Power and Plenty: Trade, War, and the World Economy in the Second Millennium by Ronald Findlay and Kevin O’Rourke is a solid book. This is my favorite genre of “non-historical“ history. Traditionally history books focus on sequence of empires, kings, and battles, which I don’t find particularly illuminating. I am much more interested in “thick” history, describing the gears of the bygone era. What did the day of the average person look like (growing cereals)? What sea of incentives pushed people around (risk management, e.g., crop failure due to weather)?

Power and Plenty is such a book. It focuses on trade, or, perhaps more precisely, on large scale movement of goods. More precisely, because, by necessity, talking about the trade requires talking about the war: the past was pretty far from free trade libertarian paradise, trade was only possible under protection of the arms, and the line between trade and plunder was fuzzy.

To my slight disappointment, the focus turned out to be too narrow for my taste. While we observe twists and turns of the overall gross flow of pepper from Asia to Europe (and other regions), we never actually quite trace the micro-economics behind it. What exactly motivates the farmer to grow pepper? How trade actually happens, mechanically, in a world where you can’t just wire someone money? What web of incentives creates a miracle of a caravel? For example, maritime insurance is mentioned in passing, as a tool to judge just how disruptive this or that war was for the trade, but its mechanics and origin are not explained. More generally, the book talks very little about finance. We trace the West→East flow of New World silver physically, but not in terms of monetary theory. Still, I think the book significantly shifted my understanding of the world in the designated period. Couple of things that stood out for me:

Globalization

History is having is reverse-Copernicus moment. It started as a discipline that explained “Western Civilization“, by placing Greek and Roman world at the source of everything. In XXI century, there’s a well-deserved reaction against this myopic and self-serving view, and there’s a push for more world history, where Europe is but just one scene. Power and Plenty does this with brutal honesty:

We initially confine ourselves to this “Afro-Eurasian Ecumene” because our focus is on intercontinental and interregional trade, and prior to the European voyages of discovery in the 1490s the Americas or Australasia were not engaged in trade with other world regions.

It is to a large degree, a Eurasian history. For a long time, large parts of our globe weren’t interesting from the perspective of inter-world-regional goods flows. At the same time, the part of the globe that was integrated, spanned well beyond Europe. Reading this historical account made me appreciate just how well-connected the world has been, long before it became practical for a single person to travel widely. Interlocked networks of local traders were far more impactful than famous travelers.

The Great Divergence

Why do we have it good here, and they have it bad there? This is perhaps the central question of all human sciences — how come the world split into developed and developing? Before getting interesting in the history, my pop understanding blamed Industrial Revolution — Europeans figured out steam engine and guns, which created sharp technological advantage, and everything else is downstream of that. But, if you start looking closer, the Industrial Revolution story just doesn’t hold up.

First, IR wasn’t abrupt — it is, in general, in line with overall exponential growth over millennia. Exponential growth starts slow! Industrial was preceded by Scientific and Commercial Revolutions.

Second, the divergence happened well before IR. The revolution amplified, rather than created, the gap.

While Power and Plenty doesn’t explain the causes of divergence, it pins it down historically and geographically. The Great Divergence was a direct consequence of Mongol conquests and Black Death.

In 1000 CE, Europe was provincial backwater, the role fitting for its geography (try looking at the map with fresh eyes — it’s a peninsula far removed from the center of landmass). The engine of progress was China — with paper, gunpowder, and compass, it was firmly on the path to its own Industrial Revolution. Chinese were seafaring, and actively discovering the world around. The Islamic World was literally in the center of its all, controlling major trade and information flows. Trade flows are instructive: Europe was exporting raw materials and slaves to the North Africa and Middle East, and imported manufactured goods.

Mongols turned the world upside down. It’s after the Mongol conquests that China turned inwards. While it didn’t lose knowledge of technologies or cultural roots, it just stopped sailing and exploring, perhaps delaying Industrial Revolution by half of a millennium. Mongols effect on Europe and Islamic World was more profound, but less direct — unifying the Eurasian landmass created a common market for goods, people, and microbes, leading do devastating Black Death. It was this event that made Europe relatively more powerful. In an inversion, it now imported raw materials from the south, and exported manufactured goods. Sadly, just why the impact of the catastrophe was so different isn’t well understood.

In the previous post, I described “savings fallacy” — the tendency to think about the stock of money as an actual resource. In reality, money is independent of physical resources (houses, cars, bushels of wheat), and serves only to:

• distribute stock of present resources,

• direct society’s production capacity to influence future stock of resources.

In this post, I want to describe a very specific variation of this fallacy that I had for a long, long time, with regard to having kids.

Upfront clarification: I focus only on if-then-else economic consequences, and make no attempt at passing judgement about appropriate reproductive decisions. This is an “is“, not “ought“ post, descriptive, rather than prescriptive. It also describes but a tiniest, thinnest slice of the relevant human experience.

I used to have the following model of “life in an old age“:

• I could spend time and effort to raise kids, such that, when I can no longer support myself through my work, my kids could pitch in.

• Alternatively, if I choose to not have kids, I can work harder to save a larger retirement pot.

I didn’t thought much about this, the above was just an intuitive model vaguely occupying my mind. In particular, I remember seeing an image much like the one above one day, and thinking “yeah, that’s right“. I suppose that a lot of people have a similar model! Do you, dear reader?

As I understood relatively recently, this model is very misleading, due to the fallacy of composition. Imagine a society where everyone picks the “work harder“ side, and no one is having kids. When everyone ages, it suddenly turns out that there’s no fresh bread to have anymore. Although people were industrious when young, now there’s simply no one to work the short-term supply chain that produces fresh bred. This is the fallacy of savings — although you can save some goods over the long periods of time, like canned food or land, the bulk of the material world around us is perishable, and requires constant upkeep. Even “durable” goods like houses or bridges require large teams of people looking after them.

On an individual level, saving works, but it is important to understand that, when you “save”, you are not setting aside your effort for later. Rather, you get a promise that someone else’s effort will support you in the future. And, for this promise to work, there needs to be this “someone else” in the future!