Introductory. On Markets

Book 5, Chapter 1

Book 5 concerns “General relations of demand, supply and value.”

§1. Price balances supply and demand. Marshall defers discussion of other factors affecting supply, demand and prices — money, credit, foreign trade, labor, and so on — to a later volume, which he never wrote.

§2. In a “market,” buyers and sellers see the same price for the same good. Most markets are local (e.g., a street market) but they can be physically separated if information flows allow price comparison and thus convergence (subject to transport costs).

§3. Improved communications and transport have created “wide” markets for the same goods, with similar prices. Commodification and standardization makes it easier to have wider markets. Goods that are heavy relative to their value (Mashall uses bricks, but water also fits) will be traded in “narrow” markets where prices reflect local supply and demand.

§4. Markets for gold, silver and (heavily traded) stocks and bonds will tend to have one global price. Traders will ask small margins (bid-ask spreads) for these “liquid” assets, since they are sure to find counterparties. Illiquid assets have larger bid-ask spreads and more price noise.

§5. Custom-made goods (e.g., tailored suits or portraits) and perishable or bulky goods will sell for a range of prices, especially if trade is infrequent. Prices from wide liquid markets (e.g., London) will influence prices in narrow illiquid markets if some traders can switch between markets to get better deals. This arbitrage converges prices.

§6. Besides space, time influences supply and demand. Here Marshall makes some insightful comments (which are often buried/forgotten by vague references to elasticity), i.e.:

We shall find that if the [time] period is short, the supply is limited to the stores which happen to be at hand [Qs is fixed and vertical; D goes up/down to determine P]: if the period is longer, the supply will be influenced, more or less, by the cost of producing the commodity in question [S slopes up; D goes up and down more gradually to determine P]; and if the period is very long, this cost will in its turn be influenced, more or less, by the cost of producing the labour and the material things required for producing the commodity [S shifts in or out]. These three classes of course merge into one another by imperceptible degrees. p 275

The next chapters explore these dynamics.

This post is part of a series in the Marshall 2020 Project, i.e., an excuse for me to read Alfred Marshall’s Principles of Economics (1890 first edition/1920 eighth edition), which dominated economic thinking until Van Neumann and Morgenstern’s Theory of Games and Economic Behaviour (1944) and Samuelson’s Foundations of Economic Analysis (1946) pivoted economics away from institutional induction and towards mathematical deduction.

Interesting stuff

  1. The Olympics are bad for local communities. (Maybe keep it in one place to avoid disruptions?)
  2. Will our eyes give up all our data in the future?
  3. The collapse of a key Antarctic glacier
  4. How the pandemic might play out in 2021 and beyond
  5. Listen to this excellent 2006 TED talk on how schools kill creativity (a big failure and missed opportunity, IMO)
  6. Socially responsible/impact/ESG investing is doing rather well
  7. California is already living with climate chaos (+2C, fires, blackouts)
  8. RobinHood’s “free” trading takes advantage of retail investors
  9. Race and advertising: “Black people are not just white people with darker skin”
  10. The USPS built America. Crippling it (policy since 2006) is a mistake.

Conclusion. Correlation of the tendencies to increasing and to diminishing return

Book 4, Chapter 13

§1. A clever entrepreneur can grow a business with good management, talented workers, economies of scale in purchasing materials and using machines, etc. This firm might grow to dominate the industry but its success will be limited by the founder’s capacities and threats from smaller competitors.

§2. Pulling back to look at the entire industry, it’s useful to consider the “representative firm” when thinking of productivity, profits, etc. This firm is average in many senses, but it’s not a random pick. Older and younger firms with developed or under-developed processes, for example, are not “average”.

Good management brings increasing economies of scale (or organization) that can offset decreasing economies from exploiting Nature or other limited resources. These forces might balance out — or not.

§3. A growing population can enjoy growing prosperity for all if raw materials are not constrained and everyone has access to adequate space, clean air and water. Thus, Marshall sees benefits from population growth during the Industrial Revolution while also warning that wealth per capita will not increase forever. These observations sit neatly in the middle of the optimism of Julian Simons and the pessimism of Paul Ehrlich.

This post is part of a series in the Marshall 2020 Project, i.e., an excuse for me to read Alfred Marshall’s Principles of Economics (1890 first edition/1920 eighth edition), which dominated economic thinking until Van Neumann and Morgenstern’s Theory of Games and Economic Behaviour (1944) and Samuelson’s Foundations of Economic Analysis (1946) pivoted economics away from institutional induction and towards mathematical deduction.

Interesting stuff

  1. The Truth Is Paywalled But The Lies Are Free
  2. The roots of wokeness [brutal but accurate]
  3. A continuing conversation on the lack of diversity in economics
  4. An AI explains human intelligence
  5. Police became professional — and far too powerful — because of the need to control bad drivers
  6. Tech firms are worth so much because they have monopoly power?
  7. Get a vasectomy
  8. A good interview with Kate Raworth on Doughnut economics. She talks about “change” but doesn’t usually explain the tools (besides “be nice”) but those are discussed here. Jason Hickel is also interviewed. Here’s my review of his book.
  9. A good summary of how Trump is wrecking US foreign policy, power and alliances
  10. Watch this TED talk on sex workers and the “protective” laws that harm them

I/O, continued. Business management

Book 4, Chapter 12:

§1. The first step in expanding a business is hiring managers to handle logistics, thereby leaving “specialists” to focus on producing goods and services. Teachers, for example, have administrative staff to arrange classrooms, collect fees from students, etc.

§2. These managers (qua entrepreneurs) bear risk, provide capital and earn profits in proportion to their skill at matching producers with customers, or supply and demand.

§3. Marshall suggests, for example, the building contractor as a middleman who adds more value than a homeowner by reducing waste and confusion. A real estate developer, likewise, adds even more value by operating at a larger scale.

§4. Larger scales are not always better. In producing clothing or shoes, it may be better to concentrate production in a large factory or outsource to small home producers. Workers, likewise, can be better or worse off relative to home producers, depending on wage guarantees, competition over piece-rates, etc.

§5. Managers must understand things as well as employees. Differing mixes of these skills lead to different paths to success or failure.

§6. Although the sons of businessmen (Marshall writes in an age when women did not lead firms) learn business at the dinner table, they might prefer social or academic careers or living off their father’s work. Thus, it may be better to replace a founding father with professional managers.

§7. Manager-owners often find good replacements among their staff. In some cases, a qualified assistant can become a partner by marrying the owner’s daughter (Marshall comments approvingly on the hopes this path gives to many talented but underprivileged youth). Businesses run by equal partners with different skills can also be productive.

§8. Joint stock companies allow for a division of labor among passive investors, active managers and directors who oversee managers on behalf of shareholders.

§9. The managers of joint stock companies might not work as hard as they should for shareholders, a Principal-Agent dilemma (the term dates from the 1970s) that also arises when politicians put themselves before citizens.

§10. In co-operatives, employees share ownership, profits and decisions. This “perfect middle” will not work if employees do not trust each other, shirk in their duties or disagree on the value of each contribution.

§11. Business growth is not usually held back by a lack of capital (banks are eager lenders) but a dearth of talented, experienced and wise founders with the right combination of Geld, Geduld, Genie und Glück (gold, patience, genius and luck). Successful managers sometimes start on the shop floor, sometimes in the owner’s nursery.

§12. Good managers will accrue capital, market share and profits at the expense of bad managers over time.

This post is part of a series in the Marshall 2020 Project, i.e., an excuse for me to read Alfred Marshall’s Principles of Economics (1890 first edition/1920 eighth edition), which dominated economic thinking until Van Neumann and Morgenstern’s Theory of Games and Economic Behaviour (1944) and Samuelson’s Foundations of Economic Analysis (1946) pivoted economics away from institutional induction and towards mathematical deduction.

Interesting stuff

  1. America is experiencing “hygiene theatre” (sterilizing surfaces) that’s just as ineffective and wasteful as post-9/11 “security theatre”. Wear a mask!
  2. What a difference student debt makes (follow-up on the billionaire who paid off the debts — averaging $80k — of 400 Howard U students).
  3. Managing China’s rise by helping its neighbors
  4. Covid-finance: students vs universities and tenants vs landlords
  5. America’s police are violent and ineffective compared to other rich countries. Can the “exceptional” nation learn from others?
  6. It turns out that Switzerland is not ruled by anyone in particular.”
  7. NGM on women’s suffrage: 100 years ago and a long way to go.
  8. Exit, Voice, Loyalty is 50 years old… and relevant today
  9. Should we fight over pie (wealth) — or make it bigger?
  10. Economists are starting to get a better handle on uncertainty

Review: Amsterdam: A brief life of the city

I read this book a few months ago but got distracted by current events. In the meantime, “something” technical deleted all my notes, so I skimmed the book again and wrote down my thoughts. This review is very long but not as long as Amsterdam’s 750-year history 😉

tl;dr: Amsterdam has evolved over centuries under pressures from survival & conformity versus ebullient openness & risk-taking. In other words, “do what you want as long as you pay your taxes.”

Geert Mak wrote the Dutch original in 1994. Philip Blom translated it into English in 1999. These dates are important because Amsterdam’s renaissance from the depths of the 1980s was still underway; the city was not nearly as popular then as it has been in these past 10 years. (The city’s population hit a nadir of 675,000 in 1985. It grew to 695,000 by 1990, 730,000 in 2000 (+5%), 768,000 in 2010 (+5%), and 872,000 (+14%) today — a record level, if one ignores political boundaries.)

The book begins with a prologue on the character of Amsterdammers: critical, self-effacing, independent, proud but not boastful. Of the greatest importance is the City’s long history of independence in thought, freedom and action. Put differently: Amsterdammers will leave you to your business, unless you’re in the way.

Amsterdam and other nearby villages got their start in the middle of 12th century flooding, slowly building up ground by draining and channeling swamps. These works were directed by dijksgraven (dyke administrators). The town was mostly independent from its distant owner (the Bishop of Utrecht) because it was poor, but local would-be “lords” rebelled for centuries. They mostly lost, and the town on the dammed Amstel was left to fishers, farmers, and traders.

In 1275, the Count of Holland gave “the people abiding near the Amsteldam” freedom from taxation. This document — and its date — marks Amsterdam’s official birth. After some ups and downs and confusion, it was replaced in 1300 by a longer document that established city rights, the rights of citizens and some governing bodies. Amsterdam got its first dedicated pastor in 1334.

Amsterdam wasn’t very important compared to older, bigger and richer towns. That position changed when the Bishop of Utrecht got greedy for tolls from Hanseatic merchants bringing goods from the North and Baltic seas to Flanders, France and the Mediterranean. Amsterdam stepped in as a competing middleman and grew quickly. (The Zuiderzee, before it was renamed IJsselmeer after the afsluitdijk cut off sea access, had that name because it was south of the Noordzee from which many trading cogs traveled.)

A cultural divide emerged:

The Bishops [in Utrecht, inland], relying on the feudal system of landowners and serfs, ruled over farmers who literally had nowhere else to go, and who were weighed down with taxes like old donkeys until they simply caved in. The Counts [of Holland, on the coast], on the other hand, understanding the importance of commerce to their lands, appreciated the fact that merchants were not serfs, and were at liberty to use other routes if they so chose. Furthermore, they understood what would later develop into one of the most important traditions of the Netherlands: the need to deal with the new and the foreign without smothering them with rules and restraints and cheap profit-hunting. In Holland, people opened themselves to the sea and to everything that came from afar, while those on the sandy soil of Utrecht, Gelderland and Overijssel turned their backs on it. (pp 22-3)

Amsterdam’s growth brought diversification: blacksmiths, goldsmiths, brewers, prostitutes, shoemakers, and more. Windmills ground grain and sawed wood; guilds protected artisan wages. It also had plenty of mud, fires and trade. 

Wooden houses leaned into streets to gain space for living and allow for goods to be hauled to upper floors without hitting the facade. It took several centuries of fire-regulations before stone and brick replaced wood, but  buildings still leaned out to ease goods-exchange. Many houses opened for business in the front while keeping private areas in the back. 

Beer was imported and taxed, which is why we know Amsterdam took one-third of Hamburg’s beer. The city grew in wealth through trade and started to engage in wars. In 1368, Amsterdam sent one ship to help the Hanseatic league defeat a Danish king. Amsterdam received the right to set up a post for trading haring, an important commodity fish. In 1398, Amsterdam sent 50 ships in a war against the Frisians (“exploiting the fact that the Frisians were locked in a desperate civil war, a conflict to the death over issues nobody knows any more” p 32), indicating the city was growing in naval power. City merchants started to circumvent the Hanseatic league’s claimed monopolies on trading routes. By spreading cargoes across multiple boats, merchants reduced risks, made more money, and grew bolder.

As the city grew and matured, its citizens began to see themselves as individuals playing important roles in history. In the 16th century, these trends drove — and were driven — by the Renaissance/Enlightenment. People took last names, had their portraits made, and “took back power” from the kings and priests who claimed power by divine right:

Amsterdam was never a truly medieval city. No king has ever held court here, the Church has never played a truly all-encompassing role, the social and political structures were never determined by the relations between ruler, vassal, and serf. From the very beginning it was a modern city, its citizens were independent and stubborn enough to take care of themselves. p42

The medieval religious past of the city left monasteries and convents with large holdings in the center. Amsterdam gained from its status as a place of pilgrimage (based on a “miracle” in 1345), but its piety was always tempered by the need to do business. Shipping volumes grew fourfold in the 16th century. The city produced cheap, good ships from imported wood and other materials. The city’s population increased five fold, and its land area as well. When conflicts arose between God and Mammon, Mammon won every time, and that trend strengthened after Martin Luther’s 1517 call for reform of the (Catholic) Church.

Religious disputes arrived in a city ready for change:

The streets were full of carts and horses and were strewn with heaps of dung. Everywhere breweries, dyeing shops, tanneries, and scores of other little businesses caused constant stench, smoke, and noise in among the houses in which people lived. Much of the rubbish was thrown into the canals, which led to enormous waves of foul air rolling over the city, especially in summer… More than three quarters of a family’s income was spent on food and the rest on rent, clothing, heat and light. (p 63)

New prophets and visions arrived. The Anabaptists challenged authority on Earth and sought to distribute wealth among all. They tried to take over the city (for God’s work) but failed, facing torture and public execution. The less aggressive Mennonites were likewise punished, as the city fathers liked the current distribution of wealth.

Thus, their “tolerance” (read my 2010 post on Dutch tolerance) was more practical than principled:

Tolerance was in this town not a mere principle but a practical necessity: the open merchant city, being the meeting place of all sorts of different cultures, could not allow itself to indulge in the large-scale prosecution of those adhering to different beliefs. (p 62)

The Eighty Years War (1568-1648), although presented as a war of Protestant Calvinists against the rule of Spain’s Catholic king, was more about commerce and middle class rights than religion. Religions laws were barely enforced if they interfered with common sense:

Several centuries later this attitude was to grow into a typically Dutch way of using the law, a modus operandi governed by civic opportunism: the state is entitled to prosecute a crime, but it is not bound to do so, especially if the means of prosecution is deemed to be worse than the crime – as, for instance, in the case of prostitution, or the use of soft drugs. (p 77)

The Eighty Years War began with complaints over aristocratic privileges and high taxes (the tenth penny). After the old order expeled Calvinistic reformers, war began. Although Amsterdam was “loyal” to the Catholic king, the rest of the Netherlands was not. During the war years, Amsterdam was a thriving trading center (even selling food, weapons and ships to the Spanish) and gaining immensely when Antwerp’s port was blockaded and its merchants moved to Amsterdam, bringing trade in silk and diamonds, artists and printers. They were joined by Sephardic Jews fleeing prosecution in Spain and economic migrants from Germany. The city’s language and culture diversified away from its solid but boring fishing roots. 

Amsterdam grew on commerce over land and water:

Decartes said in 1635: “Everyone [in Amsterdam] is so preoccupied by his own profit that I could live here for all my life without ever being noticed by anyone.” There were few palaces and churches or imposing buildings here, and it was noticed by every visitor that this city existed for financial gain alone. The Amsterdam of the “golden” seventeenth century was, to all intents and purposes, one enormous slot machine. Each available piece of earth, every skilled hand, was turned to this end…

…a complete waterscape had come into being, subdivided by pontoons, in which some large and countless small ships rose and fell with the waves…The atmosphere of this strange, sloshing, half-rotting world is recalled in prints from the period: crooked, mossy poles; fences, pontoons and short ladders, the silent water, rowing boats, a few seagulls. For centuries this scene would define the transition from city to water…

The power of this whole complex of capital, trade, and information lay mainly in its thoroughness and speed. The merchants in the city administration watched, hawklike, over the quality of the service sector. Immediately after landing, a shipper knew where to bring his cargo, while a merchant could work even with foreign currencies without any problems and, given the information available in Amsterdam, could ensure that reports from abroad were viable and impartial. Continuity, efficiency and absolute trustworthiness were the key elements of this economic miracle. (pp 100-101, 103)

Migrants seeking wealth and opportunity lived in crowded slums. The solution was to expand by constructing a canal belt (Grachtengordel) district of three canals (heren-, keizer- and prinsen-gracht) in “belt” wrapped around the old center. Construction took decades, hurrying and slowing with the city’s fortunes. Outside the canal belt came the Jordaan (filled with workers’ cottages) and Plantage, which was like a multi-use park.

As Amsterdam grew rich from trade and innovation, it allowed free thinkers, artists, and scientists to chase their passions and heresies. Rich merchants supported these middling classes, but they lived apart, in the canal belt. Ever since then, the city has struggled to balance economic freedom with social cohesion.

Merchants set up joint-stock companies (the first companies in the world to issue shares, and thus reduce risk to investors) to trade and conquor the East (the VOC, or Vereenigde Oostindische Compagnie colonized Indonesia), West (the WIC, or West-Indische Compagnie, founded New Amsterdam York before trading it for Surinam, which had a profitable slave trade), and North (the Noordische Compagnie harvested whales). These enterprises landed the Dutch in all corners of the world, as sailors, explorers, merchants and imperialists. The Dutch spent less money building better ships, borrowed more cheaply on sophisticated financial markets, found  cheaper goods in diverse markets, used wind-power to process wood and manage put water where they wanted it, and attracted from cheap and skilled labor. In 1650 the Dutch fleet was larger than the English, Scottish and French fleets combined; half the ships sailing to Asia flew Dutch flags.

Amsterdam’s wealth and businesses did not always align with Dutch interests (recall Amsterdam trading with the Spanish enemy). Stadthouder William II of Orange tried to invade the city but failed. In the “peace” that followed, Amsterdam’s leaders agreed to cooperate while William “ruled” the city with a light touch. These “live and let live” arrangements are still common in Dutch culture. 

The end of Amsterdam’s Golden Era arrived via two trends: the rise of neighboring nations and the weakening of Amsterdam’s governance. The beginning of the end was 1672, the rampjaar (disaster year) in which the Netherlands was invaded by France, England, Münster and Cologne, aristocratic neighbors jealous of Dutch success and threatened by the Republic’s support for freedom of religion, trade and thinking (propagated via its free presses). 

Amsterdam’s internal decay began when merchants became bankers, making money from money rather than trade, exploration and risks. These bourgeoisie separated themselves from other citizens (departing to country houses in summers) and used their positions as rentier sinecures rather than platforms from which to reform and strengthen the city’s institutions. Fashion and frippery replaced morality and humility. As local industry lost its productive capacity, bankers, as the “privileged unemployed,” lived off lending  profits.

Amsterdam’s shipping capacity suffered as its harbours and channels silted up (read Dredge Drain Reclaim for an amazing history of Dutch water management). Neighboring countries interfered with trade. London and Hamburg, with both goods and customers, cut out Amsterdam as the middleman. Foreign shipbuilders copied then out-innovated the Dutch.

The city stank from raw sewage and piled rubbish. Public works were neglected as important posts were sold to the highest bidder, rather than the competent or hard working. The Little Ice Age reduced crop yields, prevented ships from carrying fresh water to the city, and killed many. Peasants and migrants crammed into the city, increasing poverty and desperation. Men joined the VOC, trading debt for danger (“Of the 671,000 men who travelled out from Amsterdam, only 266,000 were to return” p 161). For women, “most of the evident easy virtue in the city had nothing to do with freedom and everything with poverty, despair, and powerlessness” (p 162). In 1748, riots broke out against the useless bourgeoisie; preachers condemned their excesses. Manors were raided, their riches tossed into canals. The Great Frost of 1763 marked another step down, as the peace of the Seven Years War allowed neighboring countries, their bankers and merchants to focus on taking market share from the Dutch.

The people began to demand monarchy, but the House of Orange was not ready (or competent) to rule. A third vision — of citizens electing militia and city officials — was ignored when William IV supported corrupt, incompetent, hereditary burgomasters. The people’s revolution went nowhere. 

The Enlightenment brought science and debating societies, as well as hot arguments over politics and governance. Amsterdam’s coffee houses were partisan and rowdy. America’s 1776 Declaration of Independence attracted attention from free thinkers and merchants eager to sell arms, but the British navy, now much stronger than the Dutch, quickly stopped most trade. The Netherlands — and Amsterdam — was no longer a global, let along European, power. The VOC and WIC went bankrupt. William V ignored Amsterdam in his decisions. Revolutionaries battled Royalists in the streets. 

“A house divided cannot stand.” Divided, Amsterdam and the Netherlands were too weak to resist invasion from Revolutionary France. In 1794, the Republic was gone. Trade collapsed, banks emptied, colonies were lost to other imperial powers. In 1810, The Netherlands was a mere province in the French Empire.

Nineteenth-century Amsterdam lacked motor noises and night lighting. It was famously smelly. Life expectancy was 30 years for manual laborers. The city was stuck frozen in time. Power rested in Paris; trade was diverted elsewhere. The population dwindled (below 200,000) as industry and jobs died off. 

In 1813, The end of Napoleon and his empire brought independence and King William I of Orange.* William I took possession of The Royal Palace on Dam Square (built in 1655 as Amsterdam’s town hall; its was the largest administrative building in Europe), which had been seized by the French in  1806. The King neither lived there (the Royal Family lived in The Hague, potentially due to Amsterdam’s unhealthy stink) nor gave it back to the citizens. The King kept it as his residence in Amsterdam, which was declared the national capital (the seat of government is in The Hague).

(* Since 1815, all four kings and one queen had “William” in their names; Queens Juliana and Beatrix are exceptions. The current heir is Princess Catarina-Amalia.)

The city continued to slumber, rejecting the “progress” of the Industrial Revolution, communist calls for uprisings, or mechanical innovations. The train arrived in 1839 and piped water in 1853, but the city sank into decay, its 16th and 17th century buildings gracefully falling apart. The city’s relative poverty and obscurity spared it from the monumental buildings, boulevards and slum clearances shaking Paris, London, and Vienna. (Exceptions being the Rijksmuseum, Central Station, Concertgebouw and the Paleis voor Volksvlijt, which burned down in 1929.)

The city jumped awake in the 1870s, as trade with booming Germany expanded, trade with Dutch Indonesia grew, and South African diamonds fed the city’s ancient industry. Steam-powered trains and ships crossed here and there; lights kept the streets open at night; the North Sea Canal (opened 1876) restored the city’s access to the sea and trade. The new Central Station (opened 1889) cut off the city from the waters of the IJ (officials in The Hague choose its location over local opposition), triggering a cultural change that would include filling in sixteen canals to make way for carriages and trams (and later car parks).

The city’s population grew from 243,000 in 1859 to over 500,000 40 years later. Most new arrivals lived in cheap, poorly built slums. The city administration did not monitor land use. The only “nice” new districts were  built in the Plantage and around the (initially private) Vondelpark. The city’s bourgeoisie and working classes started to blend as workers earned more and rich dressed down. A new middle classes of skilled workers, bureaucrats and managers grew.

Political movements in favor of workers and socialism swept over the city, occasionally facing opposition (and police bullets) from the city’s conservative factions. The city took over private electricity, gas, telephone and water companies. Unions, newspapers and popular education  flourished. The city expanded its neighborhoods (my building dates from 1904), pulled by prosperity and pushed by laws to improving housing conditions.

The Netherlands was neutral in World War I. During the 1920s, political diversity rose and neighborhood differences (and dialects) weakened. Jews, freed in 1825 from their ghettos, educated their children and joined socialist and workers movements. 80,000 Jews (half the Dutch total) composed 13 percent of Amsterdam’s population. In some clubs and districts, they were not welcome but they formed communities in some of the newer residential areas.

Plane-, ship and metal-industries employed many. After a 1921 change in the city’s borders, cheap social housing projects appeared everywhere. (These buildings are still standing, and they were well made.) The city hosted the 1928 Olympics. In 1934, a master expansion plan was published that would guide the city’s development for decades. The unemployed cleared and planted the Amsterdamsebos, which added green space to the city. (We go there to bike, picnic and swim.) Nevertheless, the Depression hit Amsterdam hard. One-fourth of the workforce was unemployed, and their subsidies gave barely enough to eat.

The rise of the Nazis affected the city. Jewish refugees came to Amsterdam. Dutch Nazis (the NSB, or Nationaal-Socialistische Beweging) fought with the socialists and communists. The city’s leaders separated into racist factions. Monne de Miranda, a Jewish alderman with a working-class background who favored cheap housing and subsidized meals, was undermined in the press (De Telegraaf is still quite right-wing) and eventually shipped to a concentration camp where he died (partially due to abuse by fellow prisoners who disliked his politics).

The Dutch planned to remain neutral during WWII. Their Jewish neighbors felt safe. These hopes were dashed by the Nazi invasion on 15 May 1940, the  first time that Amsterdam had been invaded in 400 years. 

At first, the Dutch cooperated with German occupiers, even as Jews lost their rights and trouble makers were fired or imprisoned. The February Strike of 1941 was significant as being the only strike by non-Jews in defense of their Jewish neighbors in Europe, but German violence and Dutch government collaborators ended it.

Could they (should they?) have done more? Mak makes a good point: 

One feels somehow dishonest when writing about this period in Amsterdam’s history, more so than with any other. It is because we know the outcome, whereas the people of Amsterdam did not. It is a difficult time to visualize. A permanent insecurity dominated life, and every decision had to be made against a background of rumours and confused assumptions. This was true not least for the Jewish community… almost nobody at this stage had any idea what was hanging over their heads. In May 1940, for instance, there was considerable pressure from various sides for the destruction of Jews’ registration cards for safety’s sake, but the Jewish community’s leaders adamantly refused…

People who have lived undisturbed for generations, who have not experienced a pogrom for centuries, simply lack the imagination with which to picture the sort of evil that lay in wait for them. Nor can it be denied that the German occupiers displayed great cunning. What appeared at first to be little more than mild harassment turned out to have been but a prelude to the Final Solution.

The displacement of Amsterdam’s Jews was not achieved in a single action but by a process of uprooting, intimidation, marginalization and isolation that was established step by step. The chief means of this was not physical violence, but the insidious power of bureaucracy. With their obfuscating use of language – “work deployment” was the euphemism for deportation to Auschwitz – the persecutors lulled their victims, and often themselves, into a false sense of security. The Germans and many of the Dutch collaborators saw themselves mainly as transport agents transferring a certain product, in this case Jews, from A to B. (pp. 258-259).

Systematic deportations began in June 1942.  (Anne Frank’s family went into hiding on 6 July 1942.) 

Nevertheless, there was a certain bloodless efficiency with which the Dutch condemned their fellow citizens:

…countless Walter Stiers [“just doing his job”] aided the Germans in their discreet mass slaughter. Dutch Railways arranged, without the slightest objection, special night trains to Westerbork and to the German border, for which the bill was paid punctually by the occupiers…[Just last week, over 7.000 victims filed for compensation from the national rail company.]

Other municipal services also carried out the work as though nothing out of the ordinary was happening. Municipal clerks stamped Js on identity papers, impounded Jews’ radios and bicycles, and sent the Jewish unemployed to labour camps. Almost everybody took great care to hand in his Declaration of Aryan Descent. Amsterdam University collaborated without protest by dismissing Jewish teaching staff and by asking students to sign a declaration of loyalty to the occupiers…

The Germans never posted more than 60 officers in Amsterdam, even at the height of the persecution of the Jews. The rest was done by the Dutch. Of the total number of men deployed in the big raids, about half were ordinary Dutch policemen. Moreover, after October 1942, the Dutch police were ordered to raid Jewish houses on their own, instead of under the leadership of the Sicherheitspolizei or the SS. The majority of these officers did just that, and more: they were so thorough that when they found Jews in a flat for which they did not have an arrest warrant, they took them anyway. (pp. 265-266).

Some Dutch sabotaged Nazi programs, but they were not  numerous:

The Dutch still have a tendency to talk up the extent of their resistance to almost mythical proportions. In reality, proportionally more Jews were deported from the Netherlands than from any other Western European country. As Adolf Eichman was to explain later, the persecution ran “like clockwork”. After the war, an official investigation found that almost half a million Dutch men and women had collaborated with the occupying forces in one way or another…this phase of Amsterdam’s history offers little scope for self-congratulation. Most Amsterdammers were anything but resistance fighters. (pp. 267-268). 

Thus, we should not be surprised that the Dutch can sometimes be blind in taking moral decisions. The Dutch failed to protect 8,000 Bosnians from Serbian murderers in 1995, for example.

Mak finishes his history of WWII with stories of the heroes who took chances, often fatal. Wallie van Hall, the Resistance Banker, helped steal, forge and otherwise source funds to help members of the Resistance (which grew stronger and more popular as the Germans targeted non-Jewish Dutch). In Jan 1945, van Hall was caught and executed by Nazis acting on information collected from a traitor (the man was caught, tried and executed by the resistance).

During the Hunger Winter of 1944-45, thousands of Amsterdammers froze and starved while Resistance leaders bickered over who would hold power after the Germans were gone. Karel Broekhoff, the “militarist” candidate for Police Commissioner, beat the “democracy” candidate with promises to protect collaborating police from retribution. He didn’t serve long before he was admitted to hospital, where he died in June 1946. In 1994 (just before this book was published), researchers found evidence that Broekhoff began collaborating in 1935 with the Gestapo. (He wasn’t always helpful to them, a double-cross that probably saved lives and protected his secret.) Broekhoff’s replacement was most well known for proposing to fill canals to make space for cars.

Canadian forces liberated Amsterdam on 5 May 1945. With one exception (Germans who fired into a celebrating crowd on 7 May), life improved immediately. 

Not surprisingly, conservatives immediately worried about too much sex and celebration:

Amsterdam sought to impose some order on all this. There was indeed a moral problem, but it did not lie with the young or with the girls. If one simply considers the statistics, it is simply a miracle that so few Amsterdammers perished during the Hunger Winter. The reason is simple: during the last months of the war, the people of Amsterdam cheated, deceived and stole on a grand scale. They pillaged and participated in the black market. In order to survive, even the most respectable citizens had to do things that they would rather not remember (p. 284). 

As a result of the backlash, members of the Resistance lost standing and former collaborators were forgiven and left in power. Despite massive political support for Communists and Social Democrats, the City Council stuck with 1939 morality and rules. People were told to marry, work, pay  taxes, and “doe normaal“.

The city was rebuilt, transport and trade revived, and housing expanded to meet demand from new arrivals and locals who wanted more personal space. The average flat went from 4 occupants in 1917 to 3 in the 1950s to 2 in 1994 and 1.84 in 2020. New housing promised modern and stylish, but delivered cheap and plain. Rising incomes allowed people to buy bikes, then scooters and cars. Amsterdam, like many rebuilding cities, decided that the future lay with cars. Thus, old districts were ripped down for widened roads, canals were filled in for car parks, and “visions of the future” meant  abandoning many of the city’s human elements.

After 20 years of discipline, the backlash arrived with flowers in its hair. The Provos [after provoceren, to provoke] were younger people who wanted more from life than a paycheck. They were pro-bike, anti-(tobacco) smoking, and anti-consumerism. They tapped into Amsterdam’s culture of rejecting controls, collaboration, and doe normaal. The Provos had weekly fights with the police, each using the other to build support. Journalists wrote about the events; politicians adopted Provo ideas into their platforms:

…the Provos had the genius to bet on two horses. They pointed out the impossibility of a situation in which wealth and opportunities for personal development were rapidly increasing, while the moral attitude supporting this remained as parsimonious, prudish and authoritarian as it had been in the 1930s. At the same time, however, they also poked fun at the “cream-whipping masses”, tapping into the anti-progressive cultural undercurrent. This situated them exactly at the crossroads of two distinct developments that were extremely topical during the 1960s: on the one hand, they were the catalysts of progress, and on the other they were the romantic conscience of the nation (p 292).

The Provos launched “White Plans” for bikes (against cars), against pollution, for women’s liberation, for cheap housing, and against police brutality (topical!). In 1966, riots interrupted Princess Beatrix’s wedding (to a German who had served in the Wehrmacht). Other protests (to preserve holiday pay, allow cannabis, strengthen women’s rights, etc.) shifted the city’s political balance, but these victories were perhaps pyrric. The city’s center was losing families and businesses, gaining junkies trading stolen bikes for smack, and destabilizing as squatters (krackers) invaded empty buildings. These losses were magnified by the loss of Jewish residents and trade links broken by Indonesia’s 1956 independence.

An attempt to build the City of the Future in Bijlmer completely backfired. Instead of high-rise garden city, the area was settled by poor migrants from newly decolonialized (1975) Surinam who could not live safely in a vast anonymous area built for architects and planners rather than people and community. (Read Jacobs’s 1961 Death and Life of Great American Cities to understand the failures.) The Bijlmer debacle was a turning point against replacing neighborhoods with expressways. Opposition to “redevelopment” of Nieuwmarkt stopped a road but not the metro (still a sore topic for many Amsterdammers). Sadly, the squatters who had attracted much support managed to lose it through violence, bickering and not really having a plan or goal. 

In the mid-80s, Amsterdam was divided, dirty and losing economic and demographic power. The population dropped from 868,000 in 1964 to 676,000 in 1985.

Mak’s history ends in 1994, but he ends the book with an enduring observation: 

This ongoing battle [between idealistic Provo’s and conservative administrators] was in principle a confrontation between the “romanticism” and “functionalism”. Functionalism regarded the city as an organism that had to fulfil certain goals. The romantic ideal considered the city as an ensemble of citizens, a collective, with a distinct history and personality (p. 306).

By the end of the 1990s, Amsterdam had found its balance between these two opposing forces. The city grew more attractive as a place to live and work, and it continued on its centuries-old path of sustainability, i.e., the ability to carry on, indefinitely, into the future. Climate change, gentrification, refugees, and coronavirus are just a few of the challenges that Amsterdammers now face. These challenges will force change, but — if  there’s one thing we can count on — Amsterdam will find a way.

In conclusion, I strongly recommend this entertaining, well-written book. My only quibble is the way Mak occasionally jumps decades forward or backwards, but that bug for me as reviewer is a feature for you the reader. Five Stars.

I/O, continued. Production on a large scale

Book 4, Chapter 11

§1. Manufacture is not location specific. Customers can be far away; the quality of land or water does not matter as much as it does for agriculture. Manufacturers are more efficient in terms of Economies of Skill and Machinery. (Marshall dismisses Economy of materials, which are — with the exception of “agriculture and domestic cooking” — often used very efficiently. US pork processors used to say they used “everything but the squeal.”)

§2. “Economies of machinery” refers to the cost advantage that a large manufacturer can gain by amortizing the cost of an expensive but efficient machine across many units manufactured. Thus are larger firms more cost competitive, with most machines as well as ordering parts and inputs in bulk, against smaller competitors. Such advantages, combined with protections via patents that smaller firms often cannot afford to file or license, means that industries tend to concentrate, as larger firms buy smaller ones. The Economist just discussed this problem!

§3. “Economies of skill” refer to the advantages in a division of labor. Larger manufacturers also have an advantage of a larger, more varied workforce, which increases access to special skills or genius.

§4. The entrepreneur can focus on big picture strategy in a larger firm by delegating other tasks; in a smaller firm, there are more distractions but also the opportunity to keep details — and quality control — in focus.

§5. Although the entrepreneur can often grow their business with hard work and (a touch of genius), the larger a business gets in market share, the harder it is to please customers seeking certain features, customization, or variety. Thus, is there a constant struggle between different sized firms in markets. (This analysis does not apply to network economies that help firms like Amazon or Facebook!)

§6. Standardization and economies of scale help larger manufacturers and retailers gain customers with lower prices, at a cost to smaller competitors.

§7. Industries where geography matters — farming, mining, transport — are less subject to economies of scale.

This post is part of a series in the Marshall 2020 Project, i.e., an excuse for me to read Alfred Marshall’s Principles of Economics (1890 first edition/1920 eighth edition), which dominated economic thinking until Van Neumann and Morgenstern’s Theory of Games and Economic Behaviour (1944) and Samuelson’s Foundations of Economic Analysis (1946) pivoted economics away from institutional induction and towards mathematical deduction.

Interesting stuff

  1. Should the UN declare a responsibility to protect Americans from the Trump administration? (Yes)
  2. Notes on Beirut’s broken sewage system  (and corruption)
  3. Racism, gender and diversity in economics: EconTalk and Capitalisn’t
  4. The Germans rose above their past by facing their failures. The Russians have not reconciled with the real horrors of Stalin; America struggles with its slavery past.
  5. Time to re-read “The Coddling of the American Mind“?

    Teaching students to avoid giving unintentional offense is a worthy goal, especially when the students come from many different cultural backgrounds. But students should also be taught how to live in a world full of potential offenses.

  6. YouTube can take you down a dark rabbithole, but you can also direct your own adventures.
  7. Minecraft is magic and disconcerting in the same way as life. Explore.
  8. Marmelade
  9. Climate-chaos will put poverty- and corruption-driven migration into overdrive. If the EU and US block migration, then they are more likely to have wars on their frontiers.
  10. America’s failure to deal with the rise of China risks world stability

H/T to PB

I/O continued: The concentration of specialized industries in particular localities

Book 4, Chapter 10

§1. Most early trade was of high-value goods that were light enough to transport to willing buyers. Specialization began with these goods (and resources).

§2. Local specialization occurred when local resources (e.g., metals) were rare, when “demand” appeared (e.g., the royal court), or for a variety of reasons that may date back into forgotten history.

§3. Industry tends to persist, in clusters, once it gets going. That’s because skills and ideas transmit “in the air,” and capital can be used intensively. As local institutions grow and develop, industry gains even more productivity. Imbalances occur if the industry only employs one type of worker in the population (e.g., men in mines), so there’s an incentive to add complementary industries (e.g., textiles to employ women and children) so families can prosper. One-industry towns are thus bad for families, and — because they are not-diversified — vulnerable to downturns. Since trading adds value, they pay higher rents in city centers, while industrial areas occupy cheaper land outside of centers. For more on industrial evolution, read my review of The Economies of Cities (1969) by Jane Jacob.

§4. Cheaper communication, transportation and trade (via lower tariffs) increase trade and specialization, but also migration of skilled workers, which fosters industrial diversification elsewhere. These two trends are good for consumers, competition and innovation.

Recall that “globalization” was very strong before WWI and into the 1920s. In the Depression, it was reversed (making the depression worse), and the Cold War and communism slowed globalization until the 1990s put it back into high gear. With Trump, Brexit, and Covid, globalization has gone into reverse, which harms consumers and workers while benefitting businesses with stronger market power (due to less competition).

“Farmers” in the middle ages also made cloth, tools, buildings, etc., so they were not always “growing food.” Industrialization brought machines and power to agriculture, increasing productivity per worker, but the industrial workers who provide these machines are not counted as the workforce “growing food.” Data on workers or economic activity can therefore be misleading.

Workers do not leave farms to go to factories but into services. The share of workers in factories around 1900 was the same as in 1850 but their output has grown enormously. The growth in service jobs (education, housekeepers, bureaucracy, et al.) occurs because these areas are not amenable to automation. (What a contemporary comment! Read more on the Balassa–Samuelson effect.)

//end chapter 10

This post is part of a series in the Marshall 2020 Project, i.e., an excuse for me to read Alfred Marshall’s Principles of Economics (1890 first edition/1920 eighth edition), which dominated economic thinking until Van Neumann and Morgenstern’s Theory of Games and Economic Behaviour (1944) and Samuelson’s Foundations of Economic Analysis (1946) pivoted economics away from institutional induction and towards mathematical deduction.