Observations on the Causes of the Decline of Ancient Civilization, by Ludwig von Mises

Coins of the Roman EmpireHere’s a passage from Human Action that I just found so interesting that I had to post it in its entirety (pp. 767-69 of the Scholar’s Edition):

Knowledge of the effects of government interference with market prices makes us comprehend the economic causes of a momentous historical event, the decline of ancient civilization.

It may be left undecided whether or not it is correct to call the economic organization of the Roman Empire capitalism. At any rate it is certain that the Roman Empire in the second century, the age of the Antonines, the “good” emperors, had reached a high stage of the social division of labor and of interregional commerce. Several metropolitan centers, a considerable number of middle-sized towns, and many small towns were the seats of a refined civilization. The inhabitants of these urban agglomerations were supplied with food and raw materials not only from the neighboring rural districts, but also from distant provinces. A part of these provisions flowed into the cities as revenue of their wealthy residents who owned landed property. But a considerable part was bought in exchange for the rural population’s purchases of the products of the city-dwellers’ processing activities. There was an extensive trade between the various regions of the vast empire. Not only in the processing industries, but also in agriculture there was a tendency toward further specialization. The various parts of the empire were no longer economically self-sufficient. They were interdependent.

What brought about the decline of the empire and the decay of its civilization was the disintegration of this economic interconnectedness, not the barbarian invasions. The alien aggressors merely took advantage of an opportunity which the internal weakness of the empire offered to them. From a military point of view the tribes which invaded the empire in the fourth and fifth centuries were not more formidable than the armies which the legions had easily defeated in earlier times. But the empire had changed. Its economic and social structure was already medieval.

The freedom that Rome granted to commerce and trade had always been restricted. With regard to the marketing of cereals and other vital necessities it was even more restricted than with regard to other commodities. It was deemed unfair and immoral to ask for grain, oil, and wine, the staples of these ages, more than the customary prices, and the municipal authorities were quick to check what they considered profiteering. Thus the evolution of an efficient wholesale trade in these commodities was prevented. The policy of the annona, which was tantamount to a nationalization or municipalization of the grain trade, aimed at filling the gaps. But its effects were rather unsatisfactory. Grain was scarce in the urban agglomerations, and the agriculturists complained about the unremunerativeness of grain growing.* The interference of the authorities upset the adjustment of supply to the rising demand.

The showdown came when in the political troubles of the third and fourth centuries the emperors resorted to currency debasement. With the system of maximum prices the practice of debasement completely paralyzed both the production and the marketing of the vital foodstuffs and disintegrated society’s economic organization. The more eagerness the authorities displayed in enforcing the maximum prices, the more desperate became the conditions of the urban masses dependent on the purchase of food. Commerce in grain and other necessities vanished altogether. To avoid starving, people deserted the cities, settled on the countryside, and tried to grow grain, oil, wine, and other necessities for themselves. On the other hand, the owners of the big estates restricted their excess production of cereals and began to produce in their farmhouses–the villae–the products of handicraft which they needed. For their big-scale farming, which was already seriously jeopardized because of the inefficiency of slave labor, lost its rationality completely when the opportunity to sell at remunerative prices disappeared. As the owner of the estate could no longer sell in the cities, he could no longer patronize the urban artisans either. He was forced to look for a substitute to meet his needs by employing handicraftsmen on his own account in his villa. He discontinued big-scale farming and became a landlord receiving rents from tenants or sharecroppers. These coloni were either freed slaves or urban proletarians who settled in the villages and turned to tilling the soil. A tendency toward the establishment of autarky of each landlord’s estate emerged. The economic function of the cities, of commerce, trade, and urban handicrafts, shrank. Italy and the provinces of the empire returned to a less advanced state of the social division of labor. The highly developed economic structure of ancient civilization retrograded to what is now known as the manorial organization of the Middle Ages.

The emperors were alarmed with that outcome which undermined the financial and military power of their government. But their counteraction was futile as it did not affect the root of the evil. The compulsion and coercion to which they resorted could not reverse the trend toward social disintegration which, on the contrary, was caused precisely by too much compulsion and coercion. No Roman was aware of the fact that the process was induced by the government’s interference with prices and by currency debasement. It was vain for the emperors to promulgate laws against the city-dweller who “relicta civitate rus habitare maluerit.”** The system of the leiturgia, the public services to be rendered by the wealthy citizens, only accelerated the retrogression of the division of labor. The laws concerning the special obligations of the shipowners, the navicularii, were no more successful in checking the decline of navigation than the laws concerning grain dealing in checking the shrinkage in the cities’ supply of agricultural products.

The marvelous civilization of antiquity perished because it did not adjust its moral code and its legal system to the requirements of the market economy. A social order is doomed if the actions which its normal functioning requires are rejected by the standards of morality, are declared illegal by the laws of the country, and are prosecuted as criminal by the courts and the police. The Roman Empire crumbled to dust because it lacked the spirit of liberalism and free enterprise. The policy of interventionism and its political corollary, the Fuhrer principle, decomposed the mighty empire as they will by necessity always disintegrate and destroy any social entity.

 

*Cf. Rostovtzeff, The Social and Economic History of the Roman Empire (Oxford, 1926), p. 187.

**Corpus Juris Civilis, 1. un. C. X. 37.

Continue reading Observations on the Causes of the Decline of Ancient Civilization, by Ludwig von Mises

Harvard No Longer Requires Critical Thinking Skills, Apparently

The Harvard Crimson SealAn opinion piece in the Harvard Crimson, written by one Sandra Y. L. Korn, is a work of such utter sophistry that the fact that it comes from the top academic institution on the globe is not the least bit surprising. Korn argues that Harvard should jettison academic freedom in favour of her concept of “justice.”

In its oft-cited Statement of Principles on Academic Freedom and Tenure, the American Association of University Professors declares that “Teachers are entitled to full freedom in research and in the publication of the results.” In principle, this policy seems sound: It would not do for academics to have their research restricted by the political whims of the moment.

Spot on, Sandra.

Yet the liberal obsession with “academic freedom” seems a bit misplaced to me. After all, no one ever has “full freedom” in research and publication. Which research proposals receive funding and what papers are accepted for publication are always contingent on political priorities. The words used to articulate a research question can have implications for its outcome. No academic question is ever “free” from political realities. If our university community opposes racism, sexism, and heterosexism, why should we put up with research that counters our goals simply in the name of “academic freedom”?

Instead, I would like to propose a more rigorous standard: one of “academic justice.” When an academic community observes research promoting or justifying oppression, it should ensure that this research does not continue. [links removed, bold added]

I liked it when she said that the policy of academic freedom was sound in principle. The logical next step would be to elaborate this principle and show why it does not apply. She seems to think it follows that, since total academic freedom in its most perfect form is unattainable, the principle should be jettisoned entirely. Continue reading Harvard No Longer Requires Critical Thinking Skills, Apparently

Rock Stars Respond to Incentives Like the Rest of Us

ABBA, looking fabulous

The Guardian reports that Abba’s wild outfits were influenced by Swedish tax laws:

According to Abba: The Official Photo Book, published to mark 40 years since they won Eurovision with Waterloo, the band’s style was influenced in part by laws that allowed the cost of outfits to be deducted against tax – so long as the costumes were so outrageous they could not possibly be worn on the street.

I think this qualifies as a Pigovian tax.

Would Mises have Supported Fiscal Stimulus?

Ludwig von Mises
Ludwig von Mises (1881-1973)

I am currently reading Human Action for the first time, so I will pose a question here for anyone more familiar with Mises’ theory of the trade cycle than I am: Would Mises view the US government’s deficit spending as mitigating the harmful effects of quantitative easing?

Mises repeatedly emphasizes that his theory describes the sequence of events that follow from an injection of money (in the broader sense) into the economy through the loan market. If this new money enters the market in such a way as to affect commodity prices and wage rates before entering the loan market then, according to Mises, it would not generate a boom and subsequent bust. I will quote him at length (pp. 568 of the Scholar’s Edition, available here):

The Difference Between Credit Expansion and Simple Inflation

In dealing with the consequences of credit expansion we assumed that the total amount of additional fiduciary media enters the market system via the loan market as advances to business. All that has been predicated with regard to the effects of credit expansion refers to this condition.

There are, however, instances in which the legal and technical methods of credit expansion are used for a procedure catallactically utterly different from genuine credit expansion. Political and institutional convenience sometimes makes it expedient for a government to take advantage of the facilities of banking as a substitute for issuing government fiat money. The treasury borrows from the bank, and the bank provides the funds needed by issuing additional banknotes or crediting the government on a deposit account. Legally the bank becomes the treasury’s creditor. In fact the whole transaction amounts to fiat money inflation. The additional fiduciary media enter the market by way of the treasury as payment for various items of government expenditure. It is this additional government demand that incites business to expand its activities. The issuance of these newly created fiat money sums does not directly interfere with the gross market rate of interest, whatever the rate of interest may be which the government pays to the bank. They affect the loan market and the gross market rate of interest, apart from the emergence of a positive price premium, only if a part of them reaches the loan market at a time at which their effects upon commodity prices and wage rates have not yet been consummated…

It is important to pay heed to these facts in order not to confuse the consequences of credit expansion proper and those of government-made fiat money inflation. [emphasis added]

Continue reading Would Mises have Supported Fiscal Stimulus?

Assigning the Burden of Proof

Have you ever experienced learning a new word and then hearing it everywhere in the days after you learn it? I’ve had a similar experience since making my argument that the burden of proof that the minimum wage is beneficial falls on the law’s supporters. Now I’m seeing people making burden-of-proof arguments everywhere. Bryan Caplan, in a post on EconLog, quotes Mike Huemer making the argument explicitly:

[T]here is a kind of moral presumption against coercive interventions. Laws are commands backed up by threats of coercive imposition of harm on those who disobey them. Harmful coercion against an individual generally requires some clear justification. One is not justified in coercively harming a person on the grounds that the person has violated a command that one merely guesses has some social benefit. If it is not reasonably clear that the expected benefits of a policy significantly outweigh the expected costs, then one cannot justly use force to impose that policy on the rest of society.

Ryan P. Long, over at Open Borders: The Case, makes what is essentially a burden-of-proof argument for open borders:

[W]hile it’s easy to merely allege that “the immigrants” caused crime to increase in your neighborhood or property values to decrease, it is substantially more difficult to prove it. I leave the burden of proof for [the idea that the differences between people really do translate into a reduced quality of life] on immigration’s critics.

Migrants from poor countries often see a 20-fold increase in their earnings just by setting foot in a wealthy country, so you had better have a good reason for barring them from doing so. The people at Open Borders: The Case do a great job arguing for the positive benefits of increased migration, but if we assigned the burden of proof correctly, it would be open borders’ opponents who would have to do the hard arguing. Continue reading Assigning the Burden of Proof

Benefits Vs. Capital

Spencer writes the following in the comments to my post about monopsony and the minimum wage:

“If wages increase, the employer would want to increase workers productivity normally that would entail improved working conditions.

But you are claiming that employers react to higher wages by implementing policies that reduce productivity — that does not make any sense and is contrary to economic theory.”

I want to make a clear distinction between benefits and capital. Benefits are things that the employer provides that make workers happier to work for that employer, ceteris paribus. Capital is what the employer provides to make each worker more productive.

The reason employers provide benefits (above those legally mandated) is because their employees implicitly pay for them by taking a pay cut. People must be paid more to do more unpleasant work, and less to do less unpleasant work, so investments employers make to make working for them less unpleasant are implicitly paid for through lower wages. Continue reading Benefits Vs. Capital

Erdmann, Empiricism, and the Minimum Wage

Erdmann's MW and teen unemployment graph
Pre-trend lines are for period from 27 to 3 months before MW hike. MW Trend lines are for period from 3 month before to 27 months after initial MW hike. [Y axis = Teen Employment To Population Ratio]
Kevin Erdmann, over at Idiosyncratic Whisk, posted a graph similar to the one shown above,* demonstrating that the trend in the US teen employment rate after a minimum wage hike was lower in all but one case than the trend before the hike.

There have been many responses, but I would like to focus on one over at Angry Bear that captures the worst of the criticism.** The writer goes way over the top in criticizing Erdmann, saying that people who oppose the minimum wage “apparently believe that the business cycle never impacts teen employment or unemployment.” To read this article, you’d think think that the only opposition to the minimum wage came in blog-post form. Frankly, no empirical analysis coming from a blog (including Angry Bear) can offer anything but a prima facie case for or against some proposition. I don’t read Erdmann as claiming that his little graph is the final word on the minimum wage.

The Angry Bear post goes on to use some very questionable econometrics to show that the minimum wage doesn’t have a big impact on teen unemployment. The author doesn’t use the inflation-adjusted minimum wage in his graphs (and presumably in his regression) for reasons unknown, making them pretty irrelevant. He then naively regresses the teen unemployment rate against adult unemployment, a recession dummy, the teen population, and the minimum wage to find that (surprise!) the minimum wage doesn’t have a big effect on teen unemployment. For someone who criticizes others about omitted variables, this regression should be pretty embarrassing. That’s time-series data! You don’t just apply OLS regression to time-series data. OLS regression assumes uncorrelated error terms, and the fact that adult (and teen) unemployment last month is highly correlated with adult (and teen) unemployment this month destroys that assumption. Continue reading Erdmann, Empiricism, and the Minimum Wage

Opaque Facts

Welcome to Night Vale

“Some mysteries aren’t questions to be answered, but just a kind of opaque fact—a thing which exists to be not known.” – Welcome to Night Vale: A Story About You

The above quote was in an episode of the excellent podcast Welcome to Night Vale. I love the term “opaque fact,” and it strikes me that economics is full of opaque facts, and that our distinctions between opaque facts and mysteries largely determine our views of markets.

People’s preferences are opaque facts. We can’t know other people’s preferences; the best we can do is observe their past actions to infer something about their past preferences. Continue reading Opaque Facts

Monopsony and the Minimum Wage

Suppose it is entirely true that the employers of low-skilled workers have monopsony power over those workers. Maybe low-skilled workers aren’t informed about their other options.

Standard economic analysis would indicate that under such conditions, the minimum wage could increase employment. However, this standard analysis simplifies the labour contract down to two elements: price and quantity. In a more realistic setting, where labour contracts involve more than just the exchange of some quantity of homogeneous labour for some quantity of money, we would expect other elements of the contract to be adjusted in response to a binding minimum wage.

So what does this mean? Well, without the minimum wage, the employer would compensate his workers so as to minimize his costs for any given level of compensation. He would offer a total compensation package such that the marginal cost of adjusting any element of the package would be equal to the marginal benefit to the employee of adjusting that element of the package. This would minimize the employer’s costs. With a binding minimum wage, the employer is obligated to offer a greater proportion of compensation in cash, so the marginal value of adjusting some other elements of the total compensation package must be higher than the marginal cost of doing so (e.g. the employee would forego $1.50 for $1.00 of additional on-the-job training from his employer). Thus it is more costly to offer any given amount of compensation to employees under a binding minimum wage, and even a monopsonist would reduce his employment of low-skilled labourers! Continue reading Monopsony and the Minimum Wage

Abstaining From Alcohol has Ambiguous Effect on Life Expectancy: Study

Alcohol! I only drink to make YOU more interesting!Can you imagine a news article with that title? Certainly not. How about  this one: Abstaining from alcohol significantly shortens life. There, that’s more sensational, isn’t it? (To be fair, that’s the title on the page, not the title of the article. I’m not sure why they aren’t the same.)

I’ve seen news articles circulating about a recent study from the University of Texas at Austin that followed 1,824 adults between the ages of 55 and 65, and compared how likely they were to die over a 20-year period depending on whether they abstained from drinking alcohol, drank moderately, or drank heavily. The results indicated that moderate drinkers had the  greatest longevity, followed by heavy drinkers, with abstainers being the most likely to die.

This is where the science reporters stopped paying attention, and started writing sensationalist “alcohol is good for you!” news articles.

I’m skeptical of this interpretation. The technique being used by the researchers is one that is very common in health and social science studies, whereby the researcher measures many real-world variables, and uses linear regression to tease out the effects of each variable on the variable under study. Continue reading Abstaining From Alcohol has Ambiguous Effect on Life Expectancy: Study

Garrett M. Petersen's blog about markets, institutions, and ideas.