Making the world a better place – in 2000 BC

I am merely going to put this up without comment. This is my reply to a posting as part of the Macro Follies discussion thread amongst historians of economics. First is what I wrote and then below is the post I am responding to.

In reply to David Andrews let me just say this. It was not me who brought up pyramid building as a wasteful form of expenditure but Keynes. He was the one who mentioned it. He was the one who included pyramid building along with earthquakes and war as a means of generating wealth and prosperity in what he assumed everyone would agree would be the most unlikely of places. Pyramid construction may have had high utility for the Pharaoh who would spend eternity within. But for those who chiseled the stones and dragged them into place, it was all work and no economic return. A very exact metaphor, in my view, for so much of what passes for public works in the modern world.

It was the early classics who, in fact, pointed out that in an area ruled by some member of the nobility that the common people would be better off if the local baron was an absentee landlord. The ones who were around soaked up so much of the productive resources for their own form of wasteful excess that there was less left over for everyone else. Because classical economists understood a community can only consume what is produced – an apparently foreign concept amongst economists today – they encouraged value adding forms of production while it never crossed their minds that too much saving would cost jobs and lower the standard of living.

So you might wonder what had led me to such a comment. I had originally merely quoted a passage from The General Theory in which Keynes had said how an economy could enrich itself through things like war, earthquakes and the building of pyramids. To me it seemed obvious that building pyramids is not a means to prosperity. Read below:

Steve Kates,

Can you explain why you think that the pyramids are examples of ‘useless public works’? Strictly speaking they were useful, as best I understand, because they were tombs for kings. Perhaps there are better expenditures of labor power, but I suppose that many people think that they enriched the world of antiquity and continue to enrich our world even today. Of course there are issues about forced labor, but it seems to me that you prove some point Keynes made when he criticized those committed to a simplistic profit-loss formula. Have you seen them? (I have not, yet, much to my regret.) Are you saying that you think that the earth would be a better place in their absence?

David Andrews

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49 Responses to Making the world a better place – in 2000 BC

  1. Samuel J

    To be fair, though, the people of Egypt consider the Pharaoh a god. We cannot know of course, but I suspect that the workers (most of whom surprisingly were not slaves) on the pyramids considered that they were doing divine work. The same applies to those who constructed the wonderful cathedrals in Europe (those Gothic wonders) who were labouring away for what they perceived as divine purpose. Think of these great monuments. The Great Pyramid, over 4500 years old, the Pantheon in Rome (around 2000 years old), Chartres Cathedral, Versailles, etc, all consumed very high proportions of GDP and probably could not be built today. I don’t think we should compare our modern society to a pre-industrial society that constructed these wonders. We are blessed that our ancestors made such investments, many of which did not achieve their original intent (although the name of Cheops lives on so perhaps he achieved a kind of immortality).

    I don’t think that the tourist in 4012 AD will be checking out the NBN as some sort of tourist attraction!

    So when one considers the returns to the workers on the project (the economic returns) one must include all returns that add to their utility and that would include the distinction of working for a divine interest.

  2. MattR

    Are you saying that you think that the earth would be a better place in their absence?

    I would ask, if there were no Pyramids would anyones life be any different at all? Other than a few people in Egypt that benefit from the tourists they bring?

    Yes, they are awe inspiring, but what are they practically to anyone other than a pile of rocks and a tourist attraction?

    The tourist attraction part of it is only a very recent phenomenon. For all intense and purposes, the pyramids do absolutely nothing practical and do not increase the wealth of anyone in any meaningful way and they never have.

  3. Samuel J

    The tourist attraction part of it is only a very recent phenomenon

    No, actually the tourist side has been running for thousands of years. There are plenty of records of Roman tourists travelling to see the pyramids. And then in the 18th century the Grand Tour saw some tourists visit the pyramids. Juleus Caesar was a tourist who visited the pyramids and then sailed down the Nile with his mistress.

  4. Mk50 of Brisbane

    The pyramids actually played a significant social role. They were a ‘portal to the afterlife’ for the common people. Economically, they provided work in the off season to innumerable agricultural labourers.

    Essentially, such public works in the ancient world were one way that taxes and temple tithes were pumped back into the economy.

  5. Alice

    Steve says

    ” I had originally merely quoted a passage from The General Theory in which Keynes had said how an economy could enrich itself through things like war, earthquakes and the building of pyramids. To me it seemed obvious that building pyramids is not a means to prosperity.”

    Steve its clear you are not only selectively quoting Keynes but also selectively interpeting history.

    There have been numerous examples of monuments built in favour of one ruler or another. Even though you may think they are wasteful and without purpose exceot for the grandiosement of a single ruler (as in the pyramids), they created jobs, employment, income and that gainful emplyment and income has a multiplier effect (one persons income becomes another persons when the income earner spends it – eg his local restaurant does better and so on because the employed spend more and this goes on – income circulates and many more do better).

    Hussein built monuments to himself and built an economy (before the US bombed it). Hitler built monuments to himself and a war machine and built an economy and reduced unemployment before he was defreated. The US built weapons of war and created jobs for all the people who managed to build aircraft, guns, ammo and tins of agent orange in the US for use in Vietnam. This created an economy close to full employment (a wealthy time – mid sixties in the US).

    Yes wasteful useless government spending can create jobs in an economy (wars, pyramids or useless self aggrandisement monuments and public buildings) – a fact from history you choose to selectively ignore.

    Spending on these things by governments or rulers can and have built economies up in history.

    The case of the pyramids more complex – were the stone haulers paid or were they slaves? The key difference being the money that goes around to create more income.

    Keynes recognised that economies could be built from wasteful spending in the the same way they could be built from socially useful spending such as health and education and peace industries or sociually useful infrastructure (ports, roads, echools, wharves whatever).

    Steve – You choose and select information on which you quote or suggest “Keynes said this in the General Theory” and omit a true understanding of what Keynes was actually saying in General Theory.

    In other words Keynes was trying to explain to idiots like you, so went into detail to explain the impact of job creation and spending in the economy, in the hope people like you would understand (even if it is something to all intents and purposes wasteful being built) and 9 decades people like you later you still dont get it and misquote Keynes.

    You are so so wrong.

  6. manalive

    The pyramids at Giza (c. 2500) are a perfect symbol of a static centrally-controlled economy, no matter how big they are or refined they were before being stripped of the stone dressing, the technology employed at Sakkara or Giza is no different to that at Edfu or Dendera 2000 years later.
    The technology and purpose is the same as the passage graves dotted over western Europe and the British Isles from about the same period viz. stacking stones up in a structurally stable pile with a small inner chamber formed under a corbeled roof.
    The ancient Greek temples, exquisite as they were, employed the same simple post and lintel technology as the Egyptians
    It was in republican Rome that the true stone arch and dome was developed (as well as a form of concrete).
    Samuel J mentions the gothic cathedrals, while inspired by religious fervour, they were built in tremendous competition between communities, particularly in north-west France.
    The cathedral at Beauvais was the most ambitious but the masons went a bit too far and it part collapsed (although re-built).
    It’s not the prettiest but the sheer height is impressive.

  7. Skuter

    Yes wasteful useless government spending can create jobs in an economy (wars, pyramids or useless self aggrandisement monuments and public buildings) – a fact from history you choose to selectively ignore.

    Alice, replacing construction workers’ bobcats with teaspoons will also create jobs, or maybe you prefer replacing street sweepers withh toothbrushes, whatever. The point is not to create jobs. It is to dedicate scarce resources to their highest value adding uses so that workers can be as productive as possible. I seem to recall dot sledging you for apparently being a teacher of economics, either at secondary or tertiary level. He obviously didn’t go in hard enough. If was a student of yours, I’d demand compensation. You’d have trouble fastening the Velcro on your shoes…laces would be beyond you. 

  8. Louis Hissink

    Alice,

    May I suggest you study this article written during 1994.

    The article concludes:”

    In conclusion, the fall of Rome was fundamentally due to economic deterioration resulting from excessive taxation, inflation, and over-regulation. Higher and higher taxes failed to raise additional revenues because wealthier taxpayers could evade such taxes while the middle class–and its taxpaying capacity–were exterminated. Although the final demise of the Roman Empire in the West (its Eastern half continued on as the Byzantine Empire) was an event of great historical importance, for most Romans it was a relief

    “.

  9. Johno

    The real issue is ‘of value to whom’.

    The Pharaohs clearly valued the pyramids. They had the means to build them and chose to build them rather than use those resources for some other purpose.

    The non-slave workers valued the pyramids, assuming they freely chose to build pyramids rather than some other activities.

    The slaves, no doubt, would have preferred the freedom to choose how they spent their time. Building pyramids was of little vaue to them.

    The same logic applies to public expenditure today. Politicians value public works as a means of obtaining and holding political power. To them, public works expenditure is not wasteful if it enables them to achieve this objective.

    The workers who build the public works will value the wages they earn, but they can still earn a wage if the resources were devoted to something else. Expenditure on ‘wasteful” public works isn’t the only way to create employment. Employment is also created by spending on ‘useful’ works.

    The modern day slaves (taxpayers) however would get more value if they could choose how their money is spent, rather than politicians.

    Taxpayer funded public works expenditure is wasteful because politicians are choosing how the funds are spent, rather than the potential users.

    The provision of public works should be privatised to get it out of the hands of government and into the hands of the users.

  10. samuel j

    The biggest lesson is that we are repeating the mistakes of 4000 years ago without producing anything attractive and durable. I’d prefer the govt to be building pyramids rather than wasting my money on the NBN and stupid climatechange policies.

  11. sdfc

    Keynes theory was that the boost to income that is a feature of gold discoveries can be replicated by government spending. Why not tackle the substance of what he was saying?

  12. Skuter

    Why not tackle the substance of what he was saying?

    sdfc, that is an interesting perspective and one that should be intellectually explored, but for mine, isn’t that the job of the defenders of Keynes?

  13. sdfc

    Just what is it you have against maintaining cash flow in a financial crisis?

  14. Skuter

    Just what is it you have against maintaining cash flow in a financial crisis?

    Governments aren’t disinterested observers. They use crises as political opportunities. They use crises to expand their influence over society and don’t address structural issues that caused crises in the first place…

  15. sdfc

    So because you are paranoid about the govenment they should just sit back and allow a deflationary depression to set in.

  16. James of the Glens

    Well, isn’t Alice a litte charmer? In what cardboard box was she raised and by whom? Her peasant bog-rudeness provides ample clues. Something to do with palings.

    Ah, to visit a Keynes’ economy must be a wonderful thing; perhaps she had in mind Roosevelt’s mess which prolonged the Depression in the US, and was only buried by WW2.

    Then the other examples, with the inevitable reckonings after the splurges with the more recent examples looking impossible to reconcile and weakening the sovereignty and security of nations.

    Steve, you’re no idiot and Alice is no economist.

  17. Skuter

    Sdfc, where did I say that? I said nothing about monetary policy.

  18. sdfc

    Monetary policy can become relatively ineffective when private debt levels are high.

  19. sdfc

    James the major slump in the 30s occurred before Roosevelt was elected, the economy fell back into recession during his presidency when fiscal and mometary policy were tightened.

  20. Skuter

    I am a believer in monetary disequilibrium. The monetary authorities are never powerless to offset destruction of inside money in a fiat currency system.

  21. sdfc

    But skuter they are struggling. Inside money creation is the decision of banks not the monetary authority. All they set is the playing field.

  22. Skuter

    Aha! Having the knowledge and wherewithal to do so is another matter! Also, not overdoing it is crucial. But the capability is there. A 100 per cent reserve banking system (i.e. that proposed by Fisher and the early Chicago school) would address that. Not that I am completely in favour of such an institutional set up, but it is possible to have a stable banking system (as opposed to the mess we have now)…

  23. Jim Rose

    Why do apparently inefficient institutions persist for centuries?

    One way of signalling military prowess is building monuments that prove technological achievement and spare labour available for the army

    Seemingly bizarre pre-modern institutions worked well because the environment of the time was so different from our own.

  24. sdfc

    The Chicago Plan Skuter. I’ve had read of the IMF paper once and also a Fisher paper. 100% Money it think.

    I’ve got to have a closer look. It seems too perfect a solution.

  25. Jim Rose

    See The ancient olympics as a signal of city-state strength by Douglas W Allen & Vera Lantinova, 2012, Economics of Governance

    Abstract:
    Ancient Greece was wealthy enough to invent many of the foundations of Western Civilization. To accomplish this, they had to avoid the trap of dissipating wealth through continuous feuding.

    Contends that the ancient Olympics was one, of several, institutions that helped achieve this by acting as a signal of city-state strength.

    Although it could not prevent all battles, the ancient Olympics provided information to reduce hostilities between competing cities. This hypothesis explains the rise and fall of the Olympics,

  26. James Bauer

    Keynes was pretty economically illiterate. It’s quite simple — wealth is stuff that has value and utility to humans. Pyramids are wealth, they are nice to look at I suppose, but the cost of building them is probably more than the amount of money one could make out of selling access to look at them, ergo a civilisation loses wealth when it makes pyramids.

    You see, all the people who were working on building a pyramid could have actually been working on something that had far more value to humans. Fishing, or harvesting crops, for instance. Inventing new technology. All those man hours could have been spent doing those things.

    It isn’t a complicated concept. Keynes was just too stupid to realise what wealth is. Smith figured it out far before Keynes’ time, any way.

  27. sdfc

    Jim the Greeks also managed to tear themselves apart in the Peloponnesian War.

  28. Skuter

    Fisher wrote a book on it. Can’t remember the year. Late 1930s? But can I recommend Larry Kotlikoff’s book: Jimmy Stewart is dead? It fleshes out a modern version. Worth a read in any case.

  29. sdfc

    Never heard of it. Will look it up.

  30. Skuter

    sdfc, I reckon the key issue is a stable monetary system. Sort that out and fiscal policy as a macroeconomic stabilisation tool becomes irrelevant. Thus we avoid the harmful effects.

  31. sdfc

    I agree Skuter, central banks sacrificed monetary stability at the altar of CPI targeting.

    The RBA released a speech this week that Glenn Steven’s gave in August where he admitted as much.

  32. Mundi

    It is depressing how little people seem to know about economics.

    I just saw an article on slashdot about scientists were saying robots would cause unemployment…. And the worse thing is out of the 500 comments every one seemed to be in complete agreement.

    I never knew robots would end all scarcity of every resource and end all wants and desires of man.

    And I agree with James. Why don’t people understand what wealth is? What hope is there when even Keynes apparently didn’t understand.

  33. sdfc

    We are talking about flows Mundi, not stocks. You sound as stupid as James.

  34. John Mc

    James Bauer, I think that’s a neat little layman’s summary of the faults in Keynesianism. As a layman, that’s certainly how I think about it.

  35. Gab

    actually the tourist side has been running for thousands of years.

    True. Herodotus traveled to Egypt around 450BC and remarked on the existing tourist trade to the Great Labyrinth near Hawara, which was built some 1,300 years earlier complete with pyramid housing the departed King Amenemhat III. The labyrinth was essentially a city, surrounded by a builders’ town, administrative buildings and so on. Sounds as though the town developed to build the pyramid and the subsequent labyrinth city. Clearly an economy built around the construction of a pyramid, or so it would seem.

    So would it be a stretch to consider that a workman’s village was erected near the Pyramids? One could imagine a little colony to house the slaves, non-slaves, the architects, the stone masons, the guards…and then food providers for both man and beast…tailors….and so on. An economy of sorts springs up around the building of a “useless public work”…some of which we can see today, others buried beneath the sands but are being discovered with new satellite technology. (Well, that was before the Arab Spring). Once the pyramid was completed, the colony would uproot and move onto the next site.

  36. Infidel Tiger

    The pyramids only aim was to be used as a device to help Gyppos gyp tourists in the 20th century.

  37. Skuter

    Sdfc, I have much admiration for Glenn Stevens. He can only work within the framework he is given, but he understands the history of economic thought. He understands the immensely valuable contribution of Wicksell! I heard a rumour that the ALP will appoint Martin Parkinson as RBA chief just before they get electorally anhilated. That will be the worst of all worlds if true…

  38. brc

    Anyone who wants to defend the pyramids or the cathedrals as worthwhile public works first has to explain how they are more valuable than, say, irrigation schemes or better roads.

    If the workers who built the pyramids had instead built useful infrastructure, they would have been paid the same, but they would have been better off because the things they needed to buy would have gone down in price. Same goes for the cathedrals. If the effort that went into those was put into worthwhile things like canal building then the people would have been much better off.

    Roman infrastructure is a good example. There are parts of north Africa still using roman aqueducts for water today. Many roads in Europe still follow the path that the Romans carved out. The Romans had their own set of problems, but they sure got infrastructure, trade and stable currency right before they went off the rails.

    The folly, and the trap that everyone falls into is that they see a government spending money, and people getting paid by it, and they see that as good. What they don’t see is the value of that money getting destroyed, which makes everyone poorer. And they never stop and ask if the money should be spent on something better.

  39. Jannie

    Please let me know if you take a tour to Egypt. I want to have a ticket.

  40. Well I guess at least this post answers the question of whether Steve Kates is dishonest or just stupid. The man is, in fact, a moron.

  41. Hugh

    David Andrews asked:
    “Of course there are issues about forced labor, but … Are you saying that you think that the earth would be a better place in their absence?”
    OK: let’s put some goalposts up at the other end of the field …

    Suppose the British government, in the 1950s, made slaves of all the citizens of Hong Kong and forced them, over decades, to build an awesome gigantic gold statue of Queen Victoria, 3 miles high and spanning Victoria Harbour. (Retrofitted in the last decade to resemble Lady Di.) Paid for by heavy taxes on British subjects.

    On the other hand, consider what actually happened, when the British government, oblivious to this opportunity, permitted those citizens of Hong Kong to live for the next four decades in arguably the freest stable economic regime in human history (with no relevant tax on British subjects), thus enabling her to rise from being an underdeveloped backwater in the 1950s to charge past resource-rich Australia in the early 1990’s and become one of the wealthiest per capita nations in the world.

    Is the earth a better place for Hong Kong as it is, or as it might have been?

  42. I doubt that the Pharoahs had any illusions that they were improving the economy by undertaking these public works projects. It shows how far we have regressed that Keynesians adhere to this belief.

  43. Hugh

    Oh, and pssst: don’t let Swan/Gillard in on the pyramids thing. It’s obvious they haven’t heard about it yet, and best for us all that they’re kept out of the loop.

  44. John Mc

    To paraphrase Hugh, if producing elaborate tombs that will last for millennia makes the world a better place, lets build some more!!

  45. brc

    @daniel barnes : not a very persuasive argument.

    You could try putting forwards your reasons for disagreeing. You might even convince someone.

  46. brc

    “Of course there are issues about forced labor, but … Are you saying that you think that the earth would be a better place in their absence?”

    I’m going to answer in the affirmative. If idiotic self-aggrandising monuments to absolute power like the pyramids had never existed, maybe some other despotic rulers down the line wouldn’t have felt the need to enslave populations to try and win the pissing contest over who can leave the biggest ego-dump on the face of the planet.

    Earth has an embarassment of riches when it comes to things for the tourist to gawp at. Happily, the best of these were provided by geological forces for no cost in human lives.

  47. RedneckRuss

    Crikey brc,

    Build a bloody bridge over yourself. As regards the Keynesian economics I have better things to do with my life. Enjoy the world for what it is and stop playing economics. The wonders of the world exist for us lesser mortals to admire natural and manmade. The world would be a poorer place culturally (thats qualitatively for you economists). Rome had heaps of economic problems in the later empire, currency devaluation under Nero and into the 300′s AD. Like most things it got too big and unweildy to handle efficiently, not to mention illegal immigration and the like due to barbarian invasions.

    Don’t take your sacred cows too seriously, who’ll remember Keynes in 2000 years?

    RussR

  48. sdfc

    Skuter

    You’ll get no argument from me in relation to Stevens. Like most central bankers he was taken in by the myth of the great moderation.

    That he has acknowledged the role of central banks in pumping up a massive credit bubble puts him streets ahead of his peers.

  49. brc

    @RussR : people were asking, almost rhetorically, if the world would be a better place without pyramids. I just answered the question, I didn’t frame it.

    The answer is that we will never know, but one thing the pyramids certainly are not is some type of sacred cow beyond criticism. In my mind the Panama and Suez canals are much more important than the pyramids, investments that have paid for themselves many, many times over, despite both having a long and bloody history like the pyramids.

    The fact is we all enjoy looking at the Pyramids and other tyrant-built structures because we and our families never suffered to build them.

    Enjoy the world for what it is and stop playing economics

    Perhaps some of us enjoy discussing economics? In my case, that *is* enjoying the world for what it is. What can be more fascinating than the study of human interaction?

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