Economic Theory and the Ancient Mediterranean

Donald W. Jones is Adjunct Professor of Classics, University of Tennessee, and is also an economic consultant involved with demand forecasting and energy economics.  He is the author of External Relations of Early Iron Age Crete, 1100-600 B.C. (2000) and co-editor of Measuring the Full Costs and Benefits of Transpiration (1997).

"It is a majestic manual on economics...covering basically the full spectrum of standard economic theory. ...[T]he book is a powerful, even if advanced tool, to develop an understanding of economic theories." (Nordicum-Mediterraneum, 1 January 2015)

• Preface xiiiAcknowledgments xviiIntroduction 1Rationale 1Organization 2Method 3Reader Outcomes 3Themes 4Relevance and Applicability 5References 6Notes 61 Production 81.1 The Production Function 91.2 The “Law” of Variable Proportions 111.3 Substitution 131.4 Measuring Substitution 151.5 Specific “Functional Forms” for Production Functions 161.6 Attributing Products to Inputs: Distributing Income from Production 171.7 Efficiency and the Choice of How to Produce 181.8 Predictions of Production Theory 1: Input Price Changes 201.9 Predictions of Production Theory 2: Technological Changes 211.10 Stocks and Flows 221.11 The Distribution of Income 231.12 Production Functions in Achaemenid Babylonia 25References 26Suggested Readings 27Notes 272 Cost and Supply 292.1 The Cost Function 312.2 Short Run and Long Run 322.3 The Relationship between Cost and Production 332.4 Producers’ Objectives 342.5 Supply Curves 352.6 Demands for Factors of Production 402.7 Factor Costs in General:Wages and Rents 412.8 Allocation of Factors across Activities 432.9 Organizing Production:The Firm 432.10 A More General Treatment of Cost Functions 462.11 The Economics of Mycenaean Vases, I: Supply and Cost 472.12 Accounting for Apparent Cost Changes in Minoan Pottery 492.13 Production in an Entire Economy: The Production Possibilities Frontier 50References 52Suggested Readings 53Notes 533 Consumption 553.1 Rationality of the Consumer 573.2 The Budget 573.3 Utility and Indifference Curves 583.4 Demand 603.5 Demand Elasticities 633.6 Aggregate Demand 653.7 Evaluating Changes inWellbeing 663.8 Price and Consumption Indexes 703.9 Intertemporal Choice 733.10 Durable Goods and Discrete Choice 753.11 Variety and Differentiated Goods 793.12 Value of Time and Household Production 823.13 Risk, Risk Aversion, and Expected Utility 863.14 Irrational Behavior 883.15 Fixed Prices 903.16 Applying Demand Concepts: Relationships between Housing Consumption, Housing Prices, and Incomes in Pompeii 933.17 The Economics of Mycenaean Vases, II: Demand 96References 99Suggested Readings 99Notes 1004 Industry Structure and the Types of Competition 1034.1 Perfect Competition 1044.2 Competitive Equilibrium 1064.3 Monopoly 1084.4 Oligopoly 1104.5 Monopolistic Competition 1114.6 Contestable Markets 1124.7 Buyer’s Power: Monopsony 1134.8 The Economics of Mycenaean Vases, III: Industry Structure 1144.9 Ancient Monopoly and Oligopoly: Religion and Foreign Trade 115References 117Suggested Readings 118Notes 1185 General Equilibrium 1205.1 General Equilibrium as a Fact and as a Model 1205.1.1 The facts 1215.1.2 The models 1215.1.3 The questions 1235.2 TheWalrasian Model 1245.3 Exchange 1275.4 The Two-Sector Model 1285.4.1 The basics with the Lerner–Pearce diagram 1285.4.2 Growth in factor supplies 1305.4.3 Technical change 1325.5 Existence and Uniqueness of Equilibrium 1335.6 Computable General Equilibrium Models 134References 136Suggested Readings 137Notes 1376 Public Economics 1396.1 Government in the Economy: Scope of Activities, Modern and Ancient 1396.2 Private Goods, Public Goods, and Externalities 1416.2.1 Private goods 1416.2.2 Public goods 1426.2.3 Externalities 1436.3 Raising Revenue 1496.3.1 Taxation 1: rationales and instruments 1496.3.2 Taxation 2: effects of taxes 1546.3.3 Taxation 3: tax incidence (who really pays?) 1656.3.4 Taxation 4: optimal tax systems 1696.3.5 Other revenue sources 1736.4 TheTheory of Second Best 1746.5 Government Productive Activities 1756.5.1 Public production and pricing 1756.5.2 The supply of public goods and social choice mechanisms 1816.5.3 Public investment and cost–benefit analysis 1866.6 Regulation of Private Economic Activities 1916.6.1 Rent seeking 1926.6.2 The costs of regulation: the Averch–Johnson effect 1936.7 The Behavior of Government and Government Agencies 1946.7.1 Theories of government 1946.7.2 Theories of bureaucracy 1956.7.3 Levels of government 1966.8 Suggestions for Using the Material of this Chapter 196References 197Suggested Readings 199Notes 1997 The Economics of Information and Risk 2027.1 Risk 2027.1.1 The ubiquity of risky decisions 2037.1.2 Concepts and measurement 2057.1.3 Risk and behavior: expected utility 2097.1.4 Risk versus uncertainty: the substance of probabilities 2157.2 Information and Learning 2177.2.1 The structure of information 2177.2.2 Learning as Bayesian updating 2187.2.3 Experts and groups 2237.3 Dealing with Nature’s Uncertainty 2257.3.1 Contingent markets 2257.3.2 Portfolios and diversification 2307.4 Behavioral Uncertainty 2357.4.1 Asymmetric information: problems and solutions 2367.4.2 Strategic behavior 2427.5 Expectations 2467.5.1 The role of expectations in resource-allocation decisions 2477.5.2 Adaptive models of expectations 2477.5.3 The rational expectations hypothesis 2497.6 Competitive Behavior under Uncertainty 2527.6.1 Production behavior 2527.6.2 Search problems 2537.7 Suggestions for Using the Material of this Chapter 253References 254Suggested Readings 255Notes 2558 Capital 2588.1 The Substance and Concepts of Capital 2588.1.1 Capital as stuff 2598.1.2 Capital in the production function 2628.1.3 Stocks, flows, and accumulation 2638.1.4 Prices and values 2648.1.5 Temporal aspects of capital 2658.1.6 Measuring capital 2688.1.7 The labor theory of value 2698.2 Quasi-Rents 2708.3 Interest Rates 2728.4 TheTheory of Capital 2768.4.1 Present and future consumption, investment, and capital accumulation 2768.4.2 Demand for and supply of capital: flows and stocks 2798.4.3 Capital richness and interest rates 2838.5 Use of Capital by Firms 2848.5.1 Investment 2848.5.2 Maintenance 2878.5.3 Scrapping and replacement 2898.6 Consumption and Saving 2908.6.1 Intertemporal utility maximization 2908.6.2 Hypotheses about consumption 2918.6.3 Individual and aggregate savings 2948.7 Capital Formation 2948.8 Suggestions for Using the Material of this Chapter 296References 297Suggested Readings 298Notes 2989 Money and Banking 3019.1 The Services of Money 3029.1.1 Money as a medium of exchange 3029.1.2 Money as a store of value 3029.1.3 Money as a unit of account 3039.1.4 Stability of value 3039.1.5 Monetization prior to currency 3039.2 The Types of Money 3049.2.1 Commodity money 3049.2.2 Credit money 3049.2.3 One special case of credit money: bank money 3059.3 Some Preliminary Concepts 3059.3.1 The price level 3059.3.2 Inflation 3069.3.3 “Nominal” versus “real” distinctions 3079.3.4 What people in antiquity knew 3099.4 The Demand for Money 3099.4.1 Measuring money 3109.4.2 The distinctiveness of the demand for money 3119.4.3 Monetary theory and macroeconomics for ancient economies?! 3129.4.4 The neoclassical quantity theory 3139.4.5 Keynesian monetary theory 3159.4.6 The contemporary synthesis 3179.5 The Supply of Money 3189.5.1 Supply of a commodity money 3209.5.2 Creation of money by banks 3239.5.3 The banking firm 3289.5.4 Financial intermediation 3329.5.5 Exogeneity / endogeneity of money supply and foreign exchange 3359.5.6 Seigniorage: making money by issuing money 3369.5.7 Bimetallism 3379.6 Inflation 3379.6.1 Causes of inflation 3389.6.2 Mechanisms of inflation 3399.6.3 Consequences of inflation 3409.7 Monetary Policy 3429.7.1 The players and their motives 3429.7.2 Choice of monetary standard 3439.7.3 Influencing the supply of money 3439.7.4 Influencing the demand for money 3459.7.5 International monetary policies 3459.8 Suggestions for Using the Material of this Chapter 345References 345Suggested Readings 347Notes 34710 Labor 35010.1 Applying Contemporary Labor Models to Ancient Behavior and Institutions 35010.2 Human Capital 35310.2.1 Investment in human capital 35410.2.2 Health 35610.2.3 Guilds, occupational licensing, and entry restriction 35610.3 Labor Supply 35710.3.1 Utility analysis of individual and family labor supply 35710.3.2 Lifecycle / dynamic labor supply 36410.3.3 Supply of labor to activities 36810.3.4 Household production 36910.4 Labor Demand 37510.4.1 The productive enterprise’s demand for labor 37610.4.2 Derived demand 37910.5 Labor Contracts 38410.5.1 Information problems and incentives 38410.5.2 The basis of pay 38510.5.3 Sequencing of pay 38710.5.4 Compensating differentials in wages 38710.6 Migration 39110.6.1 Economic incentives for migration 39210.6.2 Consequences of migration 39410.6.3 Refugee migration 39610.6.4 Equilibrating migration flows when the wage rate doesn’t adjust 39610.7 Families 39810.7.1 Marriage 39810.7.2 Intrafamily resource allocation 40510.7.3 Children and the economics of fertility and child mortality 41210.8 Labor and the Family Enterprise 41410.8.1 The farm family household and the separability of production decisions from consumption decisions 41510.8.2 Effects of missing markets on labor allocation 41810.8.3 Restrictions on household activities 42010.8.4 Implications of the family farm model 42210.9 Slavery 42310.9.1 The supply of slaves 42410.9.2 The demand for slaves 42610.9.3 Investment in slaves 42710.9.4 Market consequences of slaves 42710.9.5 Slaves’ incentives 42710.10 Suggestions for Using the Material of this Chapter 428References 429Suggested Readings 432Notes 43311 Land and Location 44011.1 The Special Characteristics of Land 44011.2 Land as a Factor of Production 44111.2.1 Supply 44111.2.2 Demand 44111.3 The Location of Land Uses 44211.3.1 TheThünen model 44211.3.2 The bid-rent function 44711.3.3 Equilibrium in a region 45011.3.4 Modifying the social context 45111.4 The Location of Production Facilities 45211.4.1 Individual facilities 45211.4.2 Industries 45511.5 Consumption and the Location of Marketing 45711.5.1 The structure of transportation costs 45711.5.2 The shopping tradeoff: frequency versus storage 45811.5.3 Aggregate demand in a spatial market 46011.5.4 Hierarchies of marketplaces: central place theory 46111.5.5 Periodic markets 46211.6 Transportation 46311.6.1 Infrastructure 46311.6.2 Equipment 46511.6.3 Pricing of transportation services 46511.7 Suggestions for Using the Material of this Chapter 467References 468Suggested Readings 469Notes 47012 Cities 47212.1 Cities and their Analysis, Modern and Ancient 47212.1.1 Classifying cities 47212.1.2 Characteristics of cities 47312.1.3 What goes on in cities 47312.1.4 Ancient observations and contemporary analytical emphases 47412.2 Economies of Cities 47512.2.1 Scale economies in production 47512.2.2 Externalities 47712.2.3 Types of production 47712.3 Housing 47912.3.1 The Special Characteristics of Housing 47912.3.2 Housing supply 48012.3.3 Housing demand 48112.4 Urban Spatial Structure 48212.4.1 The monocentric city model 48312.4.2 Multiple categories of residents 48812.4.3 Working at home 48912.4.4 Endogenous centers 49012.4.5 Density gradients and the ancient city 49112.4.6 Wage differentials across cities 49112.5 Systems of Cities 49212.5.1 Production and consumption within any city 49312.5.2 Different types of cities 49712.5.3 The city size distribution and its responses to various changes 49912.6 Urban Finance 50312.6.1 Local public goods 50412.6.2 What to supply and how much 50512.6.3 Raising revenue 50612.7 Suggestions for Using the Material of this Chapter 507References 508Suggested Readings 510Notes 51113 Natural Resources 51613.1 Exhaustible Resources 51713.1.1 The theory of optimal depletion 51713.1.2 Different deposits 52013.1.3 Uncertainty 52113.1.4 Exploration 52113.1.5 Monopoly 52313.2 Renewable Resources 52413.2.1 Biological growth 52413.2.2 Harvesting 52513.2.3 The theory of optimal use 52713.2.4 Open access and the fishery 52813.3 Resource Scarcity 53113.4 The Ancient Mining-Forestry Complex 53113.5 Suggestions for Using the Material of this Chapter 532References 533Suggested Readings 533Notes 53314 Growth 53514.1 Introduction 53514.1.1 Economic growth: delimiting the scope 53514.1.2 Growth in antiquity: is there anything to explain? 53614.2 Essential Concepts 53614.2.1 Production functions again 53614.2.2 Technical change 53714.2.3 Growth versus development 53714.3 Neoclassical GrowthTheory 53814.3.1 The Solow model 53814.3.2 Technology and growth in the Solow model 54114.3.3 Endogenizing technical change 54314.3.4 Extent of the market, division of labor, and productivity 54514.4 Structural Change 54614.4.1 Sectoral concepts as organizing devices 54614.4.2 A two-sector model of an economy 54814.4.3 Some stylized facts 54914.5 Institutions 55114.5.1 Property rights 55214.5.2 Governments 55214.5.3 Stability and change 55314.6 Studying Economic Growth in Antiquity 55314.6.1 What there is to explain 55414.6.2 Organizing inquiry about economic growth with the help of growth theory 55414.6.3 Studying episodes of growth following declines: beyond growth theory 55714.6.4 Summary 55914.7 Suggestions for Using the Material of this Chapter 55914.7.1 Evidence of growth 55914.7.2 Sectoral structure 561References 561Suggested Readings 564Notes 564Index 569