Archive for July 28th, 2016

History of spices and how they shaped much of the world trade..

July 28, 2016

Superb post at OUP Blog.

On supermarket shelves, we are given a mind-numbing array of choices to select from. Shall we have some peppercorns on our macaroni, some cinnamon for baking, or a sprig of rosemary with roast pork? Five hundred years ago, however, cooking with herbs and spices was a much simpler choice. Many of the spices we use nowadays still flourished only in their native habitats, and were not as widely enjoyed as they are today. In fact, Christopher Columbus made it his quest to collect spices from around the world, deeming it as worthy as gold. “In truth,” he said, “should I meet with gold or spices in great quantity, I shall remain till I collect as much as possible, and for this purpose I am proceeding solely in quest of them.”

Thanks to these early explorers, cultures around the world have created delectable dishes based on spices and herbs both homegrown and imported, and it is fascinating how often these additions can change the essence of an entire meal. Indeed, many spices have been so commonly used they have come to represent entire cuisines. We cannot imagine Indian food without curry, for instance, nor conceive of any sashimi platter without that indispensable wad of wasabi.

In addition to spicing up dishes, studies have also shown that adding seasoning to your diet leads to copious health and other physical benefits. This is not a recent discovery. In ancient Roman times, the philosopher Pliny advised his students to wear a “crown of mint” upon their heads while studying, as it “exhilarates the mind.” Modern studies reveal that his advice was spot-on. Other than headaches, mint also alleviates asthma, nausea, and digestion problems. Other herbs and spices, such as the nutmeg, similarly helps prevent infection and ageing due to their antibacterial properties.

If you possess a green thumb, cultivating your own herbs is also a peaceful activity that calms the nerves. Thomas More, who kept his garden alongside the Thames, said of rosemary “I let it run alle over my garden walls, not onlie because my bees love it, but because it is the herb sacred to remembrance and to friendship.” Likewise, many other herbs also convey their own “flower language,” or floriography. Basil channels good wishes, sage pronounces wisdom, while tarragon, curiously enough, expresses “lasting interest.”

They have a map as well to figure where certain spices and herbs came into being. I think Indian contribution is not fully represented..

Neo-Fisherism: Raising interest rates to raise inflation

July 28, 2016

The usual bit on monetary is raise rates if inflation is rising and lower them when inflation is falling. This is called as Fisherism based on Irving Fisher.

How about turning the idea on its head? How about raising rates to push higher inflation? This is called Neo-Fisherism  (trust economists to come with bad names).

Steven Williamson takes us through this radical idea:


What we should do in the 25 years of 1991? Read the Indian classics…

July 28, 2016

Bibeky Debroy makes a great argument here on the even of 25 years of 1991 agenda.

He says most of Indian classics suggest that government should do minimal things. So just read them and that is what we should do in future as well:


What came first – money or credit?

July 28, 2016

One standard narrative on evolution of money is this. Earlier people would just barter to exchange their surplus with something they needed. Over a period of time, they realised this was complicated and through this evolved money which allowed people to quote all goods in the money. This eased lives considerably as one could now just buy and sell anything without any barter. This is called as Mengerian account of money based on Carl Menger’s work.

However, this thinking has been disputed by scholars recently. They say Barter was non-existent in most societies. Infact the credit instruments came much before money. These credit instruments circulated as IOUs enabling people to buy and sell. This is called as Innesian view based on A. Mitchell Innes.

Needless to say, there was a war of words between the two camps. Much of these war of words is fascinating as they get to core of so called monetary economics.

Michael V. Szpindor Watson of Mises Institute says there is no need to fight. One could merge the two views by looking at intertemporal barter:

Barter is ordinarily understood as spot transactions, where two people trade two different goods at some instant and not over time. The same occurs in an economy with a common medium of exchange, except that one of the goods (money) is usually used for transactions and purchases. Credit in an economy without a common medium of exchange is simply inter-temporal barter. It is no different than credit where a common medium of exchange exists, except the prevalence of what the credit is redeemable in.

Even when there is no common medium of exchange it is reasonable to expect that people will still want to transact over time and not always in the given moment. Within communities of trust or where there is a method of enforcing contracts we can expect that Casimir promises Anastasia a part of his future grain harvest for milk that her cow just produced. Anastasia has credited milk to Casimir for a claim on his future grain harvest — a credit market has been created where Anastasia and Casimir have engaged in inter-temporal barter.

Inter-temporal barter doesn’t have claims on a common medium, but to one of a variety of goods (and maybe even services). As Innes et al. suggest, tallies or other means of recording debts and credits could have been invented as primitive economies and populations grew. Such means of recording credits and debts would bring down the transaction costs of inter-temporal barter. Conceivably such instruments of recording credits and debts could have been negotiable and exchanged for other goods.

Imagine that Anastasia has a promissory note (IOU) for a portion of Casimir’s grain harvest, but prefers apples now to a future claim on Casimir’s grain. Thaddeus prefers a future claim on grain than the apples hanging on his trees. So Anastasia offers Thaddeus the promissory note in exchange for apples. If not for the promissory note Anastasia, Casimir, and Thaddeus would have all had to meet to agree to such a transaction. Without inter-temporal barter in the form of a promissory note, Anastasia and Casimir would have never made the transaction and Anastasia wouldn’t have had the promissory note to use to barter for other goods.

The rejection of Menger based on the fact that credit existed before money is invalid. However, what Innes and Graeber argue is not entirely irrelevant. The story we tell to students and ourselves is oversimplified. We should rewrite our textbook accounts to include the possibility of credit preceding a common medium of exchange and call it inter-temporal barter.

 All this is just so fascinating. These intertemporal IOUs in turn are nothing but forwards. Then one has to think how were these financial instruments priced and so on.

It is a pity that none of this is taught even at a PhD level. Monetary economics has just been reduced to thinking about targets and rules/discretion which are just around a few equations.  One hardly gets a sense of how all these things have evolved. Atleast students should be made aware of these issues/discussions.

If one uses these ideas to figure monetary history of India, one does read about both barter and IOUs existing. What came first is a big puzzle to figure as well.

It is interesting to see how monetary wisdom is being challenged. One another debate was what comes first deposits or credit? So far, we were taught that deposits lead to creation of credit and then the whole thing multiplies to become money supply. Now they say all this is rubbish, Banks always create credit first and then comes deposits.   This changes the entire thinking on money multiplier and so on.

Plenty to think and ponder upon than the usual question of how much the inflation target should be…

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