Tag: economics

On the ownership of land

That land is free by nature cannot be disputed.

It is here when we arrive, and we cannot take it when we leave. By natural law, all must have equal rights to its use. But we have devised a system of absolute ownership with the right to charge a rent to a user. This is completely entrenched in the law of the land.

The consequences of not recognising natural law are growing. The heavy burden of land prices and the increasing gap between rich and poor are problems that will have to be dealt with.

– From the website Land is Free, accessed 20 October 2018.


Kicking away the ladder

… rich countries did not develop on the basis of the policies and institutions they now recommend to developing countries. Virtually all of them used tariff protection and subsidies to develop their industries. In the earlier stages of their development, they did not even have basic institutions such as democracy, a central bank and a professional civil service.

There were exceptions, such as Switzerland and the Netherlands, which always maintained free trade. But even these do not conform to today’s development orthodoxy. Above all, they did not protect patents and so freely took technologies from abroad.

Once they became rich, these countries started demanding that the poorer countries practise free trade and introduce “advanced” institutions – if necessary through colonialism and unequal treaties. Friedrich List, the leading German economist of the mid-19th century, argued that in this way the more developed countries wanted to “kick away the ladder” with which they climbed to the top and so deny poorer countries the chance to develop.

.. in the last two decades, when developed countries have exerted enormous pressures on developing countries to adopt free trade, deregulate their economies, open their capital markets, and adopt “best-practice” institutions such as strong patent laws.

During this period, a marked slowdown has occurred in the growth of the developing countries. The average annual per capita income growth rate in the developing countries has basically been halved, from 3% to 1.5% …

– From History debunks the free trade myth by Ha-Joon Chang, 24 Jun 2002.

GDP growth in Haiti – it’s magnificent!

And right now, for example, there is about 85 percent unemployment in Haiti, and yet the GDP has been growing by 4 percent every year. The reason the GDP is growing is because they’re destroying the informal sector, and more and more people are exchanging money for services, whereas in the past they used to trade services with each other. And, of course, everything gets added to GDP; nothing really gets subtracted. So loans are added to GDP. You get money from USAID, you borrow from the World Bank, you borrow from the IMF, and it looks like the GDP is growing. It’s magnificent! GDP is not net worth; it’s just how much money flows through a country. So Haiti is growing its GDP, and people are getting hungrier.

Dady Chery, 2015.

The year of the Jubilee | Economic systems from other times and places | Presented by Awesome Kitty

A cartoon image of a cute yellow-brown cat with title text that reads: Now it's time for some historical perspective! At the bottom is a logo which reads: Awesome Kitty.

Awesome Kitty says:

In our world today we have an economic system that is the same pretty much everywhere, and that experts and politicians insist is unquestionably scientific and inevitable, even though (a) it’s actually brand new, historically speaking, and (b) it fails to do what any decent economic system should do: make it possible for most people to live decent lives, with adequate food and shelter and clothing and not-too-horrible work.

Given this, it’s helpful to compare economic systems from other times and places; they might be just as terrible as ours, or even worth, but even so it’s nice to get some sense of all the different systems that humans have tried out over the years!

In that spirit I present to you The Year of Jubilee (Leviticus 8-55), from both the Jewish Bible and the Christian Old Testament.

Count off seven sabbath years—seven times seven years—so that the seven sabbath years amount to a period of forty-nine years. Then have the trumpet sounded everywhere on the tenth day of the seventh month; on the Day of Atonement sound the trumpet throughout your land. Consecrate the fiftieth year and proclaim liberty throughout the land to all its inhabitants. It shall be a jubilee for you; each of you is to return to your family property and to your own clan. The fiftieth year shall be a jubilee for you; do not sow and do not reap what grows of itself or harvest the untended vines. For it is a jubilee and is to be holy for you; eat only what is taken directly from the fields.

In this Year of Jubilee everyone is to return to their own property.

If you sell land to any of your own people or buy land from them, do not take advantage of each other. You are to buy from your own people on the basis of the number of years since the Jubilee. And they are to sell to you on the basis of the number of years left for harvesting crops. When the years are many, you are to increase the price, and when the years are few, you are to decrease the price, because what is really being sold to you is the number of crops. Do not take advantage of each other, but fear your God. I am the Lord your God.

Follow my decrees and be careful to obey my laws, and you will live safely in the land. Then the land will yield its fruit, and you will eat your fill and live there in safety. You may ask, “What will we eat in the seventh year if we do not plant or harvest our crops?” I will send you such a blessing in the sixth year that the land will yield enough for three years. While you plant during the eighth year, you will eat from the old crop and will continue to eat from it until the harvest of the ninth year comes in.

The land must not be sold permanently, because the land is mine and you reside in my land as foreigners and strangers. Throughout the land that you hold as a possession, you must provide for the redemption of the land.

If one of your fellow Israelites becomes poor and sells some of their property, their nearest relative is to come and redeem what they have sold. If, however, there is no one to redeem it for them but later on they prosper and acquire sufficient means to redeem it themselves, they are to determine the value for the years since they sold it and refund the balance to the one to whom they sold it; they can then go back to their own property. But if they do not acquire the means to repay, what was sold will remain in the possession of the buyer until the Year of Jubilee. It will be returned in the Jubilee, and they can then go back to their property.

Anyone who sells a house in a walled city retains the right of redemption a full year after its sale. During that time the seller may redeem it. If it is not redeemed before a full year has passed, the house in the walled city shall belong permanently to the buyer and the buyer’s descendants. It is not to be returned in the Jubilee. But houses in villages without walls around them are to be considered as belonging to the open country. They can be redeemed, and they are to be returned in the Jubilee.

The Levites always have the right to redeem their houses in the Levitical towns, which they possess. So the property of the Levites is redeemable—that is, a house sold in any town they hold—and is to be returned in the Jubilee, because the houses in the towns of the Levites are their property among the Israelites. But the pastureland belonging to their towns must not be sold; it is their permanent possession.

If any of your fellow Israelites become poor and are unable to support themselves among you, help them as you would a foreigner and stranger, so they can continue to live among you. Do not take interest or any profit from them, but fear your God, so that they may continue to live among you. You must not lend them money at interest or sell them food at a profit. I am the Lord your God, who brought you out of Egypt to give you the land of Canaan and to be your God.

If any of your fellow Israelites become poor and sell themselves to you, do not make them work as slaves. They are to be treated as hired workers or temporary residents among you; they are to work for you until the Year of Jubilee. Then they and their children are to be released, and they will go back to their own clans and to the property of their ancestors. Because the Israelites are my servants, whom I brought out of Egypt, they must not be sold as slaves. Do not rule over them ruthlessly, but fear your God.

Your male and female slaves are to come from the nations around you; from them you may buy slaves. You may also buy some of the temporary residents living among you and members of their clans born in your country, and they will become your property. You can bequeath them to your children as inherited property and can make them slaves for life, but you must not rule over your fellow Israelites ruthlessly.

If a foreigner residing among you becomes rich and any of your fellow Israelites become poor and sell themselves to the foreigner or to a member of the foreigner’s clan, they retain the right of redemption after they have sold themselves. One of their relatives may redeem them: An uncle or a cousin or any blood relative in their clan may redeem them. Or if they prosper, they may redeem themselves. They and their buyer are to count the time from the year they sold themselves up to the Year of Jubilee. The price for their release is to be based on the rate paid to a hired worker for that number of years. If many years remain, they must pay for their redemption a larger share of the price paid for them. If only a few years remain until the Year of Jubilee, they are to compute that and pay for their redemption accordingly. They are to be treated as workers hired from year to year; you must see to it that those to whom they owe service do not rule over them ruthlessly.

Even if someone is not redeemed in any of these ways, they and their children are to be released in the Year of Jubilee, for the Israelites belong to me as servants. They are my servants, whom I brought out of Egypt. I am the Lord your God.

The World Bank takes a dim view of small farms

The World Bank economist… delivered a barely modified version of the Bank’s longstanding diagnostic on small-scale agriculture:

Small landholdings make inefficient use of land, he explained, and the food crops smallholders grow can be produced much more efficiently by industrialized farmers in Mexico and the United States. NAFTA gives Mexico tariff-free access to those goods, so Mexico’s two million small-scale corn farmers should enjoy the cheaper tortillas and seek more productive activities, growing high-value crops or moving out of agriculture…

Moving out of agriculture? Into what? ‘Assume we have employment’ can be the only answer. Because just as shipwrecked survivors can’t sail home on an economist’s theoretical boat, Mexico’s small-scale farmers need real jobs, not assumed jobs, if they are to give up their lands and their homes.

Meanwhile, the World Bank’s desired ‘transition’ in agriculture, accelerated by the added pressure of tariff-free imports dumped by the United States, has pushed an estimated 2.3 million farmers and workers out of agriculture. Those who left went where the jobs were – in the United States… Many left behind family members who, despite a 66% drop in real corn prices, increased their corn production.

Irrational? Hardly. Small-scale farmers are at least smarter than World Bank economists. They know that growing corn, with limited technology and low yields, is inefficient only if they have a more productive use for their land or their labor. The land is often the only asset the family has, and most smallholder land is unsuitable for high-value crops. As for their labor, they send family members as seasonal or permanent migrants and use the remittances to keep their farms. Are their low corn yields proof of inefficiency? Or do they show that smallholders are maximizing their available labor and resources?

– Exerpted from Small-Scale Farmers and Development: Assume a different economic model by Timothy A. Wise, Triple Crisis.

On the credibility of the economics literature

The scientific credibility of economics is itself a scientific question that can be addressed with both theoretical speculations and empirical data. In this review… We summarize and discuss the empirical evidence on the lack of a robust reproducibility culture in economics and business research, the prevalence of potential publication and other selective reporting biases, and other failures and biases in the market of scientific information. Overall, the credibility of the economics literature is likely to be modest or even low.

– From the abstract of the article What’s to know about the credibility of empirical econonmics? by John Ioannidis and Chris Doucouliagos, Journal or Economic Surveys Volume 27, Issue 5, December 2013, Pages 997–1004.

Forsooth my lord, your sheep that were wont to be so meek and tame, be become so wild, that they swallow down the very men themselves!

inclosure = enclosure
dearest = most expensive
hedge = a thick prickly bush planted along boundaries between fields, to act as a fence
tillage = land for planting and growing crops
pasture, pasturage = land for sheep to live on – no crops can be grown there because the sheep eat everything
compass about = draw a circle around
pale = a fence enclosing an area
husbandman = a farmer who cultivates crops
coveyne = deceit
by hook or by crook = one way or another, by fair means or foul
dearth = lack

The following is an excerpt from ‘Utopia’ by Sir Thomas More, 1516:

Forsooth my lord (quoth I), your sheep that were wont to be so meek and tame, and so small eaters, now, as I heard say, be become so great devourers and so wild, that they eat up, and swallow down the very men themselves. They consume, destroy, and devour whole fields, houses, and cities.

For look in what parts of the realm doth grow the finest, and therefore dearest wool, there noble men, and gentlemen, yea and certain Abbots, holy men no doubt… leave no ground for tillage: they inclose all into pastures, they throw down houses, they pluck down towns, and leave nothing standing, but only the church to be made a sheephouse.

… [he] may compass about and inclose many thousand acres of ground together within one pale or hedge, the husbandmen be thrust out of their own, or else either by coveyne and fraud, or by violent oppression they be put besides it, or by wrongs and injuries they be so wearied, that they be compelled to sell all: by one means therefore or by other, either by hook or crook they must needs depart away, poor, silly, wretched souls, men, women, husbands, wives, fatherless children, widows, woful mothers, with their young babes…

Away they trudge, I say, out of their known and accustomed houses, finding no place to rest in. All their household stuff, which is very little worth, though it might well abide the sale, yet being suddenly thrust out, they be constrained to sell it for a thing of nought. And when they have wandered abroad, till that be spent, what can they then else do but steal, and then justly pardy be hanged, or else go about a begging. And yet then also they be cast in prison as vagabonds, because they go about and work not: whom no man will set a work, though they never so willingly proffer themselves thereto. For one Shepherd or Herdman is enough to eat up that ground with cattle to the occupying whereof about husbandry many hands were requisite.

And though the number of sheep increase never so fast, yet the price falleth not one mite, because there be so few sellers. For they be almost all comen into a few rich men’s hands, whom no need forceth to sell before they lust, and they lust not before they may sell as dear as they lust.

Cast out these pernicious abominations, make a law, that they, which plucked down farms, and towns of husbandry, shall reedify them, or else yield and uprender the possession thereof to such as will go to the cost of building them anew. Suffer not these rich men to buy up all… and with their monopoly to keep the market alone as please them… let husbandry and tillage be restored…

the lead that Europe and America achieved during the Industrial Revolution

From 1900 to 1980, 70–80 percent of the global production of goods and services was concentrated in Europe and America, which incontestably dominated the rest of the world. By 2010, the European–American share had declined to roughly 50 percent, or approximately the same level as in 1860. In all probability, it will continue to fall and may go as low as 20–30 percent at some point in the twenty-first century. This was the level maintained up to the turn of the nineteenth century and would be consistent with the European–American share of the world’s population. In other words, the lead that Europe and America achieved during the Industrial Revolution allowed these two regions to claim a share of global output that was two to three times greater than their share of the world’s population simply because their output per capita was two to three times greater than the global average. All signs are that this phase of divergence in per capita output is over and that we have embarked on a period of convergence.

– ‘Capital in the twenty-first century’ by Thomas Piketty, p47


… the average rate of return on land in rural societies is typically on the order of 4–5 percent. In the novels of Jane Austen and Honoré de Balzac, the fact that land (like government bonds) yields roughly 5 percent of the amount of capital invested (or, equivalently, that the value of capital corresponds to roughly twenty years of annual rent) is so taken for granted that it often goes unmentioned. Contemporary readers were well aware that it took capital on the order of 1 million francs to produce an annual rent of 50,000 francs. For nineteenth-century novelists and their readers, the relation between capital and annual rent was self-evident, and the two measuring scales were used interchangeably, as if rent and capital were synonymous, or perfect equivalents in two different languages.

Now, at the beginning of the twenty-first century, we find roughly the same return on real estate, 4–5 percent, sometimes a little less, especially where prices have risen rapidly without dragging rents upward at the same rate. For example, in 2010, a large apartment in Paris, valued at 1 million euros, typically rents for slightly more than 2,500 euros per month, or annual rent of 30,000 euros, which corresponds to a return on capital of only 3 percent per year from the landlord’s point of view. Such a rent is nevertheless quite high for a tenant living solely on income from labor (one hopes he or she is paid well) while it represents a significant income for the landlord. The bad news (or good news, depending on your point of view) is that things have always been like this. This type of rent tends to rise until the return on capital is around 4 percent (which in this example would correspond to a rent of 3,000–3,500 euros per month, or 40,000 per year). Hence this tenant’s rent is likely to rise in the future.

‘Capital in the twenty-first century’ by Thomas Piketty, p43

The Tragedy of the Commons

In December 1968 Science magazine published a paper by Garrett Hardin entitled “The Tragedy of the Commons”… [it] became one of the most cited academic papers ever published and its title a catch phrase. It has framed the debate about common property for the last 30 years…

Hardin’s basic argument was that common property systems allow individuals to benefit at a cost to the community, and therefore are inherently prone to decay, ecological exhaustion and collapse. Hardin got the idea for his theory from the Oxford economist, the Rev William Forster Lloyd…

– From A short history of enclosure in Britain by Simon Fairley.

Why are the cattle on a common so puny and stunted? Why is the common itself so bareworn and cropped so differently from the adjoining enclosures? If a person puts more cattle into his own field, the amount of the subsistence which they consume is all deducted from that which was at the command of his original stock; and if, before, there was no more than a sufficiency of pasture, he reaps no benefit from the additional cattle, what is gained one way, being lost in another. But if he puts more cattle on a common, the food which they consume forms a deduction which is shared between all the cattle, as well that of others as his own, and only a small part of it is taken from his own cattle.

– Rev William Forster Lloyd, 1833, quoted in A short history of enclosure in Britain by Simon Fairley.

The rational herdsman concludes that the only sensible course for him to pursue is to add another animal to his herd. And another; and another . . . But this is the conclusion reached by each and every rational herdsman sharing a commons. Therein is the tragedy. Each man is locked into a system that compels him to increase his herd without limit — in a world that is limited. Ruin is the destination toward which all men rush, each pursuing his own best interest in a society that believes in the freedom of the commons. Freedom in a commons brings ruin to all.

An alternative to the commons need not be perfectly just to be preferable. With real estate and other material goods, the alternative we have chosen is the institution of private property coupled with legal inheritance. Is this system perfectly just? . . . We must admit that our legal system of private property plus inheritance is unjust — but we put up with it because we are not convinced, at the moment, that anyone has invented a better system. The alternative of the commons is too horrifying to contemplate. Injustice is preferable to total ruin.

– From ‘The Tragedy of the Commons’ by Garrett Hardin, ‘Science’, 1968, quoted in A short history of enclosure in Britain by Simon Fairley.

Thirty years have passed since Garrett Hardin’s influential article “The Tragedy of the Commons”. At first, many people agreed with Hardin’s metaphor that the users of a commons are caught in an inevitable process that leads to the destruction of the very resource on which they depend. The “rational” user of a commons, Hardin argued, makes demands on a resource until the expected benefits of his or her actions equal the expected costs. Because each user ignores costs imposed on others, individual decisions cumulate to a tragic overuse and the potential destruction of an open-access commons. Hardin’s proposed solution was “either socialism or the privatism of free enterprise”.

Although tragedies have undoubtedly occurred, it is also obvious that for thousands of years people have self-organized to manage common-pool resources, and users often do devise long-term, sustainable institutions for governing these resources. The prediction that resource users are led inevitably to destroy CPRs is based on a model that assumes all individuals are selfish, norm-free, and maximizers of short-run results. This model explains why market institutions facilitate an efficient allocation of private goods and services, and it is strongly supported by empirical data from open, competitive markets in industrial societies. However, predictions based on this model are not supported in field research or in laboratory experiments in which individuals face a public good or CPR problem and are able to communicate, sanction one another, or make new rules. Humans adopt a narrow, self-interested perspective in many settings, but can also use reciprocity to overcome social dilemmas.

– From ‘Revisiting the Commons: Local Lessons, Global Challenges’ by Elinor Ostrom, Joanna Burger, Christopher B. Field, Richard B. Norgaard, and David Policansky, ‘Science’, 1999. The lead author of this article, Elinor Ostrom, was awarded the Nobel Prize in economics in 2009.

Social Sciences

This follows on from two previous posts: Science and The Scientific Method.

The social sciences are basically about people. They include history, political science, anthropology, sociology, and economics.

The natural sciences include physics, chemistry, biology, ecology, climate science, genetics, and computer science. “Natural sciences” is a terrible name because it suggests that the realm of humans is somehow separate from the realm of nature. These are also sometimes called “hard sciences”, which doesn’t make much sense either.

The kind of knowledge that social sciences are

The social sciences mostly do not use the full scientific method. Historians, anthropologists, and sociologists do sometimes come up with theories about how the world works, but these theories don’t tend to be the sort of thing that you can measure, or test in an experiment. However social scientists don’t just slap knowledge together willy-nilly; they do systematic research, collect and organise information, and make careful, methodical observations, which they publish in peer-reviewed journals. A historian might spend countless hours going through all the writings, artworks, and architecture remaining from a particular time and place, and then piece all of this information together in the form of a book or journal article. An anthropologist might conduct hours and hours of interviews with a particular group of people, then write a paper describing how they live.


Economics can seem like a “hard” science because economists do sometimes come up with theories about things you can measure, like a country’s unemployment rate or inflation rate or GDP. However they never seem to design and carry out experiments that would prove their theories true or false once and for all. You often hear economists say things like “free trade leads to economic growth”, but when their predictions go wrong they don’t usually say: “Oh crap, I guess our theory’s wrong after all!” There is usually some wiggle room; some space to argue about how things should be defined or measured, or how results should be interpreted.

This is not because economists are bad at science, it’s just down to the nature of the systems they study. Like other social sciences, economics is basically about how people behave; individual people, groups of people, and institutions. People are the most complicated thing there is, and our behaviour can’t be defined and measured in the way that we can define and measure the behaviour of, say, a water molecule.

Math without data

I experienced the American dream at the age of twenty-two, when I was hired by a university near Boston just after finishing my doctorate. It was the first time I had set foot in the United States, and it felt good to have my work recognized so quickly. Here was a country that knew how to attract immigrants when it wanted to! Yet I also realized quite soon that I wanted to return to France and Europe… I did not find the work of US economists entirely convincing. To be sure, they were all very intelligent, and I still have many friends from that period of my life. But something strange happened: I was only too aware of the fact that I knew nothing at all about the world’s economic problems. My thesis consisted of several relatively abstract mathematical theorems. Yet the profession liked my work. I quickly realized that there had been no signiticant effort to collect historical data on the dynamics of inquality since [1950s economist] Kruznets, yet the profession continued to churn out purely theoretical results without even knowing what facts needed to be explained. When I returned to France, I set out to collect the missing data.

To put it bluntly, the discipline of economics has yet to get over its childish passion for mathematics and for purely theoretical and often highly ideological speculation, at the expense of historical research and collaboration with the other social sciences. Economists are all too often preoccupied with petty mathematical problems of interest only to themselves. This obsession with mathematics is an easy way of gaining the appearance of scientificity without having to answer the far more comlex questions posed by the world we live in. There is one great advantage to being an academic economist in France: here, economists are not highly respected in the academic and intellectual world or by political and financial elites. Hence they must set aside their contempt for other disciplines and their absurd claim to greater scientific legitimacy, despite the fact that they know almost nothing about anything.

– Thomas Piketty, ‘Capital in the twenty-first century’, introduction.

On the origin of our notion of the corporation

Legally, our notion of the corporation is very much a product of the European High Middle Ages. The legal idea of a corporation as a “fictive person” (persona ficta) – a person who, as Maitland, the great British legal historian, put it, “is immortal, who sues and is sued, who holds lands, has a seal of his own, who makes regulations for those natural persons of whom he is composed” – was first established in canon law by Pope Innocent IV in 1250 AD, and one of the first kinds of entities it applied to were monasteries – as also to universities, churches, municipalities, and guilds.

– From “Debt: the first 5000 years” by David Graeber, p304.

On the meaning of money; a mirror that can reflect all colours

Sometimes a person needs what he does not own and he owns what he does not need. For example, a person has saffron but needs a camel for transportation and one who owns a camel does not presently need that camel but he wants saffron. Thus, there is the necessity for a transaction in exchange. However, there must be a measure of the two objects in exchange, for the camel-owner cannot give the whole camel for a quantity of saffron. There is no similarity between saffron and camel so that equal amounts of that weight and form can be given. Likewise is the case of one who desires a house but owns some cloth or desires a slave but owns socks, or desires flour but possesses a donkey. These goods have no direct proportionality so one cannot know how much saffron will equal a camel’s worth. Such barter transactions would be very difficult.

Various forms and types of goods such as these need a medium which could rule justly and determine their value or worth according to their place in exchange. When their place and grades are ascertained, it is then possible to distinguish which one is equal to each other and which is not. Thus, Almighty Allah created dinars and dirhams as two rulers and media of exchange for all goods and the value of goods is measured through them. So it is said a camel is, say, equal to 100 dinars and this quantity of saffron is worth 100 dinars. Since each of them is equal to a given amount, the two quantities are equal to each other.

This equality of worth or value becomes conveniently possible through dinars only because those dirhams and dinars are not needed for themselves… A thing (such as money) can be exactly linked to other things if it has no particular special form or feature of its own — for example, a mirror which has no colour but can reflect all colours. It is the same with money — it has no purpose of its own, but it serves as a medium for the exchange of goods.

– Al-Ghazali (died 1111 AD), quoted in “Economic thought of Al-Ghazali (450-505 A.H. / 1058-1111 A.D.)” by S. Mohammad Ghazanfar and Abdul Azin Islahi, Islamic Economics Research Series, King Abdulaziz University, 1997.

A Commercial Revolution in the Middle Ages

The following is an exerpt from ‘The Crucial Centuries: the Medieval Experience’ by Francis Oakley, 1979, p92-93.

A great leap forward in financial operations occured in the 12th and 13th centuries in Catholic western Europe. It was all the more striking in that it had to be made in the teeth of the church’s attempted prohibition as usurious of practically every type of loan made at interest; but, then, those teeth were blunted somewhat by the pressing fincancial needs of the papacy itself which could ill afford to examine too closely the procedures of the bankers, whose services it needed to shuttle funds from one part of Europe to another, to help it anticipate its revenues, and to extend it credit from time to time when it had to cope with mounting deficits. In any case, in their efforts to conceal the taking of direct interest, bankers and merchants alike resorted to a whole array of complicated strategems, and even for the most zealous of investigators the detection of the usurious amid the maze of contractual arrangements could not always have been an easy task.

A broad range of contractual arrangements had been developed by the 13th century and were in use throughout the Mediteranean world, though not necessarily in the northern trade. These contracts made possible not just a rational sharing of risk but the concentration of capital in the large amounts needed to fuel the ambitious commercial operations that Italian merchants were mounting with increasing frequency in the long-distance trade. Of these new contractual forms the commenda was probably the most important and did much to promote the rapid expansion of the maritime trade. A wealthy home-based lender undertook the financial risk of putting up the capital for a single, round-trip trading voyage and received the bulk of the profits.

By the 13th century it was possible to transfer increasingly large sums of money across Europe by means of letters of exchange and without undertaking the risk of moving actual coinage. It also became possible, at least in the Mediteranean world, to cut down the risks involved in maritime trade by purchasing insurances. By the end of the century, many Italian merchants had entered the business of commercial banking and a few were specialising in it, maintaining agents in the principal cities of Europe, receiving deposits at one place and paying out at another when their depositors asked them to do so, acting as financial agents for papal and royal governments alike, amassing enviable amounts of capital, making available the large-scale credit that big commercial operations needed, and, though at much higher risk, advancing the huge, high-interest loans upon which the realisation of royal ambitions increasingly depended.

The most powerful number of our times

Gross domestic product (GDP), which is supposed to measure the wealth of nations, has emerged as both the most powerful number and dominant concept in our times. However the concept of economic growth hides the poverty that is created through the destruction of nature, which in turn leads to communities lacking the capacity to provide for themselves.

GDP is based on creating an artificial and fictitious boundary, assuming that if you produce what you consume, you do not produce. In effect, “growth” measures the conversion of nature into cash.

Thus nature’s amazing cycles of renewal of water and nutrients are defined into nonproduction. When we look at the world through the lens of GDP and economic growth, the peasants of the world, who provide 72% of the food, do not produce. Women who farm or do most of the housework do not produce. A living forest (which may provide fertilizer, shade, fuel and food) does not contribute to growth, but when trees are cut down and sold as timber, we have growth. Healthy societies and communities do not contribute to growth, but disease creates growth through, for example, the sale of patented medicine.

– Excerpted and adapted from ‘How economic growth has become anti-life’ by Vandana Shiva, published in ‘the Guardian’.


MarketThink is a particular way of thinking and talking about the world. It is described in the book ‘No-one makes you shop at Wal-Mart: the surprising deceptions of individual choice’ by Tom Slee.

MarketThink assumes that:

  1. We live our lives as a series of one-off, unconnected decisions. At every step along the way, we make whichever choice will maximize our own individual happiness.
  2. Consumers, and not corporations, have all the power. Consumers vote with their wallets, and therefore corporations have to do what consumers want.
  3. Markets are the most efficient possible way of providing people with things they want. As a consequence of this, if the market provides something then people must really want that thing, even if they say they don’t.

Because it assumes that the market works perfectly and people get what they want (or what they deserve) MarketThink can be seen as a sub-type of the Just World Fallacy. Believing that the world is fundamentally just sounds rather nice and warm and fuzzy, but paradoxically it implies that people’s misfortunes are entirely due to their own individual failings – people get what they deserve. This leads to accepting unjust situations rather than trying to change them, and to blaming the poorest and most marginalised people in society for their own misfortunes.

The term ‘MarketThink’ is reminiscent of Newspeak and Doublethink in the classic dystopian novel ‘1984’ by George Orwell.

Economics: not a science, and too important to be left to the experts

Contrary to what professional economists will typically tell you, economics is not a science. All economic theories have underlying political and ethical assumptions, which make it impossible to prove them right or wrong in the way we can with theories in physics or chemistry.

It is entirely possible for people who are not professional economists to have sound judgments on economic issues, based on some knowledge of key economic theories and appreciation of the political and ethical assumptions underlying various theories. Very often, the judgments by ordinary citizens may be better than those by professional economists, being more rooted in reality and less narrowly focused.

Indeed, willingness to challenge professional economists and other experts is a foundation stone of democracy. If all we have to do is to listen to the experts, what is the point of having democracy?

– Ha-Joon Chang, Economics is too important to be left to the experts

Economics tells people how they should behave

Modern economics is famous for believing in the rational economic actor, almost entirely concerned with his or her own utility. (In normal parlance, a selfish bastard). This is a model of how people behave, but it’s an oversimplification of human nature so severe as to be wrong. Most people don’t behave like that most of the time: they cooperate, and they share and most of them don’t free ride.

There is an exception, however: economics students. Multiple studies have found that economics students act as economic theory would predict far more than people not trained in economics.

Economics is, thus, prescriptive. It tells people how they should behave.

Who else behaves that way? Senior executives in large corporations and rich people. The people who control the economy, act as economic theory says they should.

To be clear, all elites in all places and times have not acted this way: chieftains in status societies do not act like this. Potlach giving native Americans did not act this way. The elders of hunter-gatherer tribes do not act this way. Roman Patricians, Chinese Mandarins, and Medieval European nobles did not act this way—at least, not nearly as much as our modern economic leaders do. It is not even the case that executives in the 50s and 60s acted this way.

Ian Welsh, ‘Economic theories are prescriptive. not descriptive’