Monday, January 2, 2017

To Create A "1%" In A Social Hierarchy You Don't Need An Economic Surplus, Just A Storable Form Of Wealth

So there I was, reading the abstract of "Hazelnut economy of early Holocene hunter–gatherers: a case study from Mesolithic Duvensee, northern Germany", thinking about Nutella and Frangelico when this grabbed my eye:
...High-resolution analyses of the excellently preserved and well-dated special task camps documented in detail at Duvensee, Northern Germany, offer an outstanding opportunity for case studies on Mesolithic subsistence and land use strategies. Quantification of the nut utilisation demonstrates the great importance of hazelnuts. These studies revealed very high return rates and allow for absolute assessments of the development of early Holocene economy. Stockpiling of the energy rich resource and an increased logistical capacity are innovations characterising an intensified early Mesolithic land use...
Stockpiling, storage, commodities, well that's right in our wheelhouse,* and if I can combine it with the last remnants of interest in Piketty's approach to inequality.....maybe I can synthesize something halfway original...

Yeah, it's already been done.
Here's VoxEU, September 2015:

Cereals, appropriability, and hierarchy
The Neolithic Roots of Economic Institutions
Conventional theory suggests that hierarchy and state institutions emerged due to increased productivity following the Neolithic transition to farming. This column argues that these social developments were a result of an increase in the ability of both robbers and the emergent elite to appropriate crops. Hierarchy and state institutions developed, therefore, only in regions where appropriable cereal crops had sufficient productivity advantage over non-appropriable roots and tubers. 
What explains underdevelopment?
One of the most pressing problems of our age is the underdevelopment of countries in which government malfunction seems endemic. Many of these countries are located close to the Equator.1 Acemoglu et al. (2001) point to extractive institutions as the root cause for underdevelopment. Besley and Persson (2014) emphasise the persistent effects of low fiscal capacity in underdeveloped countries. On the other hand, Diamond (1997) argues that it is geographical factors that explain why some regions of the world remain underdeveloped. In particular, he argues that the east-west orientation of Eurasia resulted in greater variety and productivity of cultivable crops, and in larger economic surplus, which facilitated the development of state institutions in this major landmass. Less fortunate regions, including New Guinea and sub-Saharan Africa, were left underdeveloped due to low land productivity.

In a recent paper (Mayshar et al. 2015), we contend that fiscal capacity and viable state institutions are conditioned to a major extent by geography. Thus, like Diamond, we argue that geography matters a great deal. But in contrast to Diamond, and against conventional opinion, we contend that it is not high farming productivity and the availability of food surplus that accounts for the economic success of Eurasia.
  • We propose an alternative mechanism by which environmental factors imply the appropriability of crops and thereby the emergence of complex social institutions.
To understand why surplus is neither necessary nor sufficient for the emergence of hierarchy, consider a hypothetical community of farmers who cultivate cassava (a major source of calories in sub-Saharan Africa, and the main crop cultivated in Nigeria), and assume that the annual output is well above subsistence. Cassava is a perennial root that is highly perishable upon harvest. Since this crop rots shortly after harvest, it isn't stored and it is thus difficult to steal or confiscate. As a result, the assumed available surplus would not facilitate the emergence of a non-food producing elite, and may be expected to lead to a population increase.

Consider now another hypothetical farming community that grows a cereal grain – such as wheat, rice or maize – yet with an annual produce that just meets each family's subsistence needs, without any surplus. Since the grain has to be harvested within a short period and then stored until the next harvest, a visiting robber or tax collector could readily confiscate part of the stored produce. Such ongoing confiscation may be expected to lead to a downward adjustment in population density, but it will nevertheless facilitate the emergence of non-producing elite, even though there was no surplus.

Emergence of fiscal capacity and hierarchy and the cultivation of cereals
This simple scenario shows that surplus isn't a precondition for taxation. It also illustrates our alternative theory that the transition to agriculture enabled hierarchy to emerge only where the cultivated crops were vulnerable to appropriation.
  • In particular, we contend that the Neolithic emergence of fiscal capacity and hierarchy was conditioned on the cultivation of appropriable cereals as the staple crops, in contrast to less appropriable staples such as roots and tubers.
According to this theory, complex hierarchy did not emerge among hunter-gatherers because hunter-gatherers essentially live from hand-to-mouth, with little that can be expropriated from them to feed a would-be elite.2
  • Thus, rather than surplus facilitating the emergence of the elite, we argue that the elite only emerged when and where it was possible to expropriate crops....

*See, for example:
The Golden Age of Commodities Market Manipulation: Corners, Storage and Squeezes

These days however, to purloin that wealth, you don't even need to be dealing with storables:
How to Manipulate Non-storable Commodities Markets
From September's "The Paradox of Profit Margins and Another Look at the Theory of Everything":
...If you're interested in the effect of hoarding on commodities prices Janet Netz, PhD did a paper I liked, "The Effect of Futures Markets and Corners on Storage and Spot Price Variability". I'll see if we have an ungated copy.

Remember, the spectrum runs from storage to hoarding to market corners.
And corners in commodities refers to physical, you can't corner a commod by simply buying futures or forwards, you also have to take up the physical supply.
Conversely, squeezes are accomplished in the futures..

A couple decent papers on this aspect of the abundance theory are:
"Large Investors, Price Manipulation, and Limits to Arbitrage: An Anatomy of Market Corners" and
"Market Manipulation, Bubbles, Corners and Short Squeezes"
The only way to combat abundance is with artificial scarcity, i.e. manipulation....
Well we don't have an ungated copy of the Netz but we do have a snappy little 32 page paper by Craig Pirrong who you may know by his nom de blog The Streetwise Professor. His is one of the few blogs that posts on Gazprom more than we do though we probably have more on Enron.

Via the University of Houston's Bauer College of Business:

Manipulation of Power Markets
On the other hand, storing electricity is pretty much the ultimate dream of venture capitalists:
Storage: How to Hoard Electricity (GE; SI)
Bill Gates: "It Is Surprisingly Hard to Store Energy"
Batteries: The Venture Capitalist's Holy Grail
And quite a few more, use the search blog box if interested.  

Somehow related:
Oil Tankers and Interest Rates and Scallywags and Time