In defense of World Wonders

Today I attended a Lecture on Finances that began with a brief history of world’s economics, which stated that in the early days of humankind, savings (that is Income minus Consumption) belonged to Pharaohs and Kings, that “invested” in pyramids so people were poor. Then (huge leap) the rich invested their savings in cathedrals, so people stayed poor. And after that came the Renaissance, where the merchants used the savings to pay for paintings and more cathedrals, so people continued to be poor. And then, there came the Industrial Revolution, where capitalists used their savings to reinvest in production and people in certain countries began to improve.

I believe this view to be absolutely misleading, because it assumes that all those useless investments (let’s not waste time arguing about the value for humanity and next generations, we all understand that it is not the point) had a as an alternative cost the chance of having devoted them to productive investments, idea with which I do not agree.

First, it forgets the concept of Circular Flow. It is not that these kings kept that wealth for themselves under their mattresses (that would’ve been really unproductive): they reinvested them, so the recipients of that money could have saved and invested in productive issues... but they didn’t. Why not? Because, and this is the second reason for my disagreement, there were no real alternatives to invest!!! Production was a little over survival levels, so there was no way of saving much. Plus, there was no guarantee of private property (people could’ve stock something but then there would come someone stronger and simply loot it) In fact, Jewish people are the best example of that: they're best investment was to keep everything in cash or lent. R&D? Please!! There were no patents nor intellectual property, so there were no incentives for real people to do it... only a few rich could devote their time to Sciences and Philosophy (Actually, it was the discussion on James Watt's steam machine that led to a proper definition of patents). Roads, infrastructure... yes, that would’ve been useful, but there were no national states as the ones that arrived after Waterloo, so who would be in charge of developing such public goods?... The market doesn’t do it still these days... (At least not in the optimum quantity). And the landlords were investing in defense to protect their wealth from their friendly neighbours.

I believe that the industrial revolution, free market (capitalism as many like to name it) and the development that began in the 19^th century have their foundations in the concepts of private property, guaranteed by the State even against the Government; of national states, that tackled the challenge of providing public goods (with its excessive extension to Welfare State); the concept of intellectual property, guarded by patents; and the creation (here I agree with today’s lecturer) of financial intermediaries (banks). All this things only coexisted for the first time on the early 19^th century, and that is why productive investment, with its multiplier effect did only arrive then, as well as the first period of relative peace in Europe and North America.

Arguing that the investment on “World Wonders” is the explanation of the lack of productive investment is like saying that the reluctance of people to donate organs in the early centuries is the explanation for the high mortality rates of those days. There simply was no real alternative for things to be different. People were as greedy in those days as they are today, so had there been a real chance for productive investment, they would've most probably done it. But there wasn’t.

Powered by ScribeFire.