Early cities and civilizationsEarly cities and civilizations.

Jericho and Çatal Hüyük (c. 7,000 BCE)

Sumeria and Babylonia(c. 3100-1600 BCE)

Egypt (c. 2705-332 BCE)

Mycenae(c. 2000-1350

BCE)

1

(BCE)

Economy and stateEconomy and state.

T iPositive sum.

Two ways to get an income.Positive sum.

Manufacture.TradeTrade.

Zero (negative) sum.T f fTransfer resources away from others.

Rent-seeking behavior.

2

Rent seeking behavior.

Economy and stateEconomy and state.

T ki d fGovernment as association.

Two kinds of government.

Provision of public goods.Example: medieval cities.p

Predatory government.Ruler “owns” the society.ySedentary bandits.Rents dissipated in military

3

p yactivity more than luxury.

Economy and stateEconomy and state.

T ki d f i ili iTrading cities.

Two kinds of civilizations.g

Jericho, Çatal Hüyük, Mycenae, Athens, Phoenicia

Predatory states.“Hydraulic” civilization.Egypt, Sumeria, Babylonia.

Did a major drought precipitate the move from Anatolia to irrigate the desert plains?Bull-headed lyre from the Royal Tombs of

4

g pUr.University of PennsylvaniaMuseum of Archaeology and Anthropology.

Olson North theory of the stateOlson-North theory of the state.

The state (monarch) is a revenue-maximizing naturalrevenue maximizing natural monopolist in the use of forceforce.

The minimum efficient scale of d fdefense.Revenue-maximization and the

5

Laffer curve.

Revenue maximizationRevenue maximization.

Revenue The Laffer curve

6Tax rate0% 100%t*

Early cities and civilizationsEarly cities and civilizations.

Jericho and Çatal Hüyük (c. 7,000 BCE)

Sumeria and Babylonia(c. 3100-1600 BCE)

Egypt (c. 2705-332 BCE)

Mycenae(c. 2000-1350

BCE)

7

(BCE)

Hydraulic civilizationHydraulic civilization.

Irrigated settled agriculture.(Implying a factor constraint.)

Economic surplus.

Specialization.Artisans.Soldiers. Kleptocracy.

8

Kleptocracy.Bureaucrats.Bull-headed lyre from the Royal Tombs of Ur.

University of PennsylvaniaMuseum of Archaeology and Anthropology.

“Oriental despotism ”“Oriental despotism.”

High MES of agricultural productionHigh MES of agricultural production.Labor-intensive irrigation projects.Slave or near-slave labor force.

W k “d kill d” d ’t i t b fit fWorkers “deskilled” and can’t appropriate benefits of innovation.

Appropriation of surplus by i taristocracy.Lavish monumental construction rather than reinvestment.

l f l d fSpecialists focus on luxury goods for aristocracy.

Low rate of technological change.

9

Slow economic growth.

The Phoenicians and GreeksThe Phoenicians and Greeks.

10

The Roman EmpireThe Roman Empire.

11

The Rise of RomeThe Rise of Rome.

Origins of Rome in trade and commerce.AgricultureAgriculture.

Irrigation and servile production.

l kBut, unlike Egypt, agriculture private: the Villa system.The Pont du Gard aqueduct,

near Nîmes, France.Organization and law.Military technology.

Discipline and large

,

12

Discipline and large numbers.

Early Roman economic policyEarly Roman economic policy.

Importance of trade and commerce.Octavian defeats Antony (31 B.C.E.)( )The pax romana and the Mediterranean “commonMediterranean common market.”Head of the Emperor Augustus

(ruled 27 B.C.E. – 14 C.E.), from the Kelsey Museum, University of Michigan.

13

Michigan.

Th R E i b t 117 C EThe Roman Empire about 117 C. E.

14

I t ti l t d i th R International trade in the Roman era.

15

The fall of RomeThe fall of Rome.

External causes.Change in military technology?L i b “b b i ”Learning by “barbarians.”

Internal causes.End of expansion eliminates source of revenueEnd of expansion eliminates source of revenue.Need to “bribe” political challengers.

Bread and circuses.Tax exemptions for nobility.

Spiraling fiscal crisis.

16

Roman fiscal crisisRoman fiscal crisis.

Emperors raise tax rates to meet revenue demands.Tax base erodes as goodsTax base erodes as goods and services flee the money economy.Reduced tax base leads to further increases in the tax rate and so on in a viciousrate, and so on in a vicious cycle.Roman coin bearing the likeness of the

Emperor Diocletian (284-305 C.E.)Tax revenue = tax rate * tax base

17

Monetary PolicyMonetary Policy.

Debasement of the currency ( th ki d f t ) l d t(another kind of tax) leads to hyperinflation in the third

tcentury.

18

Government controlsGovernment controls.

Diocletian reforms.Strict wage and price controls.In-kind system of taxation and requisition.

Constantine (308 337) tiesConstantine (308-337) ties workers to the land.

“Demonetizing” the economy.

19

Barbarian invasionsBarbarian invasions.

Germanic expansion.Population increase and Huns.

Augustulus deposed by barbarians in 476.Augustulus

How dark the “Dark Ages”?Evidence of population decline.

From roving bandits to sedentary bandits.

20