The Fundamental of Economics builds on the author’s earlier work demonstrating political and economic interaction in the third and second millennia BC. The fundamental premise is that there are laws of economics and that the data from Early Antiquity offer a deep time perspective on economic development, which is the only means of identifying the overriding laws of economics in urban civilized societies.
The central argument is that in Early Antiquity (effectively the Bronze Age Near East, ca. 3000-1200 BC), demand was created by the requirements of the core states, and that this enabled and pushed the emergence of market forces. The economies of Antiquity were dominated by profound structural unemployment combined with low wages for unskilled labour – wages unrelated to the market value of the goods produced. Demand pushed technological development in peripheral regions offering products sought by the textile producing core powers exploiting cheap labour. This trend continued until recently, and the economies of the Pre-Industrial world were thus market economies from ca. 2000 BC. Throughout history, elite sponsored demand and money have played decisive roles in pushing growth while the distributive and regulatory mechanisms of the markets restricted wage growth, enhancing inequality and profits from finance and commerce blossomed.
The changes of recent centuries in the West (i.e., after 1800 AD) are not due to science & technology or the liberation of markets & banks so much as the use of fiat money combined with low interest rates. A Financial Revolution transformed economics and society, partly because of investment possibilities and partly because of rising wages in fiat money. Money circulated freely through the economy, facilitating the emergence of new forms of business – and diminishing poverty through rising real wages. Money-wealth pushed science & technology, temporarily guaranteeing Western dominance.
Due to market forces and diffusion, this Western transformation can only have a limited lifetime; economies are changing again as a result of recent developments; globalisation will resurrect earlier patterns, eroding the Western advantages and reducing living standards. This interpretation of history thus not only rejects the evolutionary paradigms of Marx and Polanyi, but also throws doubt on the theoretical validity of both the Neoclassical Synthesis and most varieties of Keynesianism which currently dominate economic thought.
David A. Warburton – currently responsible for “economy” in the Berlin Excellence Cluster Topoi – is the author of Egypt & the Near East as well as Macroeconomics from the Beginning in this same series.