6. How did Joseph and his Eleven Brothers Solve the Three Economic Problems?
Custom and Command in the Ancient World
Throughout human history, societies have had to solve three economic problems. The first is to ensure that enough goods are produced. The second is that enough of the right goods are produced. The third is that these things are distributed fairly to everyone. The first two are problems of production and the third is a problem of distribution.
How did societies in the distant past solve the problems of production and distribution? John Hicks, in A Theory of Economic History, proposes three ways humans have done so.1 The first is through custom (sometimes also known as tradition). Imagine a San hunter-gatherer or Nguni farmer: the decision about what to produce and how to distribute that production was almost entirely determined by beliefs or customs that had been handed down from generation to generation. Tasks and occupations, titles and hierarchies were inherited. If you were a Batswana kgosi (chief), it was very likely you were also the son of a kgosi. The same was true of distribution: there were set customs according to which a successful gemsbok kill by a San hunter would be distributed among the rest of the family and clan.2 The tributes that a Batswana herder would have to pay the chief were shared in a similar fashion. Even today elements of the custom approach live on in almost all societies: the children of doctors, for example, often follow in their parents’ footsteps.
The custom approach means that production and distribution are organised in the same way they always have been. For most of human history, this was how we organised our societies: we did just the same things our elders did, and they did just the same thing their elders had done, and so on. It was a static solution to the two economic problems of production and distribution, but it ensured our survival for a long time.
Yet the custom approach came with a heavy cost: there was almost no progress. If we believed the same thing our elders did and followed the same routines they did, then there was no reason to innovate and improve things. Parents were happy if their children survived into adulthood and could achieve the same standard of living as they themselves had. There was no sense of building a better life for one’s children.
To change things required another solution to the three problems: command. As we have seen from Chapter 4, by the fourth millennium BCE, societies became sufficiently complex to justify a steep hierarchy of power and position. Consider the pharaohs of ancient Egypt: they had the power to command their people to build monuments such as the Great Sphinx of Giza. This was surely not tradition at work; it was, rather, a ruler – in this case, pharaoh Khafre – who gave orders to produce and distribute things in a new way.
The great advantage of the command approach is its ability to force economic change. Later in this book we will discuss at least two modern societies that have explicitly opted to solve the problems of production and distribution in this way (in Chapter 23 we will encounter Stalinist Russia; and in Chapter 25, Mao’s China). But these societies are not unique: almost any modern economy has some element of command, such as a monarchy or parliament that makes decisions about how tax revenues must be spent. Command is especially useful in times of crisis – such as when natural disasters, wars or pandemics occur – to ensure that production and distribution are maintained.
The command approach may be attractive to spur change, but it has one major weakness: it removes personal freedom. Once a pharaoh dictated that a pyramid should be built, the workers – in the ancient world, they were often slaves – had no choice in the matter. Various forms of forced labour, including slavery, corvée systems and feudal labour relations, had been used in almost all parts of the world, from ancient Greece, Egypt and Rome to several Islamic and Asian empires, from pre-Colombian civilizations to plantation economies in Latin America and the U.S. South, from feudal agricultural in Europe to precolonial and colonial African states. For most of human history, what work you do, what you earn, where you live, and often even what you read and who you are allowed to socialise with was not up to you. In fact, for many, this is still true today; the ILO estimates that, in 2022, there are still an estimated 28 million people in forced labour arrangements, most of whom live in authoritarian regimes. Command comes at the great cost of personal economic freedom.
The third way to solve the problems of production and distribution is the market approach. Here, everyone does as he or she pleases – there is no custom or command that dictates what one must do. The production and distribution processes are, instead, entirely determined by the consumers in society, who in turn react to and determine the movement of prices. As winter approaches and more umbrellas are needed, it is not up to the king or custom to produce more umbrellas; it is producers who react to the price mechanism. The more consumers who want umbrellas, the greater the demand. And the greater the demand, the higher the price. And the higher the price, the greater the incentive for producers to make more umbrellas. Voila!
It sounds extraordinarily simple, but the market approach hinges on a fundamental truth. It requires that the fibres of society be strong: a market system can only succeed where there is trust. The fact that I can walk into a shop and purchase an umbrella from a stranger with little pieces of paper (or, nowadays, an electronic card or even a few clicks on my mobile phone) is only possible because of our trust in the system. Today, most societies solve many of their production and distribution problems through the market approach.
The study of economics is mostly concerned with why the market approach has been so successful in solving the three economic problems. Yet it is only recently that the market approach has become the preferred solution. For most of human history, custom and command were largely the ways in which the problems of production and distribution were solved. In hunter-gatherer groups or Neolithic farming communities, custom was the preferred approach. And in the more complex ancient civilisations of the Sumerians, Egyptians, Chinese, Indians, Greeks, Mesoamericans, Romans and many more, the command approach was central to production and distribution, despite the fact that all of these societies also used prices to exchange goods.
In fact, it is best not to see these three approaches as absolutes. They are more like the corners of a triangle. Sometimes societies are more likely to be in the custom corner, with little command or market activity. At other times, when a powerful leader emerges, these societies might gravitate towards the command approach. And at other times again, perhaps when there is a new technological or institutional innovation, that same society might move more towards the market approach.
What determines these gravitational pulls in one or the other direction? The historian Steven Marks provides a fascinating answer: it is access to information.3 In The Information Nexus, Marks explains that the profit motive has existed since ancient times. But the ability of farmers to trade had always been limited by their poor access to information. There simply were no quick and reliable communication and transport networks that would allow them to get their produce to market, or allow traders the opportunity for arbitrage – buying low in one place to sell high in another. But as technology improved – the wheel, the printing press, the computer – so did our access to information, and our ability to interact and exchange. Sometimes information was monopolised by the government, which meant greater command and control. But in other times, at least over the last several hundred years, new systems, institutions and technologies have democratised information, pushing us towards the market approach.
The Hebrew Bible is a somewhat surprising way to illustrate how the lack of information constrained a market approach. Genesis 37 tells the story of Joseph and his eleven brothers. Joseph was born in 1562 BCE, the eleventh son of Jacob, who lived in Canaan, or what is roughly modern-day Israel. He was especially loved by his father, and his brothers became jealous of him. While they were herding sheep one day, they sold Joseph for twenty pieces of silver to a caravan of Ishmaelite traders. The traders took Joseph to Egypt, where he was sold to Potiphar, the captain of the pharaoh’s guard. Potiphar’s wife, though, tried to seduce Joseph and he was then put in prison.
There he correctly interpreted the dreams of the pharaoh’s butler and baker, and two years later, after the pharaoh had strange dreams himself, he was summoned to interpret those too. He predicted seven years of abundance and seven years of famine. The pharaoh believed him and put him in charge of gathering and storing all the surplus grain from across Egypt during the first seven years, in anticipation of the years of famine. When the seven years of famine came, just as Joseph had predicted, Egypt was the only place that had food.
Joseph’s remarkable story reveals much of the economy of the ancient world. Clearly, there were long-distance traders – evidence of some market activity. But the rest of Joseph’s story is full of custom and command. All his brothers were farmers, just like their father. The pharaoh commanded him to build storage facilities; it was certainly not a forward-thinking, profit-maximising investor that did so.
Canaan and Egypt, much like all the other ancient civilisations, were predominantly agricultural societies ruled by autocrats – societies that relied predominantly on a combination of custom and command. Trade in the market was, at best, a peripheral activity. This would only begin to change after new innovations and institutions in towns and cities lowered the costs of information and incentivised market-oriented solutions to the three economic problems. Why agriculture remained such an important part of the economy for so long will be the subject of the next chapter.
John Hicks, A Theory of Economic History (London: Oxford University Press, 1969)↩︎
This example is borrowed from Robert Heilbroner’s bestselling classic (still highly recommended) The Worldly Philosophers.↩︎
S. G. Marks, The Information Nexus: Global Capitalism from the Renaissance to the Present (Cambridge: Cambridge University Press, 2016).↩︎