By Elaine Kub
DTN Contributing Analyst
Writing started about 3,500 years ago, and we have the agricultural economy to thank for that. On hard-baked clay tablets, humankind's first writers carved little writing symbols, called cuneiform, and the very earliest examples of this writing depicted sheaves of barley and heads of cattle. In effect, the oldest cuneiform tablets we've found, the oldest writing we know, were grain contracts! They were basically just like the grain contracts being written today between thousands of farmers and their local elevators, recording who sold how much grain to whom at what price, etc. Do you remember your sixth-grade teacher telling you about the Code of Hammurabi? It was the law code, written in cuneiform, by an ancient Mesopotamian king who considered it the duty of government to protect the weak from the strong and to further the well-being of mankind. He was the one who wrote rules such as, "If a man put out the eye of another man, his eye shall be put out," and "If he break another man's bone, his bone shall be broken." After this year's Nobel Prize for economics went to two professors who have studied contract theory for several decades, I spent some time researching how contract theory is involved in grain marketing, and some of the most fascinating case studies come from that Code of Hammurabi. I counted them up, and 84 of the 282 laws (30%) deal with agriculture, or the financing, merchandising, shipping, and insuring of agricultural products. (That doesn't include all the laws about slaves, many of whom, but not necessarily all, were probably agricultural workers.) Here's what I learned about how today's improved understanding of contract theory shows some of poor old Hammurabi's inefficiencies. We really have evolved as a species! Babylonian farm contracts left farmers totally exposed to weather risk.
The Code of Hammurabi states: "If a man rent his field for tillage for a fixed rental, and receive the rent of his field, but bad weather come and destroy the harvest, the injury falls upon the tiller of the soil." By today's standards, that would be a non-optimal distribution of risk, but risk-seeking Babylonian farmers may have chosen to take that chance. Alternatively, risk-averse farmers may have sought out sharecropping arrangements, protected by the law stating, "If [a landowner] does not receive a fixed rental for his field, but lets it on half or third shares of the harvest, the grain on the field shall be divided proportionately between the tiller and the owner."
Or sometimes creditors got stuck with the weather risk.
Rule #48 said, "If any one owe a debt for a loan, and a storm prostrates the grain, or the harvest fail, or the grain does not grow for lack of water; in that year he need not give his creditor any grain, he washes his debt-tablet in water and pays no rent for this year."
The community provided some bankruptcy protection. Productive agricultural assets couldn't be taken from a man, not even to pay off a kidnapping debt. Instead, there was a ladder of who would provide the backing for the citizen's freedom to be bought, "If he have the means in his house to buy his freedom, he shall buy himself free: if he have nothing in his house with which to buy himself free, he shall be bought free by the temple of his community; if there be nothing in the temple with which to buy him free, the court shall buy his freedom. His field, garden, and house shall not be given for the purchase of his freedom."
Babylonian farmers needed to treat their leased 'equipment' well. "If a man let in the [dammed irrigation] water, and the water overflow the plantation of his neighbor, he shall pay 10 gur for every 10 gan of land." "If any one hire oxen, and kill them by bad treatment or blows, he shall compensate the owner, oxen for oxen. If anyone hire an ox, and put out its eye, he shall pay the owner one-half of its value. If anyone hire an ox, and break off a horn, or cut off its tail, or hurt its muzzle, he shall pay one-fourth of its value in money. If anyone hire an ox, and God strike it that it die, the man who hired it shall swear by God and be considered guiltless." Again, the Code of Hammurabi made some limited "insurance" provisos, in this case for acts of God.
Babylonian farm workers should've campaigned for a better minimum wage. The Code of Hammurabi laid out specific prices for some goods and services, including in Rule #257, "If any one hire a field laborer, he shall pay him eight gur of corn per year." The nearest I can tell, that would be like 69 bushels of corn, and if we pretend that corn would be worth $4 per bushel, then field laborers were only paid the equivalent of $275 per year.
Even bartenders had to keep track of the grain markets "If a tavern-keeper does not accept corn, according to gross weight in payment of drink, but takes money, and the price of the drink is less than that of the corn, she shall be convicted and thrown into the water."
Hammurabi cracked down on crooked merchandisers. "If any one store corn for safe keeping in another person's house, and any harm happen to the corn in storage, or if the owner of the house open the granary and take some of the corn, or if especially he deny that the corn was stored in his house: then the owner of the corn shall claim his corn before God, and the owner of the house shall pay its owner for all the corn that he took."
Grain storage didn't pay as well then as it does now. From the Code of Hammurabi, we can calculate roughly what the cost of commercial carry would have been. Rule 121 states, "If anyone store corn in another man's house he shall pay him storage at the rate of one gur for every five ka of corn per year." Both gurs and kas were units of volume, so I think this is saying the "elevator" earns roughly 1/300th of the value of the grain that is stored for a year. That would only be 1.1 cents per bushel per year today, a poor deal compared to the U.S. corn market in 2016, when the market is offering about 30 cents of carry to keep the grain in storage for a year.
Overall I think the lesson is -- it's apparently impossible to write universal laws that can stand up to thousands of years of a changing economy. Instead, it's better to write individual contracts that explicitly provide measurable incentives, and that share risks fairly, and that can be verified and enforced by society.
Elaine Kub is the author of "Mastering the Grain Markets: How Profits Are Really Made" and can be reached at elaine@masteringthegrainmarkets.com or on Twitter @elainekub
(BAS/SK)
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