A History of Market Performance

From Ancient Babylonia to the Modern World

R.J. Van der Spek, Jan Luiten van Zanden, Bas van Leeuwen, R.J. Van der Spek, Jan Luiten van Zanden, Bas van Leeuwen, R. J. Van der Spek, Jan Luiten van Zanden, Bas van Leeuwen

• Publisher: Routledge
• Year: 2014
• ISBN:
  9781317918493
• Edition: 1
• Topic: Negocios y empresa
• Subtopic: Negocios en general

This exciting new volume examines the development of market performance from Antiquity until the dawn of the Industrial Revolution.

Efficient market structures are agreed by most economists to serve as evidence of economic prosperity, and to be prerequisites for further economic growth. However, this is the first study to examine market performance as a whole, over such a large time period. Presenting a hitherto unknown and inaccessible corpus of data from ancient Babylonia, this international set of contributors are for the first time able to offer an in-depth study of market performance over a period of 2, 500 years.

The contributions focus on the market of staple crops, as they were crucial goods in these societies. Over this entire period, all papers provide a similar conceptual and methodological framework resting on a common definition of market performance combined with qualitative and quantitative analyses resting on new and improved price data. In this way, the book is able to combine analysis of the Babylonian period with similar work on the Roman, Early-and Late Medieval and Early Modern period.

Bringing together input from assyriologists, ancient historians, economic historians and economists, this volume will be crucial reading for all those with an interest in ancient history, economic history and economics.

1 An introduction

Markets from Ancient Babylonia to the modern world

R.J. van der Spek, Bas van Leeuwen and Jan Luiten van Zanden

Introduction

Markets are fundamental institutions of modern society, and have since Adam Smith’s Wealth of Nations, published in 1776, been held responsible for static efficiency resulting from specialization (e.g. McMillan 2002) as well as for dynamic efficiency caused by innovation (e.g. Baumol 2002). This importance of markets for economic development has led one author (Studer 2008: 395) to argue that ‘most economists and economic historians would agree that efficient market structures are both evidence of economic sophistication and prosperity as well as prerequisites for further economic growth’. Markets appear very early in recorded history (see the various contributions on the Babylonian economy in this volume), have obviously evolved over time, and have come to dominate many forms of social and economic interaction in recent times. Yet what is missing is a broad overview of the way in which markets changed in the very long run; in particular, there is hardly any relevant literature trying to compare ‘early’ forms of market exchange, as they came into existence during antiquity, with markets that functioned during the ‘modern’ period (from the late Middle Ages to the present).

This volume sets out to ask these questions: how did markets perform and how were they embedded in social and political institutions?

Although there is a broad agreement that markets are important for social and economic development, it is difficult to determine exactly what markets are. Even though the study of markets has gained more attention since the accompanying study of economic institutions and structures necessary for economic growth have been pushed further and further back in time, its definition still often depends on scientific field and/or scholarly tradition. Perhaps the best example is the debate between formalist and substantivist approaches to ancient economic history, which has hindered a role for economic historians working on the ancient world in more recent debates about the working of markets. The substantivist stance, advocated by Polanyi (1944, 1957 and 1968), holds that ancient economy cannot be studied with standard modern economic principles such as the working of the market, the profit-maximizing and want-satisfying logic and rationality of the homo oeconomicus, as the formalist economic view demands. Economy was embedded in social rules, customs, status, reciprocity, rather than in the hard rules of the market economy with prices set by the law of supply and demand.

Thanks to the influential book of Moses Finley, The Ancient Economy (1973), research on the ancient world has long been dominated by the substantivist approach. Therefore, although the Finleyan theory was not always shared, the basically non-quantitative Finleyan research methodology was almost universally applied in ancient history. This led to a divide between economic history and ancient history, the former largely applying economic theory and quantifiable analyses and the latter focusing on social and descriptive history. Moreover, it prevented the possibility of analysing ancient markets by modern economic theoretical and quantitative methods, as those markets were not supposed to be a ‘market economy’ (see for example Renger 1994, 2005).

Historians of antiquity searched for a way to escape the substantivist–formalist debate by developing new ‘modes of production’. That is, they searched for a way to describe modes of exchange without calling it a market. We may refer to concepts such as the ‘tributary mode of production’ (Briant 1982), the ‘bazaar economy’ (Bang 2008) and the ‘commercialization model’, as advocated by Jursa (2010: 783ff and Chapter 5, this volume), borrowed from Hatcher and Bailey (2001: 121). Actually the older concept of the Marxist ‘Asiatic mode of production’ and Polanyi’s ‘marketless economy’ still lurk behind many of these studies. Nowadays the insight is growing that the opposition between the ‘primitivist’ and the ‘modernist’ approach obscures the fact that neither ancient nor modern man is always fully acting as homo oeconomicus and that the formalist approach of the ancient economy may lead to the conclusion that in some respects it was primitive and in other aspects remarkably modern.¹

A practical impediment to a formalist approach of ancient economies is the lack of quantifiable data, which has prevented a thorough statistical analysis. It is therefore no surprise that, from a quantitative point of view, the discussion on the efficiency of markets largely focuses on the period from the late Middle Ages onwards when data start to become more abundant. Yet ancient historians increasingly acknowledge the necessity of quantification. The editors of The Cambridge Economic History of the Greco-Roman World expressly declare that their book ‘improves on substantivist approaches by providing crude statistics on economic performance’, and ‘goes beyond both sides in the old primitivist-modernist debate by developing general theoretical models of ancient economic behavior and putting them in a global, comparative context’ (Scheidel et al. 2007: 11–12). Conferences have recently been organized on just this theme (Bowman and Wilson 2009; De Callataÿ and Wilson, forthcoming). Quantification obviously does not only concern prices, but also counting graves, settlements, issued coins, shipwrecks and so forth.

One of the features of this debate was that it was based on a rather narrow interpretation of a market economy; illustrative is Polanyi’s (1944: 68) definition of the ‘market economy’ as ‘an economic system controlled, regulated, and directed by markets alone; order in the production and distribution of goods is entrusted to this self-regulating mechanism’. Such a ‘pure’ system, however, has never existed in historical reality; the view that markets are always embedded in and regulated by social and political institutions has gained strength as a result of the rise of New Institutional Economics (North 1990). This led to a much broader definition of markets which can be applied in all periods of time and all regions and had been used in other disciplines, most notably economics and economic history of the medieval and modern worlds. This broader interpretation is defined by Gravelle and Rees (1992: 3) in their book Microeconomics as: ‘a market exists whenever two or more individuals are prepared to enter into an exchange transaction, regardless of time or place’. As such this fits in with definitions that were in vogue in other disciplines.

Of course, this still means that one has to properly determine the factors that influence market performance in each region and time period. That this is no small task may be shown by the discussion on markets in early modern England. North and Thomas (1973) as well as Landes (1969) have argued that the lowering of transaction costs and increased private economic activity led to increased market performance, while authors such as Masschaele (1993), Britnell and Campbell (1995) and Clark (2004) argued that markets in the medieval period already performed remarkably well; consequently change in market performance did not occur in the early modern period.

One of the main conclusions of the ‘Academy Colloquium’ in Amsterdam (see Preface) and thus tenet of this volume is that the broad definition of markets as used in new institutional economics, as outlined above, is well suited for the societies studied here. Hence, in this volume we take as point of departure the concept that certain principles of markets, such as the law of demand and supply, are probably valid in all times, but that the actual functioning of markets – their ‘performance’ – is strongly affected by the society they are part of.

Market performance and market efficiency

The aim of this volume is to study market performance. How do we define this concept? So far we have talked about the ‘performance’ of markets as if this concept is self-evident. This is not true, however. Many studies refer to ‘market integration’, ‘market efficiency’ or similar concepts when discussing what we will call in this volume market performance. For its use in this volume, market performance may be defined as the capability of markets to adapt to exogenous shocks. Let us explain this with an example. In a perfectly working market an external shock due to, for example, a failed harvest will lead to rising prices, which will trigger trade, the sale of grains from storage houses, etc. Hence, even though prices will increase to some extent, the increase in the price of food will be mitigated by economic adaptations, and the degree to which this will occur will be related to the quality of the institutional (and geographical) framework. Low transaction costs due to, for example, favourable trading routes or a well-organized trading system, will mean that large compensating trade movements will occur, reducing the net impact of the harvest failure on prices. Hence in some regions markets will show much higher price rises than in other regions and/or time periods.

This definition of market performance makes it logical to use the theoretical observation, most clearly explained by Persson (1999), that price volatility tells us something about how markets are performing. As argued before, the lower price volatility is, the better markets can adapt to unexpected shocks and, consequently, the better they perform.

The next obvious question to ask is what factors determine how well markets perform. An answer given in much of the literature (e.g. Persson 1999; Jacks 2005) is trade. After all, if one region suffers from a failed harvest, it can import grain from other regions. Other than transportation and transaction costs, prices should become equal in the exporting and importing regions and price changes become smoothed (‘the law of one price’). In early economies especially, trade was probably a major factor of market performance. Yet, even though it was a major factor, it was by no means the only one, as plenty of studies covering such diverse periods and locations as China in 100 BC to medieval England have shown (e.g. Swann 1950; Boserup 1965; Elvin 1973). Foldvari and Van Leeuwen (2011) distinguished, besides trade, three other ‘proximate’ (i.e. having a direct effect on price volatility) causes of market performance: storage, consumption diversification and technological development.

Besides trade, the second most important factor is storage or, as it can also be seen, intertemporal risk reduction. After all, people may store in years of plenty and consume when prices start increasing and thereby smooth price development. However, the degree to which storage affected prices is subject to debate, as in many of the western countries little evidence of extensive storage is found (e.g. McCloskey and Nash 1984; Van Leeuwen et al., 2011). For non-western countries such as China considerable evidence for grain storing is found (e.g. Swann 1950; Will and Bin 1991), but even there it is doubtful whether it had a big effect on price volatility and market performance as such, given the frequent occurrence of famines.

The basic ide...

Table of contents

• Cover
• Half Title
• Routledge Explorations in Economic History
• Title Page
• Copyright Page
• Table of Contents
• List of figures
• List of tables
• Preface
• Acknowledgements
• 1 An introduction: markets from Ancient Babylonia to the modern world
• Part I Methodology
• Part II Market performance in Babylonia and the Mediterranean in antiquity
• Part III Market performance from the Middle Ages to the nineteenth century
• Part IV Markets and money
• Part V Long-term patterns
• Part VI Conclusion
• Appendix: monthly prices in Babylon (grams of silver per 100 litres and per mina (0.5 kg))
• Index