Friday, January 04, 2008

economics 101

I keep a blog called Science and Reason in my aggregator. It's by Charles Daney, a science writer. That's something I wanted to be when I was high school age. He writes about cosmology, genetics, mathematics, and -- this week -- he's got an interesting post on economics: Economics 101, Science and Reason. It's not about free markets, free enterprise, and freedom of trade -- which are pretty empty terms after all -- but about manipulations that aim to create maximimum financial return. A kind of Machiavelli for markets.

It's short. Go there and read it.

One point he makes connects with my recent research. He says people who want to sell stuff often turn to governments to gain protection from competition, obtain subsidies to help them invade new markets, and the like.

I see this prefigured in the operation of medieval cartels and monopolies. Back then both church and state enacted strict laws prohibiting unfair trading practices, and then both church and state gave themselves dispensation to set up their own cartels and monopolies. The papal monopoly in alum is a good example. Alum was used in dying fabric and tanning hides and alum ore wasn't common. When discovered in papal territories, the papal curiat set up a monopoly to exploit the find, excusing itself from its own fair-trade rules by earmarking profits to a war-chest for fighting infidels. It leagued with bankers, merchants, and mining specialists to insure maximum returns -- the most important alliance being with the powerful Medici clan of Florence. Together the papacy and the Medici systematically eliminated competition. The used military force to suppress production in competing mines within Italy. They prohibited importation from sources outside Italy (Turkey being the only significant one) by threats of ecclesiastical censure. They made exclusive deals for distribution of their product within Europe obtaining guaranteed sales from the distributors and promises of non-competition. Having done all this they reaped the rewards of their labors. And, when alum ore was discovered in England, their superior discipline and the efficiency of their organization became apparent as the Stuart Court bumbled its attempt to set up a competing monopoly of its own.

{Making alum from alum ore. source: De Re Metallica, by Georg Agricola, 1541}

Robert B. Ekelund provides a concise description of these events.

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