Monday, February 27, 2006

An Athenian Puzzle

The ancient Athenians had a very straightforward approach to the problem of funding government expenditures. If you were one of the richest Athenians, every other year you had to pay for something—sponsor Athens' team at the Olympics, pay all (later part) of the cost of the one of the triremes in the Athenian fleet, or the like.

If you were selected for such a task—called a liturgy—there were two ways of getting out of it. One was to show that you had already been assigned a liturgy for this year or had done one in the previous year. The other was to show that there was another Athenian, richer than you, who had not been assigned a liturgy either this year or last—and who should therefore do yours.

That raised an obvious problem. In a society without an IRS, without accounting, without modern banking and financial records, how do you prove that another Athenian is richer than you are?

I will give one hint to the answer: It was obviously invented, not by an accountant, but by an economist. Possibly a mad economist.


At 4:36 AM, February 27, 2006, Blogger G. Sarigiannidis said...

From the Center of Hellenic Studies at the Harvard University:

antidosis Lit.: 'a giving in exchange'. A man who was nominated to perform a liturgy could avoid this duty if he could name another citizen who was richer and better qualified to perform the task. If the man challenged agreed that he was richer, he had to take over the liturgy; if he claimed to be poorer, then the challenger could insist on an exchange of all their property to test the claim — in which case the challenger would himself perform the liturgy as the new owner of the (putatively) greater estate. This process of exchange was called antidosis. The advantage of the system from the viewpoint of the democracy was that it encouraged the rich to be suspicious of each other, instead of being hostile towards the state; but although we know of several challenges, there is no attested case in which the exchange was completed.

At 1:53 PM, February 27, 2006, Blogger Oeconomides said...

Carmichael (1997): "Public Manificence for Private Benefits: Liturgies in Classical Athens", Economic Inquiry 35(2)

At 1:58 PM, February 28, 2006, Blogger markm said...

A "gift economy" is a social system where the rich are encouraged to show off their wealth and gain status by making large gifts, throwing a huge party, or even by the public destruction of wealth). This is pretty common among primitive tribes, provided that they aren't so primitive that no one can accumulate wealth. Perhaps the Athenian system began as a gift economy, then status-seeking expenditures were wisely channeled into private funding for public goods, and finally as the population grew more sophisticated, voluntary donations became scarcer relative to the wealth being accumulated. So to keep the system going and avoid having to develop a tax-collection bureaucracy, "donations" had to become involuntary.

At 10:02 PM, February 28, 2006, Blogger Russell said...

Interestingly, I've thought that a property tax system could eliminate all assessment overhead. People would assign their own full-market price: that is, the price at which they would be willing to sell their property. They then have to pay taxes on that value. If someone challenged them by putting down 10% of the price, they would have the option of raising their price. If they chose not to, the buyer could pony up the remaining 90% and take overship of the property.

At 5:58 AM, March 01, 2006, Anonymous albatross said...


That would make you overvalue your property, at least if people were aggressively going around challenging it. It's a big hassle to move, and if you're happy with your home and neighborhood, someone would need to pay you more than your home's market value to convince you to go through all the hassle, uproot your kids from a neighborhood and maybe a school they like, etc.

At 6:44 AM, March 01, 2006, Blogger markm said...

Russell: Robert A. Heinlein proposed that in a story, long ago, with one difference that partly addresses Albatrosses' point. You could refuse an offer to buy at the self-assessed value by raising your valuation and then paying the difference in back taxes for three years.

I think that would still build in some pressure for over-assessment. Market value does vary depending on how much the owner wants to sell. So I would require a "forced-sale" offer to be at least 20% over the self-assessed value.

There is also the issue that an owner with time on his hands could raise his assessment just $1 at a time and drag the process out forever. So the minimum bump upwards when a forced-sale was in prospect would be to match the offered price. One could go higher, and might need to - because I would also limit the number of times one could bump the assessment up in a year. With these provisions, this might also be a free-market substitute for eminent domain.

At 4:49 PM, March 02, 2006, Blogger John T. Kennedy said...

You guys realize you're cheerfully talking about optimizing extortion, right?

At 12:12 AM, March 03, 2006, Anonymous Bryan Eastin said...

Prior to having looked at any of the replies my mad economist solution was to force an exchange of property if two citizens disagreed on their relative wealth. I presume this is the right answer since the first poster gives it a name and talks about its history.

Still, I see three possible problems with this approach. First, in a society with no paper trail it seems to me that wealth might be hidden to prevent it from being exchanged. Second, I would expect perceived rather than actual wealth to be the primary determinant of whether you are challenged. Third, it seems prone to financial games of chicken in cases where both you and I value our own property more than the other's; we both stand to lose if an exchange goes through, the bill is paid by whoever pulls out first.

At 12:53 AM, March 03, 2006, Blogger David Friedman said...

Bryan correctly describes the solution--as have several other people, who already knew the answer and so did not have to figure it out. He also raises several legitimate problems with it. There is a reason I suggested that it might have been invented by a mad economist.

Note, however, that if each party values his own property more, and the exchange goes through, they can always trade back later.

At 12:56 AM, March 03, 2006, Blogger David Friedman said...

Mark, I think, confuses gift economies with the potlach system of the Pacific North-west Indians. In the gift economies I am familiar with, gifting is not limited to the rich. And it involves at least an implicit exchange.

"No man is so wealthy that he objects to receiving a gift in exchange for his gift."

(Havamal, Norse, c. 9th century)

His speculation is, however, interesting. As is the question of why gift economies exist—which may relate to one of the earlier posts in this blog, on the Christmas present problem.

At 6:15 AM, March 03, 2006, Blogger markm said...

David, I was trying to keep it simple so I didn't get into the differences between potlatches and gift economies.

Thinking more about such systems, I got back to the question of what people do when they build wealth beyond what is needed to keep them comfortable. The next thing after being well-fed and housed here and now is being well-fed and housed in the future. In a stable and well-developed capitalist society, you may buy insurance and invest your extra money. Without those, there are no guarantees - a fire in the factory or a ship going down could bankrupt anyone. So maybe the best choice was to spend the money on making friends or on being publicly known as a beneficent donor, so if you came to be in need later, people would be inclined to help you.

At 6:12 PM, March 03, 2006, Anonymous Bryan Eastin said...

Markm, I find your last suggestion regarding the origin of gift economies intriguing. Let me describe an anecdote.

I am a graduate student with an expensive chronic illness. The last time I went to the hospital it maxed out my insurance and generated a bill exceeding my yearly income by nearly an order of magnitude. Because of this disparity, the state of New Mexico (my home) forgave my medical debt. This puts me in an interesting situation.

I know that in the future I am likely to suffer a similar misfortune. Moreover, no hoard of money I might accrue will mean anything in the face of such a disaster. (In my case it might actually hurt me by disqualifying me from the program that saved me last time.) Were this not the case my conscience would probably force me to do something useful with my money, like invest it, but my situation renders such strategies unreliable at best.

What I actually find myself doing after having met my needs is giving (on my scale expensive) gifts to my family and friends. Generally what I think when blowing money in this way is, "After all, what am I going to do with it?", but it's interesting to consider it in light of gift economies as a kind of primitive insurance. Then it becomes a way of saving for a rainy day in the form of the good will of others. Thinking of it as such I must say, it feels a lot more satisfying than hoarding away money.

At 2:44 PM, March 05, 2006, Anonymous Steve Foerster said...


I'm genuinely sorry to hear of your ill health. However, please feel free to let me know if you are interested in adding to your list of friends. :D


At 12:04 AM, March 07, 2006, Blogger Milhouse said...

Adam Smith wrote something similar in The Wealth of Nations. He noted that in older times there was nothing in England to spend wealth on, so people had large staffs decked in fancy livery, threw lavish banquets, and were generally generous with their wealth, since goodwill and renown was all they could buy with it. Once international trade made luxury goods available, people started spending their excess wealth on those, and stopped being so generous.

At 9:55 PM, March 07, 2006, Blogger David Friedman said...

Re Milhouse on Smith:

I don't think Smith's point was limited to England. The argument was that feudal nobles had limited opportunities to spend their income, and so used it to feed retainers, since having lots of hangers on made them feel important. That gave them an inexpensive army, which resulted in feudalism.

Increased trade and division of labor meant the nobles could spend their money on diamond shoe buckles instead. The people who they were employing were no longer present and loyal, hence not available to fight for them, so feudalism became absolute monarchy.

I long ago proposed an empirical test of the theory. Shoe buckles are more expensive relative to retainers if your lands produce bread and beer, which can be fed to retainers, than if they produce wine and wool and linen, which are mostly exported. So food producing regions should have retained feudalism longer than regions largely producing export goods.

At 5:31 AM, August 10, 2006, Blogger zoiprof said...

Mr. Sarigiannidis writes, "The advantage of the system from the viewpoint of the democracy was that it encouraged the rich to be suspicious of each other, instead of being hostile towards the state;"

Why he considers something an advantage that makes citizens suspicious of each other and NOT the state needs some explaining.


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