Alphabet and Writing

Posted by PITHOCRATES - November 27th, 2013

Technology 101

(Originally published November 23rd, 2011)

The Necessary Information to Survive in Prehistory was Minimal and did not Require a Written Language

Hunters and gatherers had little need for language.  For they did little in life but hunt, gather, eat, sleep and propagate the species.  Much like wildlife today.  Such as feral cats.  Abandoned house cats.  Who mate and produce more feral cats.  And these animals are survivors.  They hunt.  Gather food from human garbage.  Eat.  Sleep.  And reproduce.  If you ever had any in your neighborhood you know that they can be very loud, too.  Making a variety of sounds.  Meows, cries, growls and hisses.  Not an advanced language.  But sufficient to survive.  And enough to keep you from trying to pick one up.

Early man was similar to feral cats.  They had a limited language.  That allowed them to survive.  And make modest advances.  They made tools out of stone.  Used fire.  Made clothes from animal hides.  Even left art on the walls of caves.  Far more than any wild animal ever did.  But they didn’t do much more.  If they did it was probably nothing to write about.  Because they didn’t.  Write about it.  Either because they had no written language.  Or because they were a modest people.

History starts with written language.  Before that we have only archaeology.  And best guesses.  But based on the archaeology they weren’t doing much.  Other than surviving.  And in these prehistory times life was pretty simple.  See above.  The necessary information to survive was minimal.  Eat.  And don’t die.  It wasn’t necessary to write that down.  So they didn’t.  Memory was more than sufficient.  And it was like that for millions of years.

The Phoenician Alphabet was the Basis for the Greek and Latin Alphabets

But then the simple became complex.  There were food surpluses that allowed a division of labor that led to trade.  And a burgeoning economy.  Which required a more sophisticated way of communicating.  And a system of maintaining records of economic exchanges.  For memory and talking just wasn’t good enough anymore.

In the 4th millennium BC, in Mesopotamia, this began with clay tokens to represent an economic commodity.  And the first system of accounting was simply counting and storing these tokens.  But as the division of labor produced an ever more complex economy, the number of tokens used became too great.  So they represented the economic commodity with a symbol scratched in a clay tablet.  Instead of counting tokens they read these tablets.  We call this writing cuneiform.   Which was later used to write down the spoken Sumerian language.

Over time we developed alphabets.  We represented the sounds of the words we spoke with letters.  The Phoenician alphabet being one of the first alphabets.  Used by one of the greatest traders and merchants of all time.  The Phoenicians.  Which spread this language around.  Giving rise to Canaanite and Aramaic.  Aramaic giving rise to Arabic and Hebrew.  Incidentally, all languages without vowels.  But the granddaddy of all alphabets was Greek.  Which added vowels.  And formed the basis for Latin.  As well as all other western languages.

We Know about the Glory of Greece and the Grandeur of Rome because they Wrote about It

Athens was the cradle of modern civilization.  The Athenian empire grew because it was based on a complex trade economy.  Ditto for the Roman Empire.  At the height of their power the civilized world spoke their languages.  Conducted their trade in Latin or Greek.  Wrote their laws in Latin or Greek.  Conducted their diplomacy in Latin or Greek.  Why?  Because they could.  Their alphabets and their written language allowed them to manage the complex.

And they wrote.  A lot.  We know so much about Greece and Rome because we can read what they wrote.  And we can build on the glory that was Greece.  And the grandeur that was Rome.  Because we, too, have complex trade economies.  Giving us comforts in life that not even the Greeks or Romans could have dreamt about.

www.PITHOCRATES.com

Share

Tags: , , , , , , , , , , , , , , , , , , , ,

Hunters and Gatherers Live at the Mercy of their Environment, Farmers Control their Environment

Posted by PITHOCRATES - November 26th, 2013

History 101

(Originally published October 18th, 2011)

We can Ultimately Blame Neanderthal’s Demise on the Hunter and Gatherer System

We’re Homo sapiens.  Neanderthals were here before us.  By a few hundred thousand years.  Give or take.  We have fossil evidence of their existence.  And we’ve been able to put them into the historical timeline.  But we’re not sure what happened to them.  For they were stronger than us.  And they had a similar brain size as ours.  Stronger and just as smart, you’d have to give them the edge when Homo sapiens met Neanderthal.  Yet here we are.  Homo sapiens.  Wondering what happened to Neanderthal man.

There are theories.  Neanderthal was adapted to live in the cold.  And he hunted cold-adapted mammals.  But then an ice age came.  And the temperatures fell.  It became too cold even for the cold-adapted.  The climate change pushed the 4-legged mammals south.  In search of food ahead of the advancing glaciers.  And Neanderthal followed.  Moving into what were at one time warmer climes.  Bumping into warmer-clime Homo sapiens.

The climatic change was rather sudden during this period.  One theory says that this rapid changing changed the environment.  Creating different plant and animal species.  And Neanderthal was unable to adapt.  Another theory says that as the glaciers advanced they just forced more people into a smaller area.  And they fought over a smaller food supply.  When the glaciers retreated, Homo sapiens then followed Neanderthals north.  And expanded into their hunting grounds.  Until they displaced them from the historical timeline.

Whatever happened one thing is sure.  We can ultimately blame their demise on the hunter and gatherer system.  Because this system requires large hunting grounds for survival.  Advancing glaciers reduced those hunting grounds.  Putting more people together in a smaller area.  Competing for limited food resources.  And they ultimately lost that competition.

The Hunter and Gatherer Culture Continued to do things as they had During the Stone Age

We can see a more recent example of the demise of a hunter and gatherer people.  In North America.  During the European colonization of that continent.

The North American continent is huge.  Much of it remains uninhabited to this date.  But it wasn’t big enough for the North American Indians and the Europeans.  Why?  The Indians were hunters and gatherers.  They needed a lot of land.  Each tribe had ‘braves’.  ‘Warriors’.  Soldiers.  Because they were a fighting people.  They had a warring culture.  They followed food.  Taking land from other tribes.  And protecting land from other tribes.  So they needed large numbers of warriors.  Which required large amounts of food.  And great expanses of land to hunt that food.

The Europeans, on the other hand, were farmers.  They could grow a lot of food.  And grow large populations on very small tracts of land.  They had higher population densities on their land.  They were better fed.  And they had a middle class thanks to a healthy food surplus.  Which created new technologies.  And provided tools and equipment to advance their civilization.  While the hunter and gatherer culture continued to do things as they had during the Stone Age.

Food Surpluses Created a Middle Class which allowed Advanced Civilizations

Hunters and gatherers live at the mercy of their environment.  Whereas farmers have taken control of their environment.  Creating food surpluses.  Which led to a middle class.  And to advanced civilizations.  Which is why they became the dominant civilization.  And displaced hunter and gatherer people from the historical timeline.  Simply by being a much more survivable people.  Because they took control of their environment.

www.PITHOCRATES.com

Share

Tags: , , , , , , , , , , , , , , , , , , ,

Division of Labor

Posted by PITHOCRATES - November 4th, 2013

Economics 101

(Originally published October 24th, 2011)

The Division of Labor gives us our Houses, Food, Cars, Televisions, Smartphones, Laptops and the Internet

We can’t do everything ourselves.  It’s not efficient.  And most times not even possible.  We don’t build our own houses.  Grow our own food.  Build our own cars.  Manufacture our own high-definition televisions.  Smartphones.  Laptops.  And we don’t build our own Internet.  No.  Instead, people everywhere across the economy specialize in one thing (i.e., work for a living).  And together these specialists fit into the big economic picture.  Which gives us our houses, food, cars, televisions, smartphones, laptops and the Internet.

It started with the most basic division of labor.  Prehistoric women raised their young.  While prehistoric man hunted.  Which was necessary for the propagation of the species.  And us.  For if they all hunted and no one nursed the young the young would have died.  And with them the species of man.  For there was no formula back then.

The next great leap forward on the civilization timeline was the indispensible plough.  The prime mover of civilization.  With the food problem managed, famines were more the exception than the rule.  And with fewer people needed to produce a food surplus, people could do other things.  And they did.

The Division of Labor let us Create Surpluses in Food, Ploughs, Shoes, Tools, Harnesses, Etc.

The division of labor gave rise to artisans.  The first skilled trades.  Made possible by a food surplus.  As other people grew the food the artisans made the tools and crafts the farmers used.  They specialized in plough making and designed and built better and better ploughs.  Lots of them.  Shoemakers made shoes.  Lots of them.  Metal workers made tools.  Lots of them.  Leatherworkers made harnesses.  Lots of them.  See the pattern?

The food surplus gave us surpluses in ploughs, shoes, tools, harnesses, etc.  The division of labor let us create these surpluses.  Specialists made continual improvements in their areas of specialization.  Producing better things.  And more of them.  Which led to another key to the advanced civilization.  Trade.

The shoemaker didn’t have to grow food.  He could trade shoes for food.  Ditto for the plough maker.  The metal worker.  The leatherworker.  And the farmers didn’t have to make any of these things because they could trade food for them.  So we became traders.  We created the market.  And traders took their goods and/or services to these markets to trade for other goods and/or services.  First by foot.  Then by animal.  Then by boat.  Then by train.  Then by truck.  Then by airplane.  Artisans (i.e., workers) traded their specialization for the product and/or services of another’s specialization.  Then.  And now.

The Division of Labor made the Complex Simple and our Lives Rather Comfortable and Fun

The division of labor gave rise to the artisan.  The skilled trade worker.  The middle class.  People who can specialize in one thing.  And trade that one thing for the other things he or she wants.  Whether it be a skilled blacksmith hammering out farming tools.  A tool and die maker working in a factory.  An accountant.  Or a software engineer.  We have a skill.  Our human capital.  And we trade that skill to get the other things we’re not skilled in.  The end result is a modern, bustling, free market economy.  An advanced civilization.  And a high standard of living.

All thanks to the division of labor.  Which made the complex simple.  And our lives rather comfortable.  And fun.  Unlike prehistoric man.  Who knew of no such things as iPhones.  Indoor flush toilets.  Movie theaters.  Or restaurants.  No, he didn’t do much other than survive.  Which was no easy thing.  But he did.  And for that we are grateful.

www.PITHOCRATES.com

Share

Tags: , , , , , , , , , , , , , , , , , , ,

Quill Pen, Dip Pen, Fountain Pen and Ballpoint Pen

Posted by PITHOCRATES - June 19th, 2013

Technology 101

The Quill Pen was nothing more than a Bird’s Feather and some Ingenious Thinking

The pen is mightier than the sword.  For while the sword can kill a person they cannot kill that person’s words.  Even the words ‘sword’ and ‘words’ are interesting in themselves.  For if you drop the ‘s’ from both you have ‘word’.  That thing that makes us human.  Putting our thoughts into words onto paper.  So that others can read these words.  And understand our thoughts.  Our ideas.  Our perspectives.  Our wisdom.  So we can pass these words down through the ages.  Or on to others in our current age.

The Egyptians, the Sumerians, the Harappa and the Nanzhuangtou all wrote.  A stylus on a clay tablet was probably the first form of writing.  Not quite the communications we have today.  But this writing gave us the four great ancient civilizations.  But only a select few wrote in these early civilizations.  No.  Writing didn’t really take off until much later.  And the introduction of the first great writing tool.  The quill pen.  Which was nothing more than a bird’s feather.  And some ingenious thinking.

What happens when you place a paper towel on a spill?  The towel absorbs the liquid.  By rising up into the paper towel.  This is capillary action.  And is the basis of the quill pen.  Without getting too technical molecules in a liquid are attracted to the surface of a round tube.  Everyone no doubt remembers seeing this in a high school chemistry class using a graduated cylinder.  That tall tube of glass we measured liquids in by reading the scale off of the glass.  The surface of the glass attracted and pulled up the liquid on the sides of the glass.  Forming a concave surface on top.  The narrower the tube the greater this pulling force.  And the higher this attraction will pull a liquid up the tube.

Thanks to the Dip Pen most Americans were Well-Informed and Literate at the time of the Civil War

A bird’s feather is hollow.  A long narrow tube.  When dipped in a well of ink capillary forces will pull this ink up the hollow tube of the feather.  And hold it there.  Not a long column of ink.  But enough to let us write words.  Before we did, though, we used a pen knife to cut a nib in the end.  You make a 45-degree cut across the bottom.  Then you cut again to remove most of the round cylinder.  If you were looking into the end of the feather and imagine the face of a clock you would remove everything from 1:00 to 11:00.  Or thereabouts.  So you are left with a flat-like extension from the tube of the feather.  You then cut the tip of this flat extension to get a nice chisel point.  Then, finally, you slice or score this flat extension of the tube from the tip of the nub to the tube holding the ink.  This allowed the ink to flow from the tube to the point.  As one wrote the ink at the tip would wipe off on the paper.  And when it did it would pull fresh ink from the tube reservoir above.

This was a remarkable tool.  And one we used for a very long time.  Roughly from the 6th to the 19th century.  This is what the scribes used in those monasteries when they translated all those Greek texts the Crusaders brought back to Europe.  Quills penned Magna Carta.  It’s what Shakespeare used.  It gave us the King James Bible.  The works of the Enlightenment.  The Declaration of Independence.  The U.S. Constitution.  And the Declaration of the Rights of Man and of the Citizen.  We used it that long because it was that good.  Simple.  And we only stopped using it when manufacturing techniques advanced to the point that could create the quill nib in steel.  Giving us the dip pen.  And once we did we said goodbye to the quill pen.

The dip pen was basically the quill nib made out of steel.  Only it was sturdier.  And didn’t require anyone having to become skilled with a pen knife.  We began manufacturing the dip pen around the 1820s.  Mass production techniques brought down prices.  Allowing anyone to write.  Even children with poor pen knife skills.  School desks had holes in the upper right corner.  To hold an ink well.  So children in school could dip their pens.  And put words to paper.  Literacy rates soared.  As did education.  Americans were probably not more informed and literate than they were at the time of the Civil War.  Thanks to the inexpensive and easy-to-use dip pen.

Penmanship and Cursive Writing were once Important Parts of the School Curriculum

The dip pen had a much shorter life than the quill pen.  Replaced by the fountain pen.  Pretty much the same as the dip pen.  Only with an internal ink reservoir.  Other advancements made the fountain pen portable.  Such as a retractable nib.  Or a cap that covered the nib.  Allowing us to slip the fountain pen in a pocket without ink staining our shirt.  We filled early reservoirs with an eyedropper.  Which was messy.  The next development was adding a mechanism that when operated drew ink up through the nib into the reservoir.  And a breather hole helped the ink flow to the paper by allowing air to enter the reservoir to replace the ink as it left.  Filling a fountain pen through the nib was neater to fill than using an eye dropper.  But still required an open ink well.  Which could spill or leave excess ink on the nib after filling.  The next advancement was an ink cartridge.  Removing the need to have an open well of ink.  Removing the chance of an ink spill.  And there was no excess ink on the nib after refilling.

The fountain pen was about as good as it got.  Until the ballpoint pen arrived.  Cheap.  Disposable.  Convenient.  And clean.  Up until the ballpoint pen the mechanics of the pen remained the same from the quill pen to the dip pen to the fountain pen.  They all had a nib with a slit that drew ink from a reservoir.  The ballpoint pen was a completely different technology.  Where we replaced the nib with a very small ball inserted into a point.  Hence ballpoint pen.  We make the ball from a very hard metal such as tungsten carbide and machine it into a perfect sphere.  The ball snaps into a socket in the point.  Attached to this nib assembly is an ink-filled plastic tube.  The ball fits so snuggly that it can’t slip out of the point or slip up into the ink reservoir.  And it holds back the ink from running out of the reservoir.  When you write you drag the point across the paper.  This rotates the ball in the point.  Bringing ink from behind the ball onto the paper.  Producing a very uniform ink line.

The ink pen created civilization.  By allowing us to put our thoughts into words.  And putting those words onto paper for others to read.  Penmanship and writing in cursive were once important parts of the school curriculum.  As they were the gateway to literacy and education.  But that has all changed.  Few people write today.  Instead they type.  Or text.  Bastardizing our words into shorthand gibberish.  A long cry from the elegant words of William Shakespeare.  Or the impassioned words of the Declaration of Independence.  Where we raised our words to the level of art and put them to paper.  Ushering in the golden era of civilization.  Where we were our most human.  Expressing our thoughts.  Our ideas.  Our perspectives.  And our wisdom.  Replaced today with truncated efficiency.  As we dehumanize ourselves to live in a digital world.

www.PITHOCRATES.com

Share

Tags: , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,

Stages of Production

Posted by PITHOCRATES - July 16th, 2012

Economics 101

People used their Human Capital to Transform Raw Materials into Something Valuable

As we unleashed our human capital civilization advanced.  Our food needs taken care of thanks to advances in agriculture we used our new free time to think.  To think about transforming the world around us.  By exploring our world.  And the stuff that made it.  Great civilizations rose and fell throughout history.  But the ones that really advanced the world were those in northern Europe.  The people who conquered the oceans.  The Portuguese.  The Spanish.  The Dutch.  The French.  And the British.

As these great European powers set out to explore the world they established colonies in faraway lands.  To gather the raw materials available.  And to ship them back to their mother countries.  Where their advanced civilizations would transform those raw materials into higher value finished goods.  And then export them throughout the world.  Including their colonies.  This was mercantilism.  Establish colonies.  Ship raw materials to the mother country.  Export finished goods.  And Import bullion accepted in payment for those finished goods.

It’s not a good economic system.  Mercantilism.  But it did create the United States.  Which started out as a British colony.  But as a colony of a mercantilist country the Americans had to follow the rules of the mother country.  First of all they had to understand their place.  And purpose.  They were subordinate to the mother country.  And their only purpose was to procure raw materials and ship them to the mother country.  They couldn’t open trade with other countries.  Everything that left the colonies had to go on a British ship to a British port.  Where British manufacturers would transform those raw materials into finished goods for export.  The British did this because finished goods were more valuable than raw goods.  And sold for much higher prices than the raw materials sold for.  So Britain did the manufacturing.  While their colonies fed their manufacturers with raw material.

The Stages of Production is the Economic Activity that happens to bring Finished Goods to Market

The British eventually abandoned mercantilism and adopted free market capitalism and free trade.  And the British Empire went on to rule the world for a century or so.  This after losing the American colonies in the Revolutionary War, losing about half of their empire.  So free market capitalism is clearly superior to mercantilism.  But for a couple of centuries mercantilism built empires.  And provided an excellent example of the stages of production.

Raw materials mean little to consumers.  What we like are the things that people with human capital transform them into.  The things we go to the store to buy.  Such as a smartphone, for example.  Whenever a new model comes out we flock to our favorite retail store to buy it.  The retail store has it to sell because they bought a shipment from their wholesaler.  The wholesaler had it to sell because they bought it from the assembly plants that assembled them.  The assembly plants could build them because they bought the components (displays, hard cases, antennas, keys, circuit boards, etc.) from various manufacturers.  And the various manufactures bought raw materials from those who extracted them from the ground.  Interconnecting all of these is ship, rail and truck transportation.  Even planes.  Not to mention an extensive cellular network to make these smartphones work.  As well as all the software applications they run.  Adding value at every stage along the way.

There is much economic activity that happens to bring that smartphone to your favorite retail store.  Throughout these stages of production.  Note how everything else has to happen before you buy that smartphone.  Going all the way back to the extraction of raw materials from the ground.  All of these stages have to happen before you buy that phone.  So the payment for the phone follows much later than all of these other stages.  Introducing a very important element in the stages of production.  Time.  It takes time to bring things to market.  And because it takes time it also takes money.  Everyone working from raw material extraction to the salesperson selling you the phone earns an income.  And their employers pay them before you buy your phone.  Some a lot earlier than others.  Also, all of these people either work in a building.  Or in the field with equipment.  Things that others have to build first before we can even begin our raw material extraction.  Requiring an enormous capital investment before anyone earns a dime of revenue on the sale of a smartphone.

The British Empire went on to Rule the World for a Century or More because they let the Market Manage their Economy

To bring a smartphone to a retailer near you requires people to risk their money by investing in something that may earn a profit.  Investors.  And bankers.  As people saved their money they created large pools of capital for businesses to borrow.  Venture capitalists bankrolled promising entrepreneurs.  And the big corporations turned to the equity and bond markets to raise their capital.  Individuals worked hard and saved money to put in their savings account.  Or to buy stocks and bonds.  Because they did there was money to borrow.  Or to invest.  And because there was money to borrow and invest the stages of production could begin.

In the days of mercantilism the government controlled much of this.  Even providing some of that early capital.  But as the economy grew more complex it was too complex for government to manage.  Which is why the British Empire went on to rule the world for a century or more.  Because they let the market manage their economy.  A myriad of people in the market place pursuing their own interests.  Pursuing profits.  Which is why free market capitalism works.  For no one person could know enough to manage all of the stages of productions to bring a smartphone to market.  And the beautiful thing is in free market capitalism no one person has to.  For when people throughout the stages of production pursue profits smartphones arrive at a retailer near you.  At reasonable prices to boot.

So the next time you pick up a smartphone at a retailer think of everything it took to bring it to your hands.  And everything it takes to operate it as you wish.  Hundreds of thousands of people pursuing profits.  Most of which have no idea what they’re doing will allow you to hold a smartphone at your favorite retailer.  Because in the stages of production everyone does their part.  Without any consideration of what their part is in the big picture.  Which is why it works so well.  Thanks to people thinking.  And unleashing their human capital to create great things throughout the stages of production.

www.PITHOCRATES.com

Share

Tags: , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,

FT120: “Give a man a fish and he can eat for a day; give him a job and he can have an obesity problem.” -Old Pithy

Posted by PITHOCRATES - June 1st, 2012

Fundamental Truth

In Warfare Starvation and Famine are the most Potent of Weapons

Starvation and famine has plagued mankind since the dawn of time.  It was the driving force in evolution.  Those who took control of their food supply lived.  Those who didn’t disappeared from the evolutionary path.  Like Neanderthal.  And those who came before him.  Our earliest civilizations massed their populations to farm.  And the masses lived in cities.  Setting down roots and saying goodbye to their hunting and gathering ways.  In the Wei River valley.  In the Indus River valley.  The valleys of the Euphrates and Tigris.  In the Nile River valley.  Where modern life took root.  Produced our first food surpluses.  And gave birth to urban life.  And the middle class.

The rise of the middle class allowed civilization to flourish.  For every person that didn’t have to produce food could do something else.  Build better tools.  Create a better government.  Create art.  In general, think about other things.  Those other things that made humans different.  By giving us a more interesting life.  And more sophisticated ways to express ourselves.

But this growth was a double-edged sword.  For large urban populations that made life more enjoyable was also a great threat to the food supply.  A cool and wet summer could destroy crops.  Poor food storage could spoil the food surplus.  A war could see an enemy purposely destroy your crops and your food surplus.  Causing famine.  Where half or your city population could easily die before the next harvest.  Or more.  Especially if the famine resulted from an act of war.   As an act of genocide.  To clear people off land that others want to use for their own food needs.  Which was Hitler’s plan in Russia.  To take the food from the Ukraine.  Kill the indigenous population.  And replace them with Nazis.  Thus creating more living space for the Third Reich.  Or Lebensraum.    Because in warfare starvation and famine are the most potent of weapons.

History has shown that the most Food-Abundant Countries are the most Capitalistic

England led the way in agricultural advances.  Increasing crop yields such that small tracts of land could support greater populations.  As well as produce such huge food surpluses that they had food to export.  As the British Empire spread across the globe so did their advanced agricultural ways.  During the 19th century starvation and famine were becoming rarer in the technologically advanced West.  The 19th century Irish Potato Famine reduced Ireland’s population by up to 25%.  A tragedy of epic proportions.  But it was an exception to the rule.  For food was growing so abundant in the advanced Western World that rarely did people go hungry.  Or feared famine.  And when mechanization and chemistry hit the farm our crop yields exploded.

During the Twentieth Century the Western World produced so much food that food prices plummeted.  Causing the Great Depression.  There was so much food available that farmers couldn’t sell their food at a high enough price to service the debt that they incurred mechanizing their farms.  But not everyone was producing bumper crops in the Twentieth Century.  Both the Soviet Union and the People’s Republic of China set records for death by famine.  As they shunned the ways of the West.  And the state took over their agricultural sectors.  States that were so inept at good farming practices and things economic that crop yields plummeted.  North Korea to this day can’t even grow enough food for her own people.  And has recurring famines.  Because they hold on to the communist ways of Stalin and Mao.  While the Russians and the Chinese have long abandoned them. 

History has shown that the most food-abundant countries are the most capitalistic.  Countries whose agricultural sectors use the latest in technology.  And/or have a rich and vibrant economy that can buy all the food they need if they can’t produce their own.  Like Hong Kong.  Basically a rock off the Chinese mainland.  It has little arable land.  Few natural resources.  But what it does have is low taxation and free trade.  And laissez-faire capitalism.  The Chinese lost Hong Kong to the British Empire (who have since given it back).  And the British used laissez-faire capitalism to make Hong Kong the gem it is today.  Where people are free and in want of little.  And in this island nation that can’t grow enough food to feed their population famine is unheard of.  Why?  Because they have the wealth to trade for all the food they desire.  In fact, while Mao gave the people in the People’s Republic of China famine Hong Kong were doing just fine.  Because they were wealthy and could trade for what they needed.  And they had the Royal Navy protecting her.

In America our Food Supplies are so Abundant and so Cheap that Poor People are becoming Obese

Poverty is the biggest killer.  Famine is prevalent in poor countries.  Like Haiti.  North Korea.  And sub-Saharan Africa.  People suffer in these countries unlike they do in the West.  Despite the amount of aid the West pours into them.  And it’s not because Western nations were blessed with natural resources.  Hong Kong doesn’t have anything other than laissez-faire capitalism.  Protected by the Rule of Law and minimal government interference into the private sector economy.  The very things that are missing from Haiti, North Korea and sub-Saharan Africa.  Where corruption rules supreme.  There is little regard for human rights.  Or property rights.  And no one can protect their people from the abuses of government.  Or from warring neighbors.  Like the Royal Navy protected Hong Kong.  And pretty much the rest of the world during the 19th century.  Just like America’s military might made the world safe for capitalism in the Twentieth Century.

Third world nations are not a victim of first world nations.  They are a victim of themselves.  Where corrupt rulers collect Western aid and live well while their people suffer.  Especially the nations that eschew capitalism.  And embrace socialism.  Like the Soviet Union did.  Like the People’s Republic of China did (the current Chinese regime is enjoying economic growth by allowing some capitalism into their still communist country).  And like North Korea still does.  These socialist utopias were a living hell for their people.  Where they live in fear of their government.  And of famine.

Meanwhile in the Western capitalist nations what do they suffer from?  Especially the poor people in America?  Obesity.  In New York they’re passing laws restricting the size of sugary beverages because they are dangerous to your health.  While they pass out free condoms and birth control as sex is far less risky behavior than a delicious carbonated beverage.  Apparently.  Yes, in America our food supplies are so abundant and so cheap that poor people are becoming obese.  Because capitalism has made those food supplies abundant and cheap.  And capitalism gave people jobs where they could afford to buy so much food that they can give themselves an obesity problem.  A problem they just don’t have in Haiti, North Korea or sub-Saharan Africa.  Because they can’t grow enough food.  Or earn enough money to buy enough food.  For they don’t have an environment conducive to creating jobs.  Which is why these nations are still impoverished and/or suffering famine despite all the aid the West gives them.  Food aid will run out.  And then they’ll just be starving once again.  If they have jobs, though, they’ll be able to buy food whenever they’re hungry.  Because it’s like that old saying.  Give a man a fish and he can eat for a day; give him a job and he can have an obesity problem.

www.PITHOCRATES.com

Share

Tags: , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,

Market Economy, Command Economy and Market Failures

Posted by PITHOCRATES - April 30th, 2012

Economics 101

Money replaced the Barter System making it Easier to Trade Freely and Voluntarily

We did our first economic exchanges in a market economy.  Agricultural advances gave us our first food surpluses.  These food surpluses gave people free time.  To do other things besides growing food.  Like developing an alphabet and writing.  Mathematics.  A code of laws.  And we made material goods.  Like pottery.  Farming tools.  Processing olive oil for lamps.  People who were good at making one thing made a lot of that one thing and traded with other people.  Who were good at making one thing themselves.  These people met.  And traded.  Freely and voluntarily.

Free trade.  A key element of the market economy.  Where people freely met and traded the things they made.  With other people who are freely trading the things they made.  Free trade came before money.  We bartered our first trades.  Trading goods for goods.  We then created money to make our trades easier.  Reducing the search time to find people to trade with.

Money is something that can store value.  Which allowed people to trade their goods for money.  Then they took that money and traded it with someone else.  To get something they wanted.  Money allowed people to spend less time finding people to trade with.  Because you didn’t have to find that one person that had what you wanted AND was willing to trade it for what you made.  Money allowed us to advance beyond the barter system.  Which proved more and more inefficient as we produced more and more goods.

Because of Market Failures the Government taxes to Provide Public Goods and Eliminate the Free-Rider Problem

As we produced more and more goods our standard of living rose.  We had more things in our lives that made that life easier.  More comfortable.  And more enjoyable.  Civilizations with a bustling market economy were great places to live.  Because there were a lot of nice things to make life better.  Which other people saw.  From beyond the civilization.  And they wanted what they saw.  And they took it.  By force.  Raiding parties would enter a developed civilization and rape, murder and plunder.  So to enjoy the amenities of an advanced civilization required the ability to protect your civilization.  Which led to one of the first market failures.  The failure of the market to provide city defenses through the free and voluntary trading of people engaged in economic activity.

We call it a market failure because building city defenses and creating an army are things the market economy can’t provide.  One person can’t make a fort or an army.  And trade it with someone else.  It’s too big.  It takes a lot of people and a lot of effort to make these things.  But it doesn’t take everyone.  If everyone else is contributing one person could skip contributing.  That person would still be able to enjoy the benefits of that fort and army.  Living in safety.  And enjoy living in safety for free.  Something we call the free-rider problem.  The fort and army are examples of public goods.  Things the free market can’t provide.  Or that the free market fails to provide.  Not that the market is broken or operating poorly.  It’s because people rarely act freely and voluntarily to benefit other people.  Because any time and money spent doing this is time and money taken away from their own families.  Which would bring hardship to them.  So the government provides these things that are necessary AND cause personal hardship to individuals to provide.  The government forces everyone to contribute.  Which minimizes the hardship each individual must bear.

Some in power like to take this further.  And call things that people can provide for themselves that benefit only themselves public goods, too.  Such as health care.  Higher education.  Housing.  Food.  Everything the people can buy for themselves by working to earn the money to buy these things.  And when they do they alone enjoy the benefits of these goods.  These goods they incurred hardships to obtain.  By working to earn a paycheck.  Or sacrificing other things to have these things instead.  It’s their call.  Their choice.  A choice they enter freely and voluntarily.  Therefore these things are not public goods.  But that doesn’t stop some people from acting like they are public goods.  Usually to help them win an election to office.  Or to overthrow the government.

A Command Economy reduced Economic Activity and Introduced a Police State

Civilizations with a bustling market economy were great places to live.  If you had talent and ability.  If you did then you could work hard and trade your talent and ability for a paycheck.  That you could use to trade for other things in that bustling economy.  Those with great talent and ability would be able to trade these for great paychecks.  Those with less talent and ability would be able to trade these for lesser paychecks.  Which, of course, caused income inequality.  Which is a handy thing to exploit if you want to seize power.  So you can enjoy the best things the civilization has to offer.  When your talent and ability only can trade for one of those lesser paychecks.

History is full of people trying to seize power.  So this is nothing new.  What was new was the way these people seized power.  By using the teachings of Karl Marx and Friedrich Engels.  As they wrote in the Communist Manifesto.  Who attacked market economies.  And capitalism.  Saying that the new middle class, the bourgeois, maximized profits by exploiting the working class.  The proletariat.  Which they said was unfair.  And that the only way to make things fair was to destroy the very concept of private property.  Because only the bourgeois accumulated private property.  The proletariat had none.  And only got poorer and poorer while the bourgeois got richer and richer.  Under their system, then, nothing belonged to the person.  Everything belonged to the state.  If you created something with your talent and ability it belonged to the state.  And then the state determined how to distribute the fruit of your labors.  Basically according to the rule ‘from those according to ability to those according to need’.  Those with the greatest need got the most stuff.  And those with the most ability worked the hardest.  Well, you can just guess how that worked out.  Everyone tried to show as little ability as possible and the greatest need as possible.

Because people weren’t the masters of their talent and ability anymore they couldn’t trade freely and voluntarily.  Which meant there was no longer a market economy.  Instead there was a command economy.  Where the government made all the decisions.  What to make.  How to use resources.  Where people lived.  Where they worked.  And what prices they paid for the things in the state-run stores.  Which had shelves full of things no one wanted to buy.  And empty shelves where the staples went (soap, toilet paper, etc.).  Because the government decided what to bring to the state-run stores.  And in what quantity.  Not people trading freely and voluntarily.  Which reduced economic activity.  Reduced living standards.  And introduced a police state.  Because anyone who had a chance to escape to a market economy did.  Which is why the East Germans built a wall in Berlin.  To keep their people from escaping their command economy.  And going to the market economy across the street.

www.PITHOCRATES.com

Share

Tags: , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,

Greece, Rome, Western Civilization, Alexandria, Londinium, Enlightenment, Adam Smith, Free Market Capitalism and Gender Equality

Posted by PITHOCRATES - April 17th, 2012

History 101

Greece gave Western Civilization Math, Science, Engineering and Philosophy

History has been a political struggle over power.  Kings and emperors and priests and nobles had it.  While other kings and emperors and priests and nobles wanted it.  They fought wars.  They oppressed their people.  They’ve committed acts of genocide on their enemies.  And on their people.  To get that power.  To keep that power.  And that’s the way it was for a long time.  The ruling class at the top battling it out.  While the people suffer abject poverty, famine and genocide at the bottom.  Until something came along to change that.  An advanced civilization.  That could produce a food surplus.  Freeing up people to become artisans.  Specialists.  Who could invent and make things.  To make life better.  Especially for a large group of people called the middle class.

The Greeks and Romans took civilization to new heights.  When Edgar Allen Poe wrote To Helen (1845) he chose Greece and Rome to describe his most beautiful Helen.  Because Greece and Rome were that beautiful.

On desperate seas long wont to roam,
Thy hyacinth hair, thy classic face,
Thy Naiad airs have brought me home
To the glory that was Greece,
And the grandeur that was Rome.

Western Civilization began in Greece.  Food surpluses freed the great thinkers.  Math, science, engineering and philosophy took roots in Athens and spread through the Greek world.  The Hellenistic civilization.  That Alexander the Great spread east all the way to Iran and the Indus Valley.  And south into Egypt.  Where he founded the great city of Alexandria.  Repository of some of the greatest Greek books of knowledge.  When Rome conquered Greece they spread that great Hellenistic civilization east to Spain.  North to France and Germany.  Even to England.  London itself was once a Roman city.  Londinium.  And everywhere the Romans went they brought with them Greek math, science, engineering and philosophy.  Building engineering marvels.  And creating a very high standard of living.

Where the Romans went they also built roads.  Primarily to move their legions throughout their empire.  But they also used them for trade.  Where they traded the goods made by that rising middle class of artisans.  Economic activity was bustling.  Until the government grew.  To pay for an ever larger government bureaucracy and military they started taxing that economic activity.  And regulating it.  Rather harshly.  Restricting freedoms.  Eventually tying farm workers to the land.  Even their children.  Turning that once bustling economy into feudalism.  Serfdom.  Until the growth of government expenditures made the Western Empire so weak that the Germanic barbarians sacked Rome.

Enlightened Thinking and Adam Smith’s Wealth of Nations helped make Great Britain the Leading European Power

While Europe went through the Dark Ages the Eastern Roman Empire continued on.  Centered on Constantinople (modern day Istanbul) on the Bosporus, she was smack-dab in the middle of the trade crossroads between Europe and Asia.  And continued to prosper economically.  Until the Arabs began attacking her.  And the Christian Crusaders.  Who came down to reclaim the holy land for the Catholic Church.  Where they fought Muslim Arabs.  As well as Orthodox Christians.  While in the area they visited the sights.  Including that great repository of books in Alexandria.  Which they packed up and brought back to Europe.  And changed the world.

As the Christian monks translated these books all of Europe read them.  Math, science, engineering and philosophy.  Kicking off the Enlightenment.  Advanced economies appeared in the Italian city-states as they controlled trade in the Mediterranean.  But with all that Greek knowledge Portugal, Spain and the Netherlands built bigger ships and learned to navigate across the oceans.  Moving the center of trade from the Mediterranean to northern Europe.  The Europeans established colonies in the Old World.  And the New World.  France and England soon followed.  Trade exploded.  And fortunes were made.  But something really special was happening in England. 

Thanks to all that enlightened thinking the English took the lead in Europe.  And the world.  Modern farming practices improved yields and created great food surpluses.  She had representative government in her Parliament.  The rule of law.  Banking institutions.  Joint-stock companies to raise large amounts of capital.  An insurance industry to manage the great risks of transoceanic trade.  And an economist up in Scotland who wrote a book about new ideas in economic thought.  Adam Smith.  Who wrote The Wealth of Nations.  Championing something he called the Invisible Hand in free market capitalism.  Taking away the economic decisions making from the kings and emperors and priests and nobles.  And giving it to the people.  Which Great Britain embraced.  Kicking off the Industrial Revolution.  Other European nations followed her lead.  As did one young upstart nation.  The United States.

Famine has been Rare in Western Civilization since the 18th Century

Western Civilization dominated the world in every measurable way.  Economic output.  Living standards.  Public health standards.  Gender equality.  You name it and the free market capitalism of Western Civilization made it better.  The general path of emigration of great minds traveled in one general direction.  From eastern/southern Europe to Germany, France and Great Britain.  Then on to the United States.  Or directly to the United States.  Where free market capitalism was the freest.  Making the Untied States the new world superpower.  Following the Industrial Revolution with even greater innovation.  Providing ever greater living standards.  And individual liberty.  For everyone.

The freedom in free market capitalism brought women into the workforce.  Take the automobile.  When Henry Ford first mass produced the car it was not people-friendly.  Men started our first cars by turning a hand crank.  Sometimes losing a finger or breaking a wrist in the process.  Once started he adjusted his goggles and gloves and took the wheel.  His face being the bug screen.  His muscles being his ‘powered’ steering.  Clutching through the gears.  Gearing down and stomping down on the breaks to stop.  It was man’s work driving our first cars.  Dirty, filthy man’s work.  The automatic starter, automatic transmission, power steering and breaks, though, changed all of that.  All American developments.  Allowing women in heels and a short dress to start and drive a car as well as any man without losing any of her dignity.  And she could sip a latte on her drive to work.  While listening to music.  And on those hot days she didn’t sweat through her clothes before getting to work.  Thanks to air conditioning.  Another American invention for the car.  And she’s able to enjoy this freedom because of some other inventions.  Two in particular that let her pursue a career.  And enjoy any activity whenever she chooses.  The birth control pill.  And the tampon.  Again, products of Western Civilization. 

Women in Western Civilization have it pretty good these days.  Where for the most part their standard of living has caught up to men.  There are some earning disparities.  But a lot of that is due to women leaving the workforce to raise children.  And then reentering at a later time.  Having to play catch-up with those who didn’t leave the workforce to raise a family.  Not too bad when you consider what women are going through where they don’t embrace free market capitalism.  For not only do they have none of these everyday comforts we take for granted but they often go without food.  Up until the 18th century famines were pretty common.  But with the advances we’ve made in farming and our other institutions we have that give us a modern and bustling economy (and our high living standards) there really haven’t been any famines in Western Civilization since the 18th century.  There may have been a few but they were very rare.  Unlike the famines in the 20th century that killed tens of millions in Russia, the Soviet Union, China, North Korea, Southwest Asia, Southeast Asia and Africa.  But famine is not the only thing killing people in these countries.  They have also suffered the greatest acts of genocides.  As rival groups battle each other for political power.  With the innocent masses stuck in the crossfire.  Something a prosperous middle class has put an end to in Western Civilization.

www.PITHOCRATES.com

Share

Tags: , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,

The Invisible Hand

Posted by PITHOCRATES - April 16th, 2012

Economics 101

A Command Economy Reduces the Overall Economic Output because those Managing the Economy don’t Understand It

Command economy?  Or free market capitalism?  Which works better?  Well, let’s find out with a little experiment.  Let’s go back in time.  Say ancient Mesopotamia.  Just after they developed mass farming.  And produced some of the first food surpluses.  Allowing the rise of a middle class of artisans.  Now let’s look at what could have been the first two of these artisans.  A potter.  And a winemaker.  Who probably weren’t the first two artisans.  But will suffice for our little experiment.

The winemaker needs some pottery vessels to store and sell his wine in.  And the potter enjoys drinking wine.  They each have something the other wants.  And because we’re so far back in time there is no money yet.  We’re still only bartering at this time.  Trading the goods we make with each other.  But in our experiment the high priest of the civilization is also the economic planner.  This priest communicates to the civilization’s gods.  And guides the civilization in pleasing their gods.  Which he is very good at.  For he knows all of the old teachings and rituals.  But he doesn’t know a thing about pottery or winemaking.  But he looks at an empty pottery vessel and a pottery vessel full of wine and sees that the vessel volume equals the volume of wine.  And deems the price of one pottery vessel is the amount of wine one pottery vessel holds.

Well, the potter is quite happy with this price.  Because he is skilled.  And can dig up some clay.  Throw it on the potter’s wheel and knock out vessel after vessel.  Glaze them and fire them in the kiln.  Even working by himself he can achieve some economies of scale.  By repeating this process every day.  Something the winemaker isn’t quite able to.  For he makes wine by the batch.  Because each step in the process takes a lot of time.  Maintaining his grape vines.  Then picking the grapes.  Carrying them back to his winery.  Putting them into his winepress.  Squeezing the juice out of the grapes.  Putting the grape juice in large vats to ferment.  Monitoring the process.  When he determines the process is complete he fills the small pottery vessels with wine.  When it was finally ready for ‘sale’ and consumption.  Considering all the work it took him to make one vessel of wine the winemaker was not at all happy with the price the high priest set.  And instead builds his own potter’s wheel and kiln to make his own vessels.  Greatly increasing his workload.  And reducing his winemaking output.  While the potter loses a potentially large customer.  Thus reducing the amount pottery he makes.  Reducing overall economic output in the command economy.

The Invisible Hand makes sure we use our Limited Resources Efficiently to Make the Things People want Most

In this command economy the civilization suffered a deadweight loss.  Economic resources went unused.  They could have created more economic benefits with the available resources.  They could have made more pottery.  And made more wine.  Perhaps even creating some jobs to help with the economic output of efficiently using the available resources.  But they didn’t.  Because of the fixed prices economic resources went unused.  Thus creating a market equilibrium lower than where it could be.  Hence the deadweight loss.  Now let’s look at the same example with only one difference.  The high priest does NOT set prices.

In a barter economy people agree to trade the goods they make.  And now the potter and the winemaker are free to determine what they think is a fair trade.  That is, they set the price of pottery in wine.  And the price they agree on is one they find mutually acceptable.  Where the potter agrees to trade an amount of his pottery for an amount of wine.  And the winemaker agrees to trade an amount of his wine for an amount of pottery.  Everyone wins.  For the potter gets an amount of wine he values more than the pottery he traded for the wine.  The winemaker gets an amount of pottery he values more than the wine he traded for the pottery.  And the civilization wins because at this mutually agreed upon price both the potter and the winemaker increase their production.  Providing the civilization with more of their goods.  The potter and the winemaker may even hire people to help them produce more goods to meet this higher demand.  Thus increasing the level of happiness in the civilization.  By increasing the amount of economic activity.  Moving the market equilibrium to a higher level of economic output.  And thus reducing the deadweight loss.  By using the available resources in the most efficient manner.  As determined by these mutually agreed upon prices.

This is the Invisible Hand in action.  An economic concept put forth by Scottish economist Adam Smith (1723-1790) in his The Wealth of Nations (1776).  In a competitive market place where traders set the price for their economic trade (not a command economy) two things happen.  First, resources flow to where we demand them most.  That is, to the buyers willing to pay the highest price.  Second, because of the competitive market place only those companies that sell at the low prices the market demands stay in business.  Which means that they have to use those resources as efficiently as possible.  Especially when they’re paying the highest prices for them.  And all of this happens because of the Invisible Hand. 

History has Proven that no Government Bureaucrat can do a Better Job than the Invisible Hand

Those who favor a command economy (or more government intervention into market forces) say the economy is too complex for us to leave it to its own devices.  That without a smart government bureaucrat managing this complex thing we cannot reach a market equilibrium that maximizes economic output.  Whereas Adam Smith says it is because the economy is so complex that no one is smart enough to manage it.  Just as a high priest doesn’t understand pottery or winemaking a smart government bureaucrat cannot hope to understand all the intricacies of a complex economy.  Nor can they ever hope to understand what millions upon millions of consumers want to buy most.  But the beautiful thing is we don’t have to.

The multitudes make individual decisions just like our potter and winemaker.  Where everyone is looking to maximize their own value.  And when they agree on a mutual acceptable price all parties in the trade win.  While making sure our resources flow to where they are demanded most.  And that we use these valuable and limited resources most efficiently.  Thus maximizing overall happiness in our country.  Reducing deadweight losses to a minimum.  And obtaining a market equilibrium that maximizes economic activity.  All of which happens with no one in charge.  As if an Invisible Hand guides us in the market place to make all the right decisions to maximize this economic output.  And our happiness.

So which is better?  Command economy or free market capitalism.  Well, if you’re being honest you have to choose Adam Smith’s Invisible Hand and free market capitalism.  For history has proven that no government bureaucrat can do a better job than the Invisible Hand.  Not the Soviets.  Not the Chinese Communist (under Chairman Mao).  Not the Cubans.  Not the North Koreans.  Even the Americans failed when their government actively intervened in the private economy.  Something that President Jimmy ‘one-term’ Carter knows only too well.  So based on our hypothetical Mesopotamian example, and history in general, free market capitalism is, and always has been, and always will be, better than a command economy.

www.PITHOCRATES.com

Share

Tags: , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,

Time Value of Money, Interest, Risk, Opportunity Costs and Banking

Posted by PITHOCRATES - January 2nd, 2012

Economics 101

Entrepreneurs have to Borrow Money because their Income comes AFTER they Build Things

A lot of things came together to give us a modern civilization.  Food surpluses, division of labor, money, religion, rule of law, free trade, free labor, prices, incentive and competition.  As well as other important developments.  Such as banking.  That addressed the time value of money.  And the risk of lending.

Before farmers can sell their harvests they have to plant them first.  This takes money.  Which raises an obvious question.  How do farmers get money to plant a crop?  When their income comes AFTER the planting of that crop?  Entrepreneurs have the same problem.  They can build things to sell.  But like the farmer they have to buy materials first.  Which takes money.  So how do entrepreneurs get money to build the things they build?  When their income comes AFTER the building of these things?

Of course farmers and entrepreneurs have to borrow money.  Say from a parent.  Who has been saving up for a really nice vacation.  A parent can loan the farmer or the entrepreneur money.  But that means that they may have to postpone their plans.  Or change their plans. For the same vacation may cost more next year than it does this year.  If they loan their money and get the same amount back they won’t be able to afford that same vacation.  Unless they charge interest.  So that when they get their money back AND the interest they can then afford that same but now more expensive vacation.

A Bank collects Deposits from Numerous Depositors so they can lend it to the People who Need Capital

This is the time value of money.  Over time money buys less.  Because it’s worth less.  The same amount of money will buy more today than it will 10 years from now.  This lost value is the cost of borrowed money.  And why borrowing money typically incurs interest.  Money a borrower owes in addition to the amount borrowed.  The interest compensates the lender for the lost value of their money.  So when you repay it they don’t lose any purchasing power.  And the lender can buy the same things that they could have when they loaned you the money.  Like a postponed vacation that became more expensive over time.

As the economy became more complex it required more borrowed money to pay for the production of other things.  Things that we sell much later than when we purchased the material to make these things.  Expensive things.  Tools.  Equipment.  Factories.  Trucks.  Costs so great that a person’s parents may not have enough savings to finance these things.  But they could if we combine their savings with other people’s savings.

Alexander Hamilton said a person’s savings was just money.  But when added to the savings of other people that money became capital.  Large pools of money available to loan.  So entrepreneurs could borrow money to buy tools, equipment, factories and trucks.  This important part of business became a business in itself.  The banking business.  A bank collects deposits from numerous depositors.  So they can lend it to the people who need capital.  They pay interest to depositors to encourage them to deposit their money.  And charge interest to borrowers to pay the depositors’ interest and other costs of running the bank.

Charging Interest Compensated the Lender for the Risk they were Taking and is a Necessary Part of Capitalism

Banks get a lot of bad press these days.  Since the dawn of banking, really.  People say bankers get rich for doing nothing.  Using other people’s money to boot.  Some call it a sin.  Usury.  Making money simply by lending money.  The ancient Jews forbade it.  So did the Christians.  Even the Muslims.  (And still do.)  But without banks we wouldn’t have a modern civilization.  In fact, if we had no banks you would not recognize the world you’d be living in.  There would be no middle class.  And our economic system would probably still be based on Manorialism.  Where most of us would still be serfs.  Working the land for the Lord of the Manor like our distant ancestors did in the Middle Ages.

There would have been no Industrial Revolution.  No cell phones.  No Internet.  Because all of these things required capital.  The pooling of people’s savings.  To provide the investment capital it takes to finance these things we take for granted in our lives today.

But things changed.  First the Jews started lending money for interest.  Then the Christians followed.  Seeing that business and commerce needed to borrow money.  And that lending money incurred risk.  (Some people might not repay their loans.)  And there were opportunity costs.  (The other things they could do with that money.)  Charging interest compensated the lender for the risk they were taking.  It wasn’t usury.  It was a necessary part of capitalism.  And the modern world we take for granted today.

www.PITHOCRATES.com

Share

Tags: , , , , , , , , , , , , , , , , , , , ,

« Previous Entries