Monday, April 21, 2014

Picketty and Rentier Dynasties

Thomas Picketty in his Capital in the Twenty-First Century seems to be arguing that if the real return on capital is greater than the real growth in the whole economy, then capital's share of the economy will inevitably rise.

I don't see how that follows. It would be true if all the owners of capital were all crazed misers that never spent any of the income from their capital and reinvested everything for the benefit of their future selves. But they aren't.

In fact, Picketty suggests a more sophisticated model. If the generations of a rentier dynasty love their offspring like they love themselves and care nothing about anyone else, they will save just enough to keep their income growing at the same rate as the general economy, and consume the rest.

However, this results in capital's share of the economy staying static rather than growing.

But! The wealthy don't always care only about their own heirs. Warren Buffet and Bill Gates are only the latest examples of philanthropists who concluded that there were some people who needed their money more than their children did. For an earlier example, see Andrew Carnegie.

Also, even when a benefactor decides to pass his estate entirely to his heirs, you have the issue of multiplying heirs.  An estate of $1 billion could easily by divided among 10 heirs two generations later.

Also, dynastic fortunes can go downhill quickly if something bad happens to the founder's industry and the heirs can't diversify quickly. Looking at the gilded age robber barons, you see a lot of fortunes built on railroads, steel and coal. Not industries that have done well since then. But, for example, the Vanderbilts couldn't just dump all their shares in the New York Central to diversify: not only would this depress  the value of their shares, but a controlling interest was worth more to them than a minority stake.

Tyler Cowen reviews Picketty here.  He raises good points.

Wednesday, April 16, 2014

The Puzzle of Federal Land in the West: Cui Bono?

The recent standoff between the scofflaw deadbeat rancher Cliven Bundy and the Bureau of Land Management over the question of whether he should graze his cattle on Federal land for free because, well because, highlights an interesting question: why does the Federal Government own so much land in the west?

The obvious simple answer is that the Federal Government is grinding the states beneath its iron heel. But obvious answers are often wrong. Congress gets to decide what happens to Federal land, and the states most affected are relatively low population states with disproportionate power in the Senate. We need a better answer.

We need to step back and look at ranchers like Bundy. Before 1936, they could graze on what became BLM land for free. The more public land, the better, for them.

By 1936, the ranchers had noticed that with everyone using the free Federal rangeland on a first-come-first-served basis, the land was overgrazed, so the best solution for the ranchers was to negotiate finite grazing rights, with grazing fees set at the lowest possible level. This was adopted.

From 1916 to 1976, it was possible to homestead 640 acres of grazing land if the homesteader made modest improvements of $1.25 an acre. Demand for these homesteads was depressed by free Federal forage before 1936 and below-market federal grazing fees after.

There have been repeated attempts to bring Federal grazing fees closer to market rates for similar private land, without success.  Rates are a bit closer to market than ludicrously low fees of the 1930s, but far below what they would bring on a competitive market. Grazing lease prices set by other Federal and state agencies by competitive bidding or other market based methods were almost always higher, and often by quite a lot.

So. Who benefits from the current status quo of the Federal Government owning so much western land and leasing at current rates? Western ranchers.

John Hinderaker gives the game away a bit:
Over the last two or three decades, the Bureau has squeezed the ranchers in southern Nevada by limiting the acres on which their cattle can graze, reducing the number of cattle that can be on federal land, and charging grazing fees for the ever-diminishing privilege.
But charging grazing fees is nothing new, and in fact the current, per-head fees for BLM land are lower than in 1981.

The rancher complaint then seems to be that that the Federal government is offering fewer leases at the subsidized rates that ranchers understandably prefer. The western ranchers, while flying the banner of rugged individualism, are addicted to the implicit subsidy of underpriced Federal leases.

But they feel squeezed because fewer of the underpriced and implicitly subsidized leases are available.

It's a variation on the complaint that the food is terrible and also the portions are too small.

I feel some sympathy for ranchers who bought private land in the last few decades, since by then the ability to exploit nearby underpriced Federal grazing leases was built into the price demanded by previous owners. Who then walked away with their gains.

Families that got in cheap in 1871 and have been milking the system ever since? Not so much.

Thursday, April 10, 2014

Medieval Return to Capital

From 1150-1350 English land returned about 10% of the purchase price each year in rent. After the plague, from 1350-1600 real returns were about 6%. Rented land was a relatively safe and easily managed investment. Other investments required a higher rate of return: the London orphan's court charged 10% interest for commercial loans to merchants with sound security. Building rents would also be higher because of depreciation.

Thrupp, Sylvia L. 1976. The merchant class of medieval London, 1300-1500. [Ann Arbor, Mich.]: University of Michigan Press. p. 107

Sunday, April 06, 2014

Prisoners and Booty from Agincourt

The related chronicles of Monstrelet, Le Fèvre, and Waurin claim that the English took 1,500 or 1,600 French prisoners at Agincourt, but like most medieval chroniclers their large numbers are unreliable. The St. Albans Chronicle has what I consider the most reliable count: a bit over 700 prisoners, and the dead numbering three dukes, five counts, the constable of France, the seneschal of Hainault, the master of the crossbowmen of the king of France, almost a hundred other lords, and 3,069 knights and squires, a number so exact that it may be an actual count. Berry Herald counted the dead at 4,000 knights and squires and 500-600 "other men of war". The English count would have missed French dead dragged away in the night after the battle by local peasantry or stripped by them and thus unrecognizable as persons of rank. The disproportionate number of gentle dead is understandable when we remember that the other ranks had by all accounts moved to the rear of the formations before they came to hand strokes, and, less heavily burdened, would have had a better chance of getting away once the fight was lost.

That's a lot of prisoners and booty: roughly one prisoner for every man-at-arms in the English army, and the kit of two dead or captured French men-at-arms for every three fighting men in the English army, archers included.

Beyond the gear that those they killed or captured, what else would they have looted? Gesta Henrici Quinti reports that the French abandoned "their wagons and other baggage carts, many of these loaded with provisions and missiles, spears and bows." Conspicuously absent is any mention of the valuables that must have been in the French tents at the start of the battle.

Once it was clear that the day was theirs the English first concern would have been to secure their prisoners before advancing to the French camp behind the rearguard. There would have been time for servants to throw the most valuable items into saddlebags. The French would have abandoned the wagons so some of them could escape on the draft horses.

The English took more booty than they could bear away.  King Henry ordered that the men could only keep armor sufficient for their bodies: the rest was to be heaped in a barn or house and the building burned.  For the 3/4 of the army that marched on foot there must have been a painful struggle between greed and exhaustion.

Saturday, April 05, 2014

After Agincourt

The king of England lodged in the castle of Guînes and his battalion in the town, but the great multitude of his men at arms and archers moved on towards Calais, extremely tired and exhausted, encumbered by booty and prisoners, save for the French dukes, counts and barons of high rank whom the king of England kept with him. But when those men at arms men arrived outside Calais tired and weary, and where they hoped to gain refreshment, they were refused entry, which was very hard on them. Many had spent eight days with hardly any bread, and they had been able to find scarcely any other victuals. You may imagine that the prisoners, most of whom were wounded, were suffering greatly. All wanted to find comfort in Calais, but they failed in that.
They refused to let them enter, save for some of the great lords. The governors of the town, which lay on the frontier, did this so that the victuals would not fail come what may.  So all of the men at arms and archers, starving and heavily burdened and troubled with baggage and prisoners, remained outside, very discontented, so that many sold some of their gear and prisoners to those of the town so that they could get money immediately to cross the sea, and they did not care so long as they could go to England. There were many who put their prisoners to a courteous ransom and who received them on their faith and on that day agreed to four nobles for one who was worth ten, and they did not count the cost of bread as long as they could have it to eat. The king of England who was at Guînes heard what privation and suffering his men were experiencing and he made provision as soon as he could.

Wavrin, Jehan de, William Hardy, and Edward L. C. P. Hardy. 1864. Recueil des croniques et anchiennes istories de la Grant Bretaigne, a present nomme Engleterre. London: Longman, Green, Longman, Roberts, and Green; [etc.]. Voll. 2, pp 20-221 Translation copyright Will McLean: 2014.

The army reached Guines the evening of October 28, and pressed on to Calais while the king remained at Guines overnight, entering Calais October 29 to great rejoicing. By November 2, the village of Falkenham in Suffolk had been sent orders to immediately send victuals to Calais "as it is well known that (the king) is now at Calais in person with his army." There are many points closer to Calais on the Channel coast of England than Falkenham, but this order has survived.

Henry was committed to remain at Calais until November 11 to receive his prisoners from Harfleur,  and left for England on November 16. The individual retinues would have returned as soon as they could arranged for shipping, but it would have taken some time for all of them to do so.

Henry later ruled that the expedition lasted until eight days after he landed at Dover on November 16 and all returning men would be paid for service until then, suggesting that that some of the surviving retinues took that long to return to England.

It must have been a nice economic problem for the captains trying to return home from Calais. The shipowners would charge dearly for the scarce space on the earliest ships, but the captains would pay dearly for food for each additional day in Calais. And if they had insufficient cash on hand, how much of a discount should they accept for their ransoms and plunder for early passage?

Barker, Juliet R. V. 2006. Agincourt Henry V and the battle that made England. New York, NY: Little, Brown and Co. pp 323-328 and notes.

Curry, Anne. 2000. The battle of Agincourt: sources and interpretations. Woodbridge, Suffolk, UK: Boydell Press. p. 429