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8. STATE AND ECONOMY IN ANCIENT EGYPT
David Warburton

Humanity underwent three critical economic revolutions: the Neolithic agricultural revolution, the urban revolution and the industrial revolution. Although taking millennia, the Neolithic revolution was short by comparison with all previous developments in human history, and once it had taken hold, human life across the face of the earth had been changed so radically that one might be tempted to say that nothing similar has ever happened. The urban revolution which followed was dependent upon the sedentary form of life made possible by agriculture, and closely tied to state formation, and it in turn led to the creation of wealth incomparable to anything previously seen. It too has a claim to singularity. By comparison, the capitalist industrial revolution is a mere refinement of the trading habits which made the first cities preeminent.'

Prior to the industrial revolution, the study of economics was rudimentary and elementary principles were not consciously understood. Those studying the early period have had to overcome many difficulties before examining the period from an economic standpoint. States were undoubtedly economically significant in the early period, and the nature of the documentation preserved has tended to underline this. Scholars have tended to assume that the documentation reflects the ancient relationships, yet it does not necessarily follow that the public sector of ancient Near Eastern states was all-encompassing.

State formation accompanied the early urban revolution, but the role of the state in these developments is not well understood. Fiscal policy reflects state intervention in the economy, and may serve as a useful guide. It is argued here that ancient Egyptian fiscal policy did not involve enslaving the population to the service of the state, or signify merely an onerous system of corvee labor, but rather that the tax system and the construction of monumental architecture contributed significantly to the creation of wealth, employment, and economic growdi, both private and public. Using Egyptian sources, Keynes' General Theory is employed to illustrate this.

Introducing Egyptian economics

While Egyptologists see scraps of papyrus as the most valuable objects in the world, evidence indicates that in New Kingdom Egypt a generous roll of papyrus

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cost about the same as a pair of ordinary sandals. In contrast to sandals, however, it does not appear to have been abundant. This implies either that sandals were expensive or papyrus cheap. Asserting that papyrus was cheap and yet scarce , would suggest that demand and supply did not affect prices in the way we would expect them to. One of the leading experts on the economy - who explicitly denied that demand and supply influenced prices - asserted that papyrus was cheap but then concluded that it must have been abundant, unconsciously applying the law of supply and demand. Against the evidence, another denied that it was cheap, simply based on the assumption that since papyrus was reused - and thus obviously in demand it must have been scarce and therefore that it must have been expensive. This indicates the degree to which unreflective conclusions have hitherto dominated the prevailing interpretations of the ancient Egyptian economy.

It is more profitable to explore what is known, which suggests that papyrus was at once scarce and cheap, which superficially appears to defy modern economics. In studying the ancient Egyptian economy, our object is alien to the Egyptian way of thought, since the Egyptians probably never realized that they had an economy, let alone tried to understand it. Understanding the economy is however of fundamental interest both intrinsically and because our unconscious economic thinking influences our interpretions, as evidenced above.

The father of the neoclassical synthesis, Marshall, maintained that economics studies the production and distribution of goods in an economy dominated by scarcity. Though not as important today, scarcity of goods was the primary feature of human experience since the emergence of the first hominids, and economic history is dominated by the fashion in which goods were distributed in any given society.

The largest and most important single economic entity in ancient Egypt was probably the state, and thus an examination of the fiscal policy - which represents state sponsored economic activity - may prove illuminating. Exploration of the demand which created resources in ancient Egypt is the central point of the present discussion. This reflects the fact that state activity is documented, but this state activity implies the existence of a private sector from which the surplus was acquired: it was not all produced as part of a command-economy.

Egyptian fiscal policy was based on: (1) grain (collected as 'taxes' or 'rent' and paid out as 'wages' or 'rations'), harvested on both (a) large plots belonging to king, the temples, the government and individuals and (b) small holdings; (2) governmental acquisition of labor and/or goods; and (3) exchange between private producers and official emissaries. We have no idea about the proportion of GNP consumed by government expenditures and income, nor the total GNP, so a sectoral breakdown is impossible.

The best documented of the state departments are the temples, but equally relevant is the picture of the countryside, with its hierarchical distribution of responsibility based upon exactions from the villages. While craftsmen were obliged to render services to the temples, it would appear that peasants were

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universally susceptible to corvee obligations, aside from the duty to render grain from their fields.

Most of our statistical information concerning wages and prices is drawn from the lives of the craftsmen civil servants at Deir el-Medineh who excavated and decorated the New Kingdom royal tombs Janssen 1975). The materials from that village indicate a village mentality, although the residents were civil servants. The system of pricing was based on generally prevailing price levels, which is typical of peasant societies, where there is little room for real discussion. Prices were defined by the conventional rules of the economically rational market mechanism, either capitalist or precapitalist.

Economically, the distinction between the two worlds is one of scale rather than intent: the market always decides the prices, based on the principles of marginal utility analysis and other factors. In a modern economy, supply, demand and production costs as well as marketing strategies influence prices far more than they did - or could have - in ancient Egypt, yet the modern economic theory of price as reflecting the disutility of labor is the only appropriate system which can account for all varieties of price behavior in ancient Egypt and in the modern world. Disutility of labor merely implies that, for the purchaser, the price is equivalent to the toil and trouble of acquiring an object. The seller concludes that the price is sufficient to justify parting with an object. In the modern economy, time and competition affect the degree to which prices vary, while these factors may have been less significant in ancient Egypt where ordinary prices may not have been subject to much more than psychological pressures, and information about costs may have been either non-existent or difficult to acquire. These factors alone inhibit competition by discouraging entry into markets which are unfamiliar.

The craftsmen at Deir el-Medineh free-lanced and farmed in their free time, but officially they were civil servants paid by the state. It has been widely assumed that one key to understanding the economic system of ancient Egypt was the redistribution system, by means of which the workers in Deir el-Medineh were paid. The evidence indicates however that the state had considerable difficulties making regular wage payments to these civil servants, although they (1) are the only documented state employees paid on a regular long-term basis and (2) rarely numbered more than one hundred individuals.

It can thus be suggested that the principle of the system was basically the acquisition of the surplus, and that redistribution was generally carried out on an inefficient ad hoc basis. The private sector produced, people kept a portion of their production for themselves, and rendered a portion of their surplus or then-labor time to the state authorities. The relative proportions cannot be clearly estimated, but acquisition is far better documented than redistribution. Avarice in acquiring objects and labor to ornament monuments - and to remunerate workers building them - generated the income. 'Redistribution' has been used to characterize ancient economies, and while the circulation of income as wages or as offerings at festivals did play a role, the term is misleading, as (1) it has a different ring than 'circulation,' and (2) it fails to grasp the essential economic significance of the origin of the surplus.

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This surplus was created by taxation. Approaches emphasizing redistribution fail to recognize the fact that state intervention in the economy can hardly be attached to the inefficient system of expenditure, while neglecting the characteristic exactions: taxation. Just as there is a vast difference between the production of goods for the market with a view to making profits, and merely making profits by trading, there is a difference between creating wealth through taxation and acquiring wealth that already exists, although this can also be done through taxation. In ancient Egypt, it would appear that the government created wealth through taxation.

Markets

Before turning to the role of the government, it is worth noting the degree to which trading played its hitherto underestimated role in the economy. In ancient Egypt, it was absolutely essential that one's name be inscribed in all the proper spells and in all the proper places if one was to survive into eternity. The existence of Books of the Dead in which names were not filled out, and funerary figurines on which names are equally missing compels us to believe that there was production which was not intended for specific clients, i.e., production for the market. We also know that workers were remunerated for work for private individuals building tombs for themselves, and that they vvere paid in bread and beer, and obliged to go to the market to acquire by exchange the other articles they desired. State-employed workers also received 'rations' or 'wages.' Revenues collected in kind from fields and marshes across Egypt were turned over to the employees of the state: grain, fish, dates, firewood, pottery, etc. But even regularly employed civil servants pursued free-lance trading, and they likewise turned to the market for those things they did not receive from the state. Others may have been attached to state institutions, but acquired additional income from private trading. On the other hand, state sponsored trading missions exploited this market to circulate goods which the state had acquired, but did not require, exchanging them for goods which the state did not acquire through taxation. Individuals, civil servants and the state all participated in this market.

In the absence of a clearly defined market in which objects could be manufactured on the assumption that they would be purchased, entrepreneurial activity would be primarily oriented toward trade rather than production. As was illustrated with the seemingly anomalous price of papyrus, the inability to analyze production costs could explain some aspects of price formation. In this formative era, it was impossible to estimate the value of any given good or of labor. If traders acted on the principle of making a profit through the acquisition and sale of objects, or through hoarding in order to release products onto the market when they were scarce, this implies that they understood the effects of supply and demand, and that they would necessarily risk attracting the universal hatred of mankind as a result.

The significance of the market remains unclear, for the state appears to have been widely involved in market activities. State market activity probably did not

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however impinge on the private market so much as provide a large safety-net behind it, based on the assumption that with the financial and technological means available at the time, scarcity of goods prevailed but was accompanied by a scarcity of the financial means necessary to acquire more, so that the level of competition was restricted, and thus state intervention generally positive and not injurious to the private sector.

The ancient Egyptian economy cou'd be classified a kind of nascent capitalism, for we have wage-labor, a market for land, production for the market, and state involvement. There is no evidence of rational accounting in the earliest periods or of an organized credit system, but peculiarly, banking does not appear to be regarded as an essential feature of capitalism. A case could be made for the existence of middlemen trading for a profit, but these would appear to have been primarily traders from coastal Mediterranean cities, and their relative importance in the overall economy cannot be gauged, although the quantity of wood being imported into ancient Egypt and used in private coffins indicates that they were hardly completely marginal. The following interpretation of the Egyptian economy assumes that the macroeconomic role of the Egyptian state was an essential element of a complex mixed economy, with the state generating significant economic activity.

Agriculture and the State

It is difficult to imagine prosperous rural estates existing (1) outside the security of a state system and (2) without access to trading patterns permitting them to meet wants. Rural prosperity is thus tied to urban development, and the landed aristocracy had a real interest in the political apparatus of the state which could assure security and protect merchants purveying desired products. The evidence from Egypt could be interpreted to support this origin of the state, but the evidence is not as compelling as the logic.

In ancient Egypt, it is clear that prestige did not derive from wealth but from position in the bureaucracy. Although there is no indication that wealth was necessarily derived from participation in the bureaucracy, wealth could lead to the acquisition of prestige through participation. This ability of society to gather in the capable meant that there was a constant stream of the human resources at the service of the state.

It was the job of the landowner/bureaucrat to assure the surplus agricultural production, while simultaneously reducing the number of individuals working the land. Peasants had to increase output to produce the difference. At the same time that the burdens of the peasants were increasing, the opportunities and motivation to leave the land to seek work as craftsmen and bureaucrats was increasing.

In parts of the modern third world, prices for agricultural products are kept low so as to permit an impoverished underemployed urban population to purchase foodstuffs. Low prices reduce the production incentives in agricultural areas, and production stagnates. Underemployment in both urban and rural areas rises, and

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foreign imports rise, so that the essential elements for stagnation are there. If demand for production is reduced to the minimum level, savings are reduced to nil, and investment fails to take place. The result is agricultural inefficiency and poverty on a vast scale.

Hobbes assumed that a government guaranteeing security was the lacking element, while in feudal China it was not the lack of authority, but the inefficiency of the system of myopic exploitation that prevented development. It is occasionally suggested that either the amount of arable land or a labor shortage were serious problems in antiquity, but the mere existence of monumental public buildings demonstrates that labor was available and that there was sufficient grain (and therefore land) available in order to maintain a population commensurate with major projects.

Parallel to the growth of state construction projects in ancient Egypt, there is a clear tendency for increased prosperity in all strata of society. Once state investment programs started to lag, the level of wealth in the country as a whole was not immediately extinguished, but merely dropped. These conditions suggest that the state investment program triggered economic growth rather than either (1) sapping it with exhaustive taxation or (2) dominating it completely.

Keynes

One key to understanding the system is demand. John Maynard Keynes pointed out that in a pure laissez.-fa.ire economy, in the event of a decline in demand, investment and production would sink to a level of poverty where savings would be reduced to zero, precisely the situation described by Hobbes, so that while the state is one theoretical actor in the equation, demand must be another. If the market alone is unable to correct the situation, intervention is necessary, and only the state has the power to intervene, transcending the individual microeconomic problems of the economy as a whole.

Despite all the constraints, ancient Egypt, a technologically primitive society, developed an economy sufficiently sophisticated to produce literary, philosophical, artistic and architectural wonders which still command the attention of the world. Assuming that the temples and the government were the primary factors in increasing demand in ancient Egypt, these powers will have exercised an extraordinary influence on the economy. The theoretical aspect of state intervention in an economy in order to stimulate, and thus increase, demand was carefully studied by Keynes, who showed that state intervention could call into existence demand which was hitherto not present, in order to shift the economy to a higher level of equilibrium and prosperity (Keynes 1936).

Many aspects of the Egyptian economy can be elucidated using the Keynesian approach, which enhances understanding by investigating the principle of demand. Keynes himself put it quite simply:

Ancient Egypt was doubly fortunate, and doubtless owed to this its fabled wealth, in that it possessed two activities, namely pyramid building as well as

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the search for precious metals, the fruits of which, since they could not serve the needs of man by being consumed, did not stale with abundance .. . Two pyramids ... are twice as good as one. (Keynes 1936:131)

This passage terminates the chapter on the 'Marginal Propensity to Consume,' discussing the difficulties of increasing demand, as there are very few products for which the demand curve is infinitely elastic. Consumption is dependent upon abstaining from investment, and thus requires liquidity. Increased consumption increases demand, which increases aggregate demand in an expanding economy, but creates competition between sectors in a stable or diminishing economy. Aggregate demand can only be increased in elastically if both liquidity and consumption are permitted to increase with competition for scarce resources excluded. On the one hand, liquidity is usually unable to sustain indefinite demand stimulation, and demand itself is usually insufficient because it flags. According to Keynes this unusual constellation was the key to growth, rather than investment as such. Put simply, an infinitely elastic demand curve is one where demand is unlimited. Normally, any product that can be consumed reaches a saturation point on the market, and demand flags, with the result that the price falls, and production and employment stagnate. Keynes thus drew upon the example of pyramid construction to illustrate the principle that if something is absolutely useless, and yet infinitely desirable, demand for it will not slacken, meaning that investment and employment will continue to increase.

In the modern capitalistic world, those investing in such products would inevitably distort the interest rate structure such that their production would continue to flourish, while other sectors declined, until a new equilibrium was reached. Keynes's theory of price formation was based not only on supply and demand, but also interest rates, so that price stability would be virtually unattainable with fluctuating interest and wage rates, which are the necessary repercussions of the massive concentration of investment and demand in one part of the market. In the modern world, state intervention would have the same - or even worse -consequences as the state is responsible for the currency as well as fiscal policy. State-financed demand would either result in (a) inflation, (b) distortion of the interest rate structure, or (c) excessive taxation. Each of these would necessarily have a negative impact on the overall economic structure, so that driving away the unemployment problem would merely create other acute difficulties. In the General Theory, Keynes was particularly concerned that interest can suppress demand for investment and thus the whole series of demand curves, and thus threatens to maintain a low level equilibrium unless demand can be stimulated in another way, demand being the key to increasing prosperity and employment. 'Aggregate effective demand,' the 'propensity to consume,' and the 'marginal efficiency of capital' are the decisive factors which could potentially leave an economy at an equilibrium of absolute poverty. The primary difficulty as Keynes perceived it, was to stimulate demand, while balancing off the various evils, in order to achieve an equilibrium at a higher level of prosperity.

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Keynes was confronted with the depression and the inability of the capitalist system to rescue itself, as it must automatically do according to the premises of the laissez-faire economists who assumed that equilibrium with lower unemployment' would be achieved by lowering wage rates. The neoclassical synthesis did not take account of the fact that mankind had lived for millennia with a high proportion of involuntary unemployment, and that this was the normal equilibrium. Keynes pointed out that aggregate demand would not increase by lowering wages, as effective demand had more or less peaked in any case. Thus, knocking down wage rates would not increase employment if demand was flagging, for liquidity would not be increased, and therefore effective demand would stagnate.2 The only result would be a devastating macroeconomic blow at the economy, as poverty and unemployment spread. If effective demand did not rise, neither would investment, and the economic situation would continue to be bleak (as it had been for millennia). It was thus only by external stimulation that the economy could be spurred on to a higher level. It is the 'marginal efficiency of capital' (by which the interest rate structure is meant) which thus determines the level of prosperity. If interest rates sink to zero, 'the position of equilibrium, under conditions of laissez-faire, will be one in which employment is low enough and the standard of living sufficiently miserable to bring savings to zero' (Keynes 1936:217-18).

It should be clear that the construction of pyramids, tombs and temples was an absolutely ideal method of increasing demand. In an agricultural economy, without external stimulus, production will equal consumption, with a high level of unemployment or underemployment, as overproduction would not result in an increase in consumption. Thus there is no incentive to produce above the necessary minimum. The price structure and investment possibilities virtually assure this. In ancient Egygt, the land itself could practically guarantee that a minimum of labor input would produce the maximum consumption level, so that demand would not increase without artificial stimulus.

In the agricultural sector the state provided the artificial stimulus by (1) obliging the farmers to overproduce, by means of fiscal measures; (2) subsidizing a class of craftsmen employed in temple and tomb construction and maintenance, thus withdrawing this class from significant agricultural production; (3) paying laborers on major construction projects from the surplus withdrawn from the farmers; and (4) creating a bureaucracy which also required maintenance. These measures guaranteed that demand was stimulated far beyond the subsistence minimum, and encouraged circulation of the agricultural surplus, as well as other goods.

If demand stimulus explains the success of the Egyptian economy via redistribution, this contradicts claims that the constraints were either arable land or labor. It is generally agreed that the state redistribution system collected grain (and other products) from one part of the community and turned them over to another. This was possible as grain production promised incredible yields. Since the labor input was the weak variable here, the only way to increase secondary and tertiary employment was to drastically reduce agricultural underemployment, increase the overall level of employment for individuals, take people off the land, employ

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them in the construction and service sectors, and maximize agricultural production with heavy rent and taxes.

Removing people from agricultural production forced those who were left to produce more per capita than before in order to pay those employed in other sectors. The investment increases employment producing temples, tombs, boats, etc.

Inflation, interest and money

The fact that the measures employed for increasing production were fiscal in nature guaranteed that state investment would not have a negative impact on private investment, because the interest rate structure was not affected, signifying that there was no competition between the state and private sectors for scarce

means. The private sector was thus left untouched by the fiscal (and opposed to) monetary solution of the problem.

In fact, however, the monetary solution (using inflation or interest rates) was excluded from the outse* by the fact that Egypt neither had a currency, nor an all-pervasive system of interest rates. Money is assumed to possess three basic attributes, as (1) a unit of value, (2) a store of value, and (3) an exchange value. In ancient Egypt, the copper deben (a weight of 91 grammes) was a unit of value and evidently a store of value, but it was not normally employed in transactions, and thus failed to meet all three criteria. The khar (a sack of roughly 75 litres capacity) of grain was used both as a unit of value and a unit of exchange, but storing grain is not a realistic method of keeping one's savings, so that it likewise fails to meet all three criteria.3 Beds and other articles could be used for exchange purposes, and perhaps as stores of value, but they could not be regarded as units of value. In any case, there was no government controlled money or currency which could be used as a tool of monetary policy,4 and thus the monetary inflationary alternative was not available.

Hypothetically, the economic significance of (1) removing workers from the land, (2) increasing the grain tax burden for the remaining farmers, and (3) paying the craftsmen and laborers with the same grain, amounts to the creation of a self-financing credit scheme since the grain that is being spent by the government would not have been available with a lower level of taxation. This taxation is therefore wealth creation, rather than the equivalent of skimming off an already existing surplus. Increasing grain production was thus inflationary, but so long as (1) the excess production could be absorbed by diverting state employment into non-agricultural sectors and (2) the resulting 'inflation' did not damage private sector entrepreneurial investment, the situation was one in which inflation played a positive rather than negative role. The existence of a grain market indicates that the state did not meet the requirements of all residents. This is crucial for the Keynesian theory as inflation in capitalist economies can have an extremely detrimental impact on both employment and investment by rendering certain industrial undertakings uneconomic. In ancient Egypt, overproduction was the equivalent of national-debt in the modern world as it increased demand. The state never ran the risk of financial bankruptcy, so overproduction was beneficial.

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It is advantageous for a growing economy to have sticky wages, i.e., wages which remain stable or rising while prices rise or fall. If wages were not in money they might not remain stable in money terms, but if grain demand stays high and constant, while wages are paid in grain, taxes collected in grain, and grain serves as a medium of exchange, the threat of negative economic repercussions is avoided. It is only through increasing effective demand through high wages or income that the private sector can contribute to the economic growth stimulated by the government, as income can be absorbed through production leading to transactions and the generation and accumulation of wealth.

So long as the state was collecting grain, increasing demand was a more or less automatic process, and that demand had a positive effect on employment. The same was true on the investment side, as the employment in the temples, etc. increased both aggregate employment, and aggregate income, without taxing the capital markets, and without inflation. Without a currency, the danger of inflation was avoided, since inflation occurs when government consumption exceeds government income - and the whole basis of the program was to maximize state income. Thus, many of the basic elements of the Egyptian economy are logically ideal forms of implementing a cyclical development which would spur demand and employment, underlining the relevance of the Keynesian theory for understanding the process.

Money and investment

Of the properties of money enumerated by Keynes, the only significant aspect which did not necessarily correspond to the Egyptian reality was the condition of zero elasticity of supply as far as the private sector was concerned, in so far as private farming could conceivably have increased the supply. The failure of the state to maintain its construction projects, with the consequent decline in the collection of revenues, led to an overall decline in the economy, as the private sector was unable to actually make up for the lack in demand. This implies that grain could arguably be held to be money, and confirms that the high level of equilibrium was dependent on state intervention.

Another feature of money that has attracted a great deal of attention is the price stability of ancient Egypt. Prices changed very little over hundreds or perhaps even a thousand years. If the price of an object is considered to be merely an expression of the 'disutility of labor,' and traditional prices are the ones to which one is accustomed in a market with a limited degree of latitude in supply and demand, then price changes need not be expected. But Keynes made not only wage rates, but also interest rates a key feature in his price theory, and therefore the lack of interest in playing a key role in the economy could likewise explain the lack of price fluctuations.

Another key feature that arises from this logic is the fact that prices did not fluctuate despite enormous changes in the supply of precious metals, both between the Old Kingdom and the New Kingdom, and through the course of the New Kingdom. These variations were not reflected in prices, which indicate that

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the grain standard was indeed the true measure of economic activity, and that this economic activity can best be understood in terms of Keynesian theory.

The lack of a money or currency eliminated the possibility that interest rates could have a detrimental impact on investment and thus production. Investment curves in the capitalistic world are determined by interest, as the expectation of profit must exceed the anticipated interest rate, otherwise investment subsides until the interest rate has fallen. If the interest rate is zero, investment will also be zero, unless artificially stimulated. The fact that there may have been agriculturally related interest rates had the opposite effect, and was precisely the same as the state's role in skimming off agricultural production, as the exaction of interest for grain resulted in the incentive to produce more grain than was necessary for consumption. These private sector interest rates will thus (1) not have had a negative impact on the economy, actually spurring it on, and (2) the conflict between the state and the private sectors for scarce resources will have been reduced to a minimum (see Figure 8.1).

Aside from industrial investment, land ownership is one of the most enticing means of investing excess capital. The state may have been one of the major land owners in ancient Egypt, but it did not hold the greatest part of the land, and this did not seem to have increased demand for private land to the extent that the price was driven upwards. The price of land in ancient Egypt was comparatively low. This meant that capital investment would not be directed to the mere possession of land, but to using the land for productive purposes, i.e., increasing the grain supply, and thus being able to maintain a large household.

Egypt was thus basically on the grain standard, and this particular commodity was the basis on which the entire economy flourished. It was the grain which was used to pay the workers who built the monuments of the land, and by withdrawing labor from the agricultural sector, demand was actually increased, along with employment (see Figure 8.2).

Private tombs were build with private means, suggesting that the private and state sectors complemented each other. The state was also purchasing part of

Figure 8.1 Unstimulated low investment in subsistence economy.

Note. Without growth, investment stagnates at a minimum level: an equilibrium at the poverty line. It is possible to have economic activity and even the production of luxury goods in such an economy, but prosperity is not widespread.

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Figure 8.2 The simplified Keynesian theory applied to ancient Egypt.

Note. Investment (I) is stagnant at the subsistence level, with income stable over time. The level of investment is such that no significant changes can be achieved without substantial changes in the demand structure, i.e. artificial stimulation. This is accomplished by government artificially raising demand for grain (taxes), which is immethately paid out in wages and rations, i.e. demand (D) = investment (I), until private demand likewise increases as a result of stimulation (through new government investment (!'); creating new stimulated demand curve (D'). It is noted that with private investment, demand has risen considerably, but it is dependent upon the state investment (I') without which it falls to a little way above previously existing level because it is dependent upon the increased level of state demand. (This graph presumes that during the First Intermethate Period right end of graph general prosperity dropped across the country, which does not suggest that the new equilibrium eliminated wealth or the distribution of prestige goods.)

its necessities from the private sector. Some state employees spent part of their time in outside work. The economy was thus clearly mixed. Although the state probably took the lion's share of the surplus, the result cannot have been invidious to the private sector, as otherwise there would not have been so many private stele and tombs made on private contract by private craftsmen for private people. The entire economic system was thus oriented towards consumption and investment, as the potentially negative influence of interest rates and savings were effectively negated, and the 'propensity to consume' given free rein. It was merely the state fiscal system which guaranteed an equilibrium at a high level of prosperity for all.

The ideal feature of temple and tomb construction is that the demand is infinitely elastic: one can always make a larger tomb or temple, one can always employ more priests, encourage additional services, and all this without negatively effecting the rest of the economy. The state did not hamper individuals in their own investments.

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An historical perspective

Theory enables us to analyze situations, compare, and distinguish the significant from the apparent. Viewing Mesopotamia, ziggurats appear to be comparable to pyramids, and thus it is tempting to equate the two systems. In Mesopotamia, however, interest rates and trade played significant roles. Price fluctuations are reflected in the documentation, and when the economy faltered, not only were tax exemptions proposed, but we also find the cancellation of debts.

In Egypt, the decline of the economy was accompanied by tax breaks, suggesting a weakening of the system, and yet the entire economy did not falter uniformly It is clear that the masses of construction workers employed on major projects would 'go home,' but small-scale craftsmen could continue to ply their trades. The amount of grain in circulation (from the state to the workers to the market) will have fallen as the investment program slackened. Famine may have been a temporary result of the drop in state supported activity, but subsistence levels will have inevitably been maintained. The key feature is not the overall grain production, but the division of labor resulting from the state investment program. It is thus logical to view things in this perspective when Kemp suggests that:

Any economic system that we propose for ancient Egypt has to be able to account for the apparently successful adjustments which local communities made to changes of different magnitudes within a relatively crude state system of economic direction. (Kemp 1989:240)

In view of the Keynesian theory, the economic costs in construction did not lead to the decline in the economy It was the interruption of major construction projects that led to decline. Kemp (1983:176-7) has also pointed out that the decline in royal construction projects accompanied the decline in private undertakings, confirming that state economic activity was unable to increase general levels such that private sector demand was sufficient to release the capacities of the private sector to take responsibility for demand stimulation. Heick indicated that precisely this development took place at the end of the Old Kingdom:

This led to a completely new development in Egypt, as the bureaucratic regimentation of the population dissolves . .. Free craftsmen appear who sell their labor. Supply and demand appear in place of the planned system of labor. The power of the bureaucracy is broken . .. The planned economy is replaced by the market economy in a few areas by certain very limited groups. (Heick 1975:106, my translation)

Heick misunderstood that the collapse of the economy led to the craftsmen seeking work. The prevailing assumptions concerning the economy and the state have hitherto suggested that the private commercial sector was insignificant, and

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that private ownership of land was seriously restricted if it existed at all. These assumptions are not supported by evidence.

Private ownership of land was widespread from the earliest times, and private craftsmen were active before the advent of history. The state sector contributed substantially to an increase in the quality and quantity of craftsmen, and to the proportion of workers receiving rations and wages who were obliged to turn to the market to meet their non-wage requirements. This seems in turn to have spurred on the market in two ways. On the one hand, the generally prevailing level of prosperity rose with larger numbers of transactions increasing the circulation of the grain, and therefore the velocity of money. On the other hand, the state was actively involved in market trading, along with those bureaucrats trading in their own interests.

The economy began to suffer as the state reduced demand towards the end of the Old Kingdom. The dissolution of the state effected the aggregate demand structure. The key factor in the major pyramid projects of Dynasty IV was not the employment of craftsmen, but of laborers, and it was here that the economic repercussions of the demand crisis became manifest. The principle of infinitely elastic demand can explain the entire system. Whether expanding or contracting, government expenditures did not impinge on the private economy because it had a completely different base, meaning that the stimulation did not have a negative impact, as implied by Kemp's remark about the competition between private and royal tomb construction. Despite a certain limited private prosperity, and potentially production, there can be little doubt that the private economy was not up to the task of replacing royal demand. The craftsmen continued to find employment, but the toiling masses reverted to underemployment as investment declined and the economy reverted to the equilibrium at the level of poverty.

It would appear that during the first two millennia of Egyptian history, i.e. until around 1000 BC,"-fh'temples were not economically independent, but relied completely on the largesse of the ruling king for their enlargement. With the exception of crops and animals, the king seems to have held virtually all of the productive investments under his control - from mining to construction. The temples apparently maintained sufficient resources to maintain their services, but relied on the king to increase their resources. This implies not only that weakened kings might suffer diminished resources, but also that the temples were administratively unprepared to assume the role played by the king in increasing demand. Although the temples were not economically significant during the Old Kingdom, this bureaucratic obstacle may have ultimately led to the collapse of the Egyptian state at the end of the New Kingdom, because demand for grain and the management of land was neglected as the kingship weakened.

This reveals the role of demand - as opposed to redistribution - in economic stimulation, and Kemp only errs in suggesting that the finite nature of the agricultural surplus was the obstacle, as this was not the problem. The millions of cubic metres of stone involved in construction projects initiated by Cheops and Snofru indicate beyond doubt that the grain which fed Rome almost three millennia later was equivalent to the resources available, and thus that only demand was

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lacking. The erection of tombs in provincial areas at the end of the Old Kingdom meant that demand was present, and that the transport of grain to the center was not necessary, and yet the economy faltered because of declining state economic activity, as the private sector could not collect the revenues, i.e. stimulate demand on the same scale.

Conclusion

Payments made to the crown and the temples can be listed under the rubrics of 'corvee labor,' 'taxes,' 'administrative fees,' 'rents,' and 'trading income' (which need not necessarily be 'profit'), and the cumulative effect of all these various types of income was to spur surplus production and place it at the disposal of a powerful bureaucracy which used it for investment projects, such as temple, tomb and palace construction. This was an artificial increase in demand, which removed workers from the agricultural sector, pushing on the development of the division of labor, increasing overall employment, and spurring demand by increasing aggregate income, and thus aggregate expenditure and investment.

These seemingly simple Keynesian measures were combined in a setting which corresponded to Keynesian theory, in so far as

1 inflation was avoided by the absence of a currency which could be debased:

2 the grain standard meant that income resulted in immediate expenditure, which inevitably involved employment, and the marginalization of non-subsistence related employment; so that

3 demand was restricted only by the capacity of the state to limit it, and thus contributed to secondary and tertiary employment; while

4 interest rates failed to impede investment because of their irrelevance to the overall economy, and increasing investment and income did not negatively affect either overall investment or the interest rate structure; since

5 the possession of agricultural properties did not signify unproductive investment for prestige reasons, but actually increased income directly by

6 generating private sector employment, which benefited from state aid to training; and

7 guaranteed that the private sector could take up some slack when state demand flagged.

The most important element of the construction of temples and palaces and tombs was that demand was effectively 'infinitely elastic,' implying that this demand stimulation measure did not have an adverse effect on other economic sectors, the construction could contract, although, if state contraction was related to demand contraction, the economy suffered.

The whole system worked because Egypt was basically a closed economy, but the increased income did permit the stimulation of imports, and generated considerable wealth as far away as South Arabia, without hindering the development

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of local industry, as the greatest pan of the local demand stimulation was spent on temples and palaces. The result was that jobs were not exported, although it was possible to spend surplus income abroad, which increased local agricultural employment, and prosperity That the state investment policy failed to have a negative impact on the distribution of resources meant that the private sector could flourish, as far as demand would allow, which was generally at a higher level than any other country until well into the second millennium AD.

This would explain the tendency for expensive tombs and temples during periods of decline, and the presence of wealth in cemeteries of the intermediate periods, and provide the model requested by Kemp, accounting for the economy in a comprehensive fashion.

Notes

1 Additional support for these arguments may be found in my State and Economy in Ancient Egypt: Fiscal Vocabulary of the New Kingdom.

2 Say's law dictated that demand would rise to meet any supply, hence equilibrium was inevitable. The economics community failed to realize that Say's law required placing financial power in the hands of those seeking to acquire, and that it would only then be possible to establish a new equilibrium at a higher level.

3 It could be contended that grain was the equivalent of money, for the wealthy could afford to maintain large well-insulated silos, and the poor had few resources anyway so that the rodent problem in Egypt should not be taken so seriously For the purposes of the Kevnesian interpretation of the economy, setting grain as a true equivalent to monev is not an obstacle, but actually a corollary of the argument, so that the contention that money did not exist in Egypt is intended more as a realistic appraisal of the situation than a dogmatic statement of position. Inflation through the grain standard is impossible, and increased production will only lead to economic growth and prosperity.

4 The supply of precious metals cannot have fulfilled the same investment and income roles as grain. Thus -precious metals may have performed all of the utility roles demanded of money, but they could not be employed to alter grain production, which was the basic source of wealth.

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