Rethinking Economics: An Interview with Professor Meir Kohn

On May 12, 2022, President Sunil Krish (TDR) interviewed Dr. Meir Kohn (MK), renowned Economics professor, on his exciting and groundbreaking “Commerce-Predation” Theory. His framework seeks to approach economics through a multidisciplinary and historical lens, which differentiates itself from the standard economic framework, characterized by statistical and graphical analysis. Professor Kohn recently presented his epistemology in conjunction with the Political Economy Project.  

TDR: What is your simplified elevator pitch for Commerce-Predation Theory? Why is it different and why should we care? 

Meir Kohn: Commerce-Predation Theory is a way to rethink economic progress, moving away from standard economics, which simply isn’t very useful for dynamic, multi-variable issues like economic growth or economic progress. I developed the theory by studying economic and political history to find patterns and understand how they worked together. I specifically observed pre-industrial Europe, developing the theorem, and then later testing it on pre-industrial China. 

The main story, and the main difference from standard economic theory, is that there is more to economic activity than merely production. And you can clearly find this if you go back and observe the way people historically earned a living over time. There are two other major economic activities: one is commerce, buying and selling stuff others produce; the other is predation, using force to take resources from others. 

The simplified version of my theory is that economic progress is a result of the interaction between commerce and production, which I call the accelerator. However, the brake is predation. It is what holds economic progress back. Government is historically, and most often, the source of predation, but governments can also play a role in protecting against predation

TDR: What motivated you to look specifically at pre-industrial Europe and China? 

MK: I honestly didn’t start out intending to learn or find what I did. I discovered economic history as a sort of data and evidence for my research. I found that, when writing my textbook on markets and intermediaries, observing financial history told me far more about how the financial system worked and operated than most of what I had learned in the standard economics classroom. I was motivated to follow-up on this history in order to write a better understanding of the financial system based on how it developed from the very beginning. Although I did look at prior evidence, the beginning to me was around the year 1000. To an economist, the really important questions are: So what? What does the financial system actually do? What does it contribute? Why does it matter? You can’t answer those questions until you understand how the economy works and how the financial system fits into it historically. 

One of the biggest factors in how economies function is their type of government, which means one also needs to understand political history. I started with pre-industrial Europe because it seemed like the beginning of these different economic activities. In both Europe and China, I observed their pre-industrial development, moreso with Europe since there’s more material although China’s pre-industrial periods lasted much longer. With Europe, I go from the beginning of the recovery from the Roman collapse, which is around the 10th or 11th century, but with China I go all the way back to the 8th century. 

TDR: And why pre-industrial specifically? 

MK: I chose these pre-industrial economies because they have two major advocates over looking at more recent economies. First of all, they’re much simpler. Assuming that the same basic forces are at work, it’s much more effective to look at a simple example to try and figure out what those basic forces are than to look at a complicated example. Simplicity is very important. Second of all, there is a lot of research and evidence. With Europe, I observe about 500 years of history and, with China, about 1,000 years. Additionally, there is significant variation across countries in Europe, which provides a lot of different evidence to work with, compare, and interpret.  

Commerce and production were completely distinct up until the late 19th century. Either you were operating in one or the other. From the late 19th century onwards, there has been significant merging. For example, if you look at Apple or Walmart, they’re clearly involved in both. Even automobile producers take care of the sale of their products. If we only looked at economic development beginning in the late 19th century, the very basic distinction between these two activities would be lost and much harder to understand. 

TDR: It seems that your process of developing this theory was very organic. Your insight on the merging of commerce and production in the 19th century is quite intriguing. Were there any other important historical events that inspired you to dive deeper into this theory? 

MK: There were certainly important events. Obviously, the Industrial Revolution was very important. To clarify, when I refer to pre-industrial Europe and China, I mean pre-Industrial Revolution. Industry itself far preceded industrialization. 

In political history, there were a variety of events, including the Glorious Revolution of 1688, relevant to understanding government in economics. Many argue that this event was important because it expanded property and other rights, yet, in reality, many of these rights were already established previously or assumed without codification. The standard observations are historically wrong, and as I display in my theory and writing, it can and is explained. 

TDR: That’s actually a great place to start on another theory you challenge, the Great Divergence. Could you provide further insight? 

MK: Well, I’m not the only economist to challenge this theory, derived from the California School of Economic History. This school proposes that the reason Europe raced ahead of its counterparts was a chance stumbling upon resources in the 1800s. However, if you observe China and Europe around 1800, in terms of economic progress, the advanced regions in both were quite comparable in wealth. Economic historians, including myself, don’t see the 1800s as a particularly important watershed moment. In fact, if you look at Chinese economic history, the communist regime was not new in the 20th century—it wasn’t modeled off the Soviet Union. Rather, it is a very old kind of governance in China, coming to the fore under the Qin dynasty. It was known for two things: creating a command economy and suppressing commerce. Similarly, that mode of government hinders economic progress. Most governments did not develop a uniquely command economy but would rather just demand tribute. For example, while the feudal system in Europe was also quite predatory, it often facilitated and promoted commerce, which is critical to accelerating that process. Anyways, the two features, command economy and commerce suppression, never really disappeared in China. It would be strong for a while and kill industry off, then the government would weaken or fragment, and an economy would pop up. Cyclically, the government would reestablish itself. A historical example of this was, in the Tang and Song dynasties, there were periods of rapid economic progress, which came to an end not because of the Mongols, but rather with the reinstatement of national unity under the Ming emperor, who brought back these traditional suppressive functions. He depopulated the cities and sent them back to the farmlands, hindering commerce. In the 20th century, Mao established this function again.

TDR: This example provides a strong stepping stone to another subject. You’re extrapolating how as a predatory government becomes weaker, we see more economic development and commerce. It seems that it’s important to limit the government’s predatory nature. 

MK: But wait, there is a downside, which you can see very well in China. The government is an organization which controls force. You can use it for predation or to protect against predation. In the mid to late Ming Empire, it weakened and the economy was growing nicely, but then came the Taiping Rebellion and foreign invasions. The government was helpless. Weakening government is useful for economic progress, but if you want sustained progress, commerce has to be protected. What you really need is a government that’s both powerful and constrained. That’s a very difficult trick!

TDR: Yes, that seems like a hard trade-off. What would your ideal or close-to-ideal model of government be then?

MK: The best government I have come across is what is called the federal government. I was going to say ‘invented,’ but that’s the wrong term. It happened, first, in the Netherlands in the 17th century.

To preface, there are two types of government: predatory and associational. A predatory government is just a group using force to impose their will on a population or territory and collect tribute from them. It’s not a social contract. They come, they take over, and if you don’t agree, they kill you. It’s very simple. That’s the form of government that China has always had.

Associational government really arose when societies and groups organized themselves to protect against outside attack. The ones that really mattered historically were commercial cities. These cities, originally in the Mediterranean and Near East, were big enough and rich enough that they could afford to actually field a significant army and navy to protect themselves against predatory governments. That’s the good form of government. 

Associational government is created by the population. It’s not imposed on them. There does not have to be a literal written social contract, but the government is consensual at least in that spirit. This form of government is answerable to the people.

That answerability—that governance—works very well when an associational government is small, but it gets worse and worse as the population and territory get larger. We talked about that with corporations. When there’s a single owner or a few owners with big stakes in the company, corporate governance works well. The same is true for associational governments. Why this matters is that, when that happens, associational government tends to turn into predatory government when no one is watching or not watching sufficiently. Scale is a big problem with associational government, but, historically, they’ve needed to scale to protect against predatory governments. 

This was a big conflict, and it was not resolved very well until, by accident, a bunch of associational governments formed into a whole. This was far more than an alliance. They created a federal government, a central government, to which they delegated mainly national defense and foreign policy. And it was in fact the model for the early American Republic. It was what happened in 1688, when England adopted the model, which I call the “associational state.” This has been the most successful political model in history, but it still has problems.

TDR: So you would say that the biggest problem with associational government is when it becomes large?

MK: Well, the owners don’t really control the managers anymore, do they? 

TDR: True. Is the problem of scale inevitable or are there ways to limit government?

MK: I don’t know. You’d have to see. I can’t prove a theorem that it isn’t possible. I can only tell you what I see. 

One of the big problems is obviously that the managers aren’t interested in helping, and by managers, I mean the political class: legislators, officials, all these kinds of people. They will not help you figure out how to control them.

TDR: Because it’s not in their interest?

MK: No. 

What you see today is that small associational states function much better than large ones. The model is Switzerland. The government there is just terrific. There are other good examples: Canada, Australia, New Zealand. However, India—not so much—because the scale makes it very difficult. 

TDR: Moving away from developed countries and developed models, I was also interested in what you were discussing regarding development policy in your lecture. What is the difference between a supplier region and a commercial region? How does a region or country transition from the former to the latter?

MK: This is actually from a book by Jane Jacobs, Cities and the Wealth of Nations. She looks at development very much from the point of view of cities—from the economy of cities. She argues that you should look at development not in terms of countries but in terms of regions. There can be very big differences between regions.

If you look at coastal California and compare it to Appalachia, it’s not very similar. Her belief, her argument is that what determines how a region develops is whether or not either it contains or is within reach of a commercial city. In her theory of economic progress and development—and mine too, quite separately for many more reasons than she talks about—commercial cities are at the center of the process. Commerce and production happen above all in and near commercial cities. They are where the action is.

What you call commercial regions are regions close to a commercial city. They’re where it happens. It can’t get better than that. 

All the most advanced regions that were notable in pre-industrial Europe, the regions with the most advanced agriculture, were the ones around or close to commercial cities, not the ones out in the boonies. Commercial regions are as good as it gets.

If you don’t have a commercial city but you’re in the hinterland, in some broad sense, of a commercial city or several commercial cities, you can still do reasonably well. That’s what Jane Jacobs calls a “supply region.” Various activities will either be outsourced by a commercial city or created in your region by a commercial city. For example, take agriculture in Argentina: in the 20th century, commercial agriculture turned it into one of the more prosperous countries in the world.

The supply region is limited in how far it can go because it doesn’t have the dynamic process going on that commercial cities have. Supply regions are dependent on commercial cities, and if there is a limit on what they can be useful for, they won’t get rich. 

TDR: How do you make the transition? 

MK: Sometimes, it just happens naturally. If you’re a supply region and a big exporter of goods to your commercial city or to commercial cities generally, you therefore must have transportation infrastructure, such as ports or railroads. Commerce will tend to congregate there, at a central place that is easy to get to and with lots of goods to be traded. Also, the foreign merchants who are responsible for making the supply region provide a natural base for a commercial city. That can, if you’re lucky and fortunate and don’t spoil it, develop into a regular commercial city.

For example, look at South Korea and Taiwan. When they started out, they started out basically as supply regions. They were where cheap manufacturing was done for rich countries. But they developed their own commercial cities, like Seoul or Taipei. New stuff is happening here. They don’t depend on us for their ideas. 

Israel is another example. There really was no commercial city in Israel when I lived there, and I left in 1978. But Tel Aviv has become one since then.

The main thing you can do to become a commercial region is to get out of the way of commerce; don’t place obstacles in the way. An example of a failed transition is Mexico. Mexico had a wonderful opportunity with NAFTA to become a major supply region to North America. Then China happened. And Mexico lost it all and couldn’t replace it because they didn’t have a commercial city of their own. Maybe it was too short a period for them to develop a commercial city. They have Mexico City, but it is not the same as a commercial city.

I suspect that the only thing you need to do to become a commercial region is to allow it to happen. It will happen eventually if you don’t prevent it, and the government is the one preventing it by predating and suppressing commerce. 

TDR: Do you have any recommended literature on this topic or any of your own writing?

MK: If you look on my webpage*, there’s a fairly complete early draft of a book I’m writing called Commerce, Predation, and Production. There are also a couple articles I’ve published with the Cato Institute.

*Professor Kohn’s webpage: https://sites.dartmouth.edu/mkohn/