Justinian's Flea

I recently read William Rosen's Justinian's Flea, an account of the plague that devastated the Byzantine Empire around 540-542 CE.
Rosen mainly argues that in the west, the reduced populations in northern Europe forced a revolution in farming techniques. More advanced techniques were necessary after the reduction of the availability of cheap labor and secured the survival of the Germanic tribes in Europe. Consequently a feudal society emerged from the plague and defined the developments throughout the middle ages until the second visit of Y. Pestis in 1347-48, which again changed the cultural, economic and political landscape of Europe.
My interpretation is that Justinian’s plague allowed the Germanic tribes to settle permanently in various locations in western Europe, including Italy, and to establish new societies based on Christianity and a feudal economic hierarchy. Indeed, it is only after Justinian’s plague that the tribal movements stopped and these tribes settled in the areas that they had conquered up till that time. It is in these areas that they established their feudal societies and built their Gothic churches.

Awful shocks...

The ultimate shock that a society, and therefore an economy, endures is one in which a very large part of that society is affected. We talk here about all-encompassing wars, like WW I and WW II in Europe or the Civil War in the United States. But the most striking examples of such ultimate shocks are pandemics. And the worst of these were the two plague pandemics in 542-545 and 1347-1348. Of course, the disease swept various geographic areas after those two visits on a regular basis, but never as profoundly as in those two occasions.

The culprit of these two plague pandemics is the bacillus Y. Pestis. It is the ultimate killing machine when unleashed on its victims. And on both occasions the bacillus migrated from rodents to humans through fleas. The effects were devastating and in both cases 1/3 to 1/2 of the human population was wiped out, in particular in cities and other densely populated areas. In both cases the effects on the economy were profound and caused a significant change in history.

In my next postings I will try to sketch the consequences of the visits of Y. Pestis to medieval Europe. Numerous new accounts have recently popped up and there seems an increase in the study of these consequences in the economic history literature.

Trust through networks; networks through trust

Recently there has been a small surge in the economics literature addressing the role of trust in the economy. Experiments have shown that trust is extremely important for understanding economic processes. Trust does not fit very well with the traditional concept of "homo economicus": Rational behavior is not trusting. The building and confirmation of trust usually requires sacrifices of resources, contradicting the utility and profit maximizing hypotheses of the homo economicus.

The Scientific American recently posted an article that looks at the evidence for trusting behavior from behavioral economics, in particular trust experiments and brain scan evidence from neuro-economic experiments.

I want to add my own two cents worth to this. First, trust building is directly related to the functioning of socio-economic networks. The better the functioning of these networks and the denser these networks, the better the development and building of trust. This in turn forms the foundation for a better functioning economy. (A neglected aspect in traditional neo-classical economics.)

On the other hand, network building is firmly founded on the presence of trust and behavioral norms of trusting behavior. The higher the level of trust in the society, the better one is able to build and maintain social networks.

This two-way street between trust building and network building lies at the foundation of my research on networks. It now seems that more and more evidence confirms the justification of these and similar theories of network formation. Here I also refer to the recent work of Markus Mobius and his co-authors.

Economics and markets

I will use this blog to post random thoughts about economics and economic theory. In my postings I intend to promote a relational perspective on the economy.

I do not think that economics is a very mature science and has a very difficult subject of study. Economists in general, on the other hand, have strong beliefs that they know a lot about the functioning of the economy and point to the relatively recent successes of the market paradigm in our globalizing world economy. As a consequence in the teaching of economics we promote a view of a unified economic theory based on the market as the main allocation mechanism. But what is exactly a market?

In economic theory a market is a very restricted and precisely defined mechanism based on the assignment of a unique market price to a single commodity that reflects its true "value". This does not fit very well with reality. In practice, the notion of a "market" refers to a wide variety of economic concepts such as one's clients, a broad geographical area, a place where demand and supply meet in the broadest terms, and of course a farmers' market.

Economists pretend to understand this wide variety of mechanisms and networks with the single instrument of the theoretical market concept. This seems very pretentious. We should be more humble and accept that our science is still very immature. We should also allow the development and discussion of multiple theories and models for similar phenomena to take place in our journals. At the moment these journals are strictly closed for any contribution that deviates too much from the accepted paradigm. This stifles the development of the economics science.

The EconNet web site and this blog try to promote alternative views of economic phenomena that go beyond the traditional paradigm of neo-classical market theory.

First posting

Welcome to my blog on the economics of relations, in particular social networks, authority hierarchies, and institutions. I will be posting regularly some thoughts on developments in this field of economic theory and related subjects.

Meanwhile visit the economics network web site!