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Thursday, November 29, 2012


Shah Jahan's Stationary Banditry


In this article, John Kay attempts to draw conclusions about the Mogul empire based on observations from his recent visit to India. According to Kay, Shah Jahan "may have appropriated as much as 40 per cent of what we now call gross domestic product to support a lifestyle of exceptional ostentation and self-indulgence." He makes this statement after explaining how he was in awe after seeing the extravagant Taj Mahal and the other vast expenditures of Shah Jahan and his son, "who was exasperated by his father’s penchant for monumental building, anxious to maximise his own share of the loot and concerned by the scale of the levies on the population."

The actions of Jahan and his son, according to Kay, "epitomize rent-seeking." However, what Kay calls rent-seeking, I (and Olson) would call banditry, and a failure at that (if one accepts that a successful bandit leaves conditions favorable to his heir). As Olson would suggest, a stationary bandit collecting even close to 40% of GDP would surely lead himself to his own demise, as it did with Jahan and his son. I don't know much of the details of the Mogul empire, but I would guess that Jahan the first was successfully overthrown because the citizens saw reduced incentives to produce, which lowers the standard of living. History shows that if people are not satisfied with the standard of living their government fosters, the regime will eventually change. Although Jahan was overthrown by his son, I would guess that the people of India at the time were more tolerant of this change than they would be had Jahan I not taken so much. 

The second half of Kay's post is completely consistent with Olson's ideas in Rise and Decline regarding widespread rent seeking.  He even acknowledges the problem in the US, "The US demonstrates an unhealthy affinity between politicians and leaders of finance and business, facilitated by lobbyists and lubricated with campaign finance."

However, he got it wrong in one of his final statements, "The success of market economies is not achieved by policies that encourage people to be greedy and imposing as few restrictions as possible on what the greediest of them do. That was the world of Shah Jahan and it produced very little in the way of economic advance." I agree that public policies should prevent people from being greedy when it comes to their demand for rent or force (what that statement seems to be talking about), but the conditions in India at the time did not allow the Shah to rent-seek. He was government, and therefore the source of rent. A successful bandit leaves his society with enough resources to be productive, so he can have a continuous growing source of capital himself. As Kay stated, the Mogul empire ended after only two generations, which to me suggests that they were taking far too much to effectively maintain their force. 

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