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February
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Followers
During the February 5 lecture, Prof Chamberlain said that deflation was a chronic problem in the ancient arid zone because political elites frequently hoarded wealth, thus keeping money out of the 'market' economy. My economic theory is a bit rusty, but does deflation in the ancient world follow the same economic principles as deflations in modern economies? If a significant amount of money was kept out of ancient economies, causing deflation, demand for goods would decrease, but would prices also fall? My best guess is that prices would drop (following the dip in demand), but not enough for most people to afford high value goods. If this is true, would merchants in the arid zone then be compelled to expand their trade networks to other communities, thereby finding more prosperous markets. If I'm right about this (not sure yet) chronic deflation could help account for the frequent movement of merchants and expansion of trade networks in the ancient arid zone.
ReplyDeleteInteresting idea, never thought of it. Merchants had to be particularly alert to changing conditions, much more so than anyone else, so I'd be surprised if those who foresaw a period of deflation didn't have a competitive advantage.
ReplyDeleteThere is a difference in magnitude though: in modern times we have to learn about the effects of deflation from economists; our experience is indirect. In pre-modern times deflation was more tangible. It wasn't that goods had too be cheaper to be marketable (though they were), but rather that there was just no money anywhere. At first this would have been unnoticed: in flush times people will stash something away and the wealthy will find something to patronize. But over time the macro-economic situation would become worse and worse until neither you nor anyone you knew could find a silver dirhem if your lives depended on it. The tipping point was probably when those who held currency realized that increasing shortages made it more profitable to hide it in the ground than to invest it in trade. As that point most people would be reduced to barter, and people who produced rare or luxury goods would lose their markets.
Another difference is that we tend to have a decade or two in mind as the maximum length of a macro-economic crisis. The process by which coinage was removed from circulation in pre-modern times was on a much longer time-scale. No sudden crises, just a slow clogging of the arteries of commerce over generations. You might have had a large estate, holdings of real estate in town and country, orchards, artisan workshops, and a mill or two but if nobody was selling and nobody buying your wealth meant less.
The only thing that could put an end to it was the discovery of new sources of gold and silver or a nomad conquest on a large enough scale to dislodge immobilized stores of precious metals.
Another dimension of the problem was the famous "gold and silver drain": the movement of precious metals from the Mediterranean region to South and East Asia. The spices, manufactured goods, and textiles from the East were much sought after in the West; but the latter had few products in turn to maintain a balance of trade. Eventually, with nothing to counteract this, coinage would slowly disappear in the west, a problem noted from Roman times until the 19th-century. This was infamously the motivation of the Opium Wars in the 1840's and 1850's: the British Empire produced nothing the Chinese wanted while China soaked up currency from all the world for its manufactures. From the British perspective there was a simple if morally odious solution: addicting millions of Chinese to opium while holding a monopoly on the supply from India. Chinese resistance was handled by the one thing the British Empire did have a competitive advantage in.