What explains the glory that was Greece? Actually, sound economic policy

Editor’s Note: When interviewing a Greek economist at the foot of the Acropolis a few years ago, we were heckled by a young anarchist.

“We should get a dollar every time you use a Greek word in your language!” he shouted. (When I invited him to make his case on camera, he angrily shook his head, and thinking we might be recording the exchange anyway, menaced the cameraman with his bicycle.)

Oh, those Greeks, I thought; great at art, great at thinking, great at theater, but what a bunch of economic losers. And when a local union boss granted a good-natured interview in which he derided the American love of what Charles Dickens once dubbed “the almighty dollar,” I was further convinced of Greece’s economic hopelessness.

“When I speak to my friends or relatives in the United States,” Vasilis Polymeropoulous said, “they’re always talking about how much money, how many dollars, how many houses does he own; it’s a sickness. They’re always taking about how much this or that person is worth, $100,000 or $300,000. And ultimately it’s not important because at the end of the day, however many houses that you own, you’re going to end up in the same place, a meter and half under the ground.”

So philosophical. It reminded me of the attitude toward making money jotted down by a Greek named Plato 2,400 or so years ago:

“The great multitude of men are of a clear contrary temper: what they desire they desire out of all measure; when they have the option of making a reasonable profit, they prefer to make an exorbitant one. This is why all classes of retailers, businessmen, tavern keepers, are so unpopular and under so severe a social stigma.”

And how about Plato’s most famous student, Aristotle?

“That which consists in exchange is justly censured,” wrote the man long referred to as “The Philosopher,” “for it is unnatural, and a mode by which men gain from one another.”

When considering Greece’s current economic woes, then, is the problem simply a national bred-in-the-bond antipathy to commerce?

I have long suspected as much, but in a new book, “The Rise and Fall of Classical Greece,” Stanford University scholar Josiah Ober emphatically says “No!” In fact, he explains the glory that was Greece because of its embrace of what Aristotle called (at least in translation) “exchange.”

We asked Professor Ober to summarize his case for Making Sen$e. Here it is.

Paul Solman, Economics Correspondent

Lord Byron summed up the rise and fall of classical Greece in his epic poem of 1812:

Fair Greece! sad relic of departed worth!
Immortal, though no more! though fallen, great!

By sharply contrasting the fortunes of ancient and modern Greece, Byron’s couplet poses two questions that have long puzzled historians: Where and how did the ancient Greeks gain the wealth with which to build a culture that became central to the modern world? If Greece had once been prosperous, why was it no longer?

In the early 21st century, as a chronically weak Greek economy immiserates millions and threatens the financial stability of Europe, those questions remain salient. They can now be answered. As we can now show, the ancient Greek cultural accomplishment was underpinned by robust and sustained economic growth made possible in turn by a distinctive approach to politics.

In a spirited diatribe against the habit of dividing world history into dichotomous eras of premodern stagnation and modern growth, the historical sociologist Jack Goldstone pointed out that a number of premodern societies have experienced periods of efflorescence — increased economic growth accompanied by a sharp uptick in cultural achievement. Efflorescence is impermanent by definition, but some are more dramatic and longer lasting than others.

The Greek efflorescence that reached a high peak around 300 B.C.E. lasted several hundred years. Figure 1 , based on evidence presented in my book, illustrates “core” Greek efflorescence (measured by population times consumption) from the Late Bronze Age to the dawn of the 20th century. Because, by my definition, core Greece is limited to the territory controlled by the Greek state in the late 19th century, the graph understates the total population of the wider Greek world at the peak of the classical efflorescence by a factor of about three — so the chart captures only part of the rise and subsequent fall. But the main implication is clear enough: It was not until the 20th century that the number of people living in the Greek core and their material welfare returned to levels comparable to those achieved some 2,300 years before.

Figure 1. Development index, core Greece, 1300 B.C.E. – 1900 C.E.

Notes: Development index multiplies population estimate (in millions) x median per capita consumption estimate (in multiples of bare subsistence). Population and consumption estimates are broken out in Figure 4.3. Data for these estimates are discussed in chapters 2 and 4. Core Greece = The territory controlled by the Greek state in 1881-1912. LBA = Late Bronze Age. EIA = Early Iron Age. EH = Early Hellenistic. LH = late Hellenistic. ER = Early Roman. LR = Late Roman. EB = Early Byzantine. MB = Middle Byzantine. EO = Early Ottoman. LO = Late Ottoman. Ind = Independent Greek State.

This graph shows changes in economic development in Greece (measured as population in millions times consumption) from the Late Bronze Age through the early 20th century. Letters along the top represent eras in time. LBA = Late Bronze Age. EIA = Early Iron Age. EH = Early Hellenistic. LH = late Hellenistic. ER = Early Roman. LR = Late Roman. EB = Early Byzantine. MB = Middle Byzantine. EO = Early Ottoman. LO = Late Ottoman. Ind = Independent Greek State.

The ancient Greek efflorescence was exceptional in premodern world history for its duration, intensity and long-term impact on world culture. It took place in a social ecology of hundreds of city-states. While wealth and incomes remained unequal in those communities — there were many slaves in the most prosperous of the Greek states — a substantial part of the Greek population experienced prosperity. The growth of the Greek economy was driven by an extensive middle class, by many people who consumed goods and services at a level far above subsistence.

Today, we can answer questions about Greece that have long remained mysterious, because we have more data. After generations of exploration and reconstruction by historians and archaeologists, there is an unrivaled historical record for the Greek world in the first millennium B.C.E. That detailed record has been organized by the monumental Inventory of Archaic and Classical Greek Poleis and compiled under the direction of the preeminent Danish historian, Mogens Hansen. Coded and entered on spreadsheets, the inventory’s data made it possible to employ the sharp analytical tools of contemporary social science to explain Greek economic development. We can now measure the classical Greek efflorescence, and explain how political institutions and culture enabled the Greek world to rise from humble beginnings and why the great states of Greece fell to a predatory empire.

By the later fourth century B.C.E., when Aristotle was writing his masterpiece on Politics, there were about 1,100 Greek city-states, or poleis. They stretched from outposts in Spain and France through southern Italy and Sicily to the shores of the Black Sea and western Anatolia and south to eastern and southern outposts in Syria and North Africa. The total population of Hellas — that is, the residents of small states that were substantially Greek in language and culture — was in excess of 8 million; about a third of them lived in “urban” areas (towns of more than 5,000 people). They inhabited relatively large and well-built houses, lived relatively long lives and produced and consumed very substantial quantities of high quality goods.

Among the central questions raised by ancient Greek history is how and why such an extensive small-state system persisted in such a flourishing condition for such a long time. In an inversion of the experience of Europe from 1500 to 1900 or China from circa 700 to 200 B.C.E., where systems of small state fell to the centralizing logics of state-building and empire, there were many more independent states in the Greek ecology by at the height of the classical efflorescence than there had been several hundred years previously. Moreover, many of them were organized as democracies.

Why, during the era of efflorescence, did the many states of Hellas not consolidate into a unitary empire, on the model of Persia, Carthage or Rome? Or, failing that, into several large competitor states on the model of ancient Phoenicia, Warring States China or Europe circa 1500 to 1900? Ancient Greek history points to an alternative to the dominant narrative of political and economic development, which, based primarily on the history of early modern Europe, calls for first (and necessarily) the big, centralized, and autocratic state, and only then (sometimes) democracy and wealth.

The key to unlocking the puzzling success of the Greek city-state ecology is economic specialization and exchange. Specialization was based on developing and exploiting a local advantage, relative to other producers, in the production of some valued good or service. Costs of transactions remained low enough to make exchanges mutually beneficial. So goods — such as olive oil or fine pottery — produced by local specialists and the services of experts — such as mercenary soldiers or poets — were distributed through networks of exchange across a large and diverse ecology of states.

The ancient Greeks understood the powerful role that specialization and market exchange can play in promoting economic growth, as well as the core principles of relative advantage (how a specific region or individual can produce certain products at a lower cost than their competitors) and rational cooperation (why individuals have self-interested reasons to coordinate their efforts). Individual Greek states developed specialties based on natural resource endowments relative to other poleis. The Aegean island-state of Paros focused on the fine white marble found there, while the cities of southern Italy and Sicily focused on its favorable wheat-growing conditions. Other poleis developed advantages by perfecting industrial processes, as Athens did with its manufacturing of painted vases and warships. Competition and conflict among poleis served to sharpen the recognition that it was necessary to exploit comparative advantages. The Greeks also recognized the value of lowering transaction costs, which encouraged open access and inter-state cooperation.

The upshot of the cycle of competition, specialization and cooperation in creating conditions for mutually beneficial exchange was a high premium on innovation and entrepreneurship. Innovation in turn drove a dynamic that Joseph Schumpeter famously described as “creative destruction”: Advances in artistic and productive techniques drove out earlier techniques; new institutions marginalized traditional forms of social organization; poleis that exploited relative advantages absorbed their less innovative rivals, while new poleis were continuously being created on the ever-expanding frontiers of Hellas.

The products of local specialization were readily distributed within poleis, across the extensive small-state ecology and then beyond the Greek world through increasingly dense networks. Local markets grew into regional markets, and some poleis succeeded in creating major inter-state emporia where goods from across the Mediterranean and Black Sea worlds could be bought and sold. Experts in various arts and crafts migrated to new homes and established new centers of specialized production.

Meanwhile, the costs of transactions were driven down by continuous institutional innovations, notably by the development and rapid spread of silver coinage as a reliable exchange medium; the dissemination of common standards for weights and measures; the creation of market regulations and officials to enforce them; and increasingly sophisticated systems of law and legal mechanisms for dispute resolution.

Competition and conflict between poleis and between the Greeks and their non-Greek neighbors temporarily disrupted local networks of exchange. But those disruptions only served to motivate poleis and individuals to seek out new markets for their goods and services, to deepen and broaden their exchange networks and to develop cooperative solutions whereby conflict could be reduced or at least rendered less disruptive.

Specialization in the production of goods as well as the exchange of goods and services produced by specialists are common features of complex societies. To explain the efflorescence of Hellas, we need to answer why and how specialization and exchange achieve such high levels and how they became so strongly intertwined with continuous innovation and creative destruction — thereby driving a sustained level of economic growth that proved high enough to overcome the costs of conflict among many small states.

Greek economic growth was driven by a set of political institutions and a civic culture that are historically rare. (Indeed, at the time of their emergence in Hellas, those institutions and that culture were probably unique.) The political institutions found in many citizen-centered Greek states — but especially in democratic states and most especially in democratic Athens — put specialization and innovation on overdrive, by encouraging individuals to take more rational risks and develop more distinctive skills. People willingly invested in their own education and took the risks of entrepreneurship because they knew that they had legal recourse if and when a powerful individual or corrupt official tried to steal their profits.

Today, we typically think of such protections as “rights.” The Greeks did not have a fully modern conception of what we know today as universal human rights. But they did develop a strong tradition of civic rights — immunities against arbitrary action by powerful individuals or government agents. These immunities guaranteed each citizen the security of his body against assault, the security of his dignity against humiliation and the security of his property against confiscation. It is important to remember that many residents of a polis were not citizens, and so they were not full participants in the regime of immunity and security. And yet, in some of the most highly developed poleis, these immunities were extended to at least some non-citizens.

Citizens collectively held the authority to make new institutional rules, and as a result, they were more likely to trust the rules under which they lived to be basically fair. Judgments, by citizens who were empowered (by vote or lottery) to settle disputes and to distribute public goods, were made on the basis of established and impartial rules, rather than on the basis of patronage or personal favoritism. With these guarantees in place and successful innovation well rewarded, individuals had strong incentives to invest in their own special talents, to defer short-term payoffs and to accept a certain level of risk in anticipation of long-term rewards. The end result was a historically unusual level of sustained economic growth and an equally unusual rate of sustained cultural productivity and innovation.

The historically distinctive Greek approach to citizenship and political order was the key differentiator that made the Greek efflorescence distinctive in premodern history. It drove specialization and continuous innovation through the establishment of civic rights, aligned the interests of a large class of people who ruled and were ruled over in turn and encouraged the free exchange of information. The emergence of a new approach to politics is what propelled Hellas to the heights of accomplishment celebrated by Lord Byron.

The dynamic process of creative destruction, driven by specialization and knowledge-based innovation, was central in the rise of the Greek world. It was also a key factor in the conquest of core Greece by imperial Macedon in the later fourth century, and in the subsequent conquest of the whole of the Greek world by imperial Rome in the second century B.C.E. The fall of most of the great Greek city-states from their dominant position in Mediterranean affairs was precipitated, at least in part, by the successful adaptation of Greek innovations by Greece’s neighbors.

Among the most notable products of Greek specialization were new forms of expertise, notably in warfare and in state finance. While developed within a civic context to further the purposes of Greek city-states as civic communities, military and financial expertise proved to be readily exportable. Relevant forms of expertise migrated across the borders between poleis — but also outside the classical world of the poleis to emerging states at the frontiers of the Greek world. Macedon was the most successful of those emerging states.

King Philip II of Macedon and his son Alexander the Great conjoined Greek expertise in finance and warfare with ethno-nationalism and rich natural resource endowments. The result was the emergence of state capacity that was unequalled in the prior history of the Mediterranean world: In the course of a generation Macedon conquered not only the poleis of mainland Greece, but also the vast Persian Empire. Romans later proved spectacularly adept at borrowing expertise and technology from its neighbors, including the Greeks, and putting those elements together into a military and administrative system that enabled them to govern a vast empire.

Although full independence of most major Greek states was ended by the Macedonian and Roman conquests, the Greek economic and cultural efflorescence continued into the post-classical era. While the Hellenistic kings often acted as predatory warlords, the well-fortified and democratic Greek poleis were hard targets. The kings allowed considerable independence to the city-states and taxed them at moderate rates. Democracy became even more prevalent, public building boomed and science and culture were codified and advanced. The perpetuation of efflorescence in the Hellenistic era made possible the “immortality” of Greek culture. The material conditions of non-elite Greeks and the population of core Greece declined after the consolidation of the Roman imperial order and fell precipitously after the collapse of the Roman Empire. But by then Greek culture had been codified and was so widely dispersed that enough of it survived for Lord Byron to admire — and for us to explain what made it possible.