranger”.

What began as a response to the demands of pastoralism can also deal with other sources of social insecurity. In the words of an enlightening review essay on Pakistan:

At the heart of Lieven’s account of Pakistan is kinship, pervasive networks of clans and biradiris (groups of extended kin) that he identifies as “the most important force in society,” usually far stronger than any competing religious, ethnic, or political cause. Several millennia of invasions, occupations, colonizations, and rule by self-interested states resulted in a “collective solidarity for interest and defense” based on kinship becoming paramount in the area that is Pakistan.

Monotheism’s advantages
The aforementioned great conquering pastoralist peoples—Iranians, Arab, Turks and Mongols—were all, with the exception of the Mongols (who came from furthest away and were profoundly affected by the long history of interaction with China), in their conquering phase, monotheist. Monotheism offers a motivating identity and framework of expectations able to operate across lineages. The common identity of believer is, in the right circumstances, able to unite people across otherwise competing lineages—Muhammad’s success in being the first person to unify most of Arabia is a striking example of this.

The common identity of believer can also unite across the pastoralist-farmer divide and do so in a way which gives an identity to cling to in adversity: both clearly important in early Hebrew history. Given that the pastoralist-farmer barrier in the Middle East can be particularly porous, depending on circumstances, an identity that can be persisted with across it has clear selection advantages.

[Read the rest at Skepticlawyer or at Critical Thinking Applied]