Bread, how did they make it? Part IV: Markets, merchants and the tax man

I thought this was interesting for its sketch of how some communities started using money:

For the farmers who need to sell their crops (for reasons we will get to in a moment) and purchase the things they need that they cannot produce, the merchant feels like an adversary: always pushing his prices to his best advantage. We expect this, but remember that our pre-modern farmers are just not that exposed to market interactions; most of their relationships are reciprocal, not transactional – the horizontal relationships we discussed before. The merchant’s ‘money-grubbing’ feels like a betrayal of trust in a society where you banquet your neighbors in the good years so they’ll help you in the bad years. The necessary function of a merchant is to transgress the ‘rules’ of village interactions which – and this resounds from the sources – the farmers tend to understand as being ‘cheated.’

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Such disdain appears, with varying justification, in the sources of every pre-modern agrarian society I’ve studied, to one degree or another. One commonplace of Greek and Roman thinking – despite these being very active, maritime societies – was that the first production of ships and the first sailing was in some essential way a profanation of the divine realm of the sea, a space humans ought not have ever ventured into – and certainly not for anything as mean as profit […] As far as elites were concerned, merchants didn’t seem to produce anything (the theory of comparative advantage which explains how merchants produce value without producing things by moving things to where they are most valued would have to wait until 1776 to be mentioned and the early 1800s to be properly explained) and so the only explanation for their wealth was that they made it by deception and trickery, distorting the ‘real’ value of things (this faulty assumption that the ‘real value’ of things is inherent in them, or a product […]

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The first place coinage gets used is where bullion was used – as exchange for big long-distance trade transactions. Indeed, coinage seemed to have started essentially as pre-measured bullion – “here is a hunk of silver, stamped by the king to affirm that it is exactly one shekel of weight.” Which is why, by the by, so many ‘money words’ (pounds, talents, shekels, drachmae, etc.) are actually units of weight. But if you want to collect taxes in money, you need the small farmers to have money. Which means you need markets for them to sell their grain for money and then those merchants need to be able to sell that grain themselves for money, which means you need urban bread-eaters who are buying bread with money, which means those urban workers need to be paid in money. And you can only get any of these people to use money if they can exchange that money for things they want, which creates a nasty first-mover problem.

We refer to that entire process as monetization – when I talk about economies being ‘monetized’ or ‘incompletely monetized’ that’s what I mean: how completely has the use of money penetrated through this society. It isn’t a one-way street, either. Early and High Imperial Rome seem to have been more completely monetized than the Late Roman Western Empire or the early Middle Ages (though monetization increases rapidly in the later Middle Ages).

Extraction, paradoxically, can solve the first mover problem in monetization, by making the state the first mover. If the state insists on raising taxes in money, it forces the farmers to sell their grain for money to pay the tax-man; the state can then take that money and use it to pay soldiers (almost always the largest budget-item in an ancient or medieval state budget), who then use the money to buy the grain the farmers sold to the merchants, creating that self-sustaining feedback loop which steadily monetizes the society. […]

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I should also note that monetization seems to have been an inherently fragile phenomenon; any disruption to the ability of the state to mint coins or in the trade and market system which ensured there was something to buy with those coins and the countryside would rapidly demonetize. Consequently monetization, especially among the lower classes who are the least exposed to coinage, tends to be an ebb-and-flow phenomenon over time.

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The irony of all of this extraction is that while it is often nasty and predatory, it can have some positive long-term effects, because the extra food that the farmers are being effectively forced to produce moves through either state-redistribution or market mechanisms to an increasing population of specialist non-farmers who in turn provide benefits for the broader society, sometimes including the farmers.

Metal tools, improved plows, large mills and bakeries would all be impossible without specialist smiths, wood-workers, architects, millers and bakers, for instance. And those merchants, moving food around from where it is common to where it is scarce can – if there are enough of them and trade is sufficiently unrestricted by things like wars – serve a valuable stabilizing role on the otherwise wildly destructive volatility of prices for things like food and other essentials. Moreover, specialization and trade encouraged distance travel, which might bring foreign disease, but might also bring new agricultural technologies.

If the extraction is done in coin, then the effects of monetization are layered on top of this. While we talked about the reasons why money provided at best an imperfect store of value for farmers, it was valuable in [other] ways, but only if the economy was deeply monetized such that even the very small purchases a farmer might make could be handled in cash. The great advantage of coinage is that it tremendously reduces transaction costs and allows for more complex business arrangements, which in turn enhance the overall efficiency of the underlying economy.