Silk Road myth

[caldrail]

Not only does the market-to-market model push prices continually downward it leads to a very unsteady market as only an unbroken series of surpluses provide goods at the far end. Any market on the way that is not saturated means the goods go no farther.

Except that high prices were paid for silk in Rome where it was a rare luxury, thus there was a commercial motive to sell westward. Also bear in mind that western ships picking up cargoes were circumventing the chain of markets to reach the same end, thus maximising their profits.

[Tribunicus Potestus]

So we agree?

 

This feels like two blind men at opposite ends of an elephant arguing over what it is. I don't see how we disagree.

 

 

 

If the premise of the question is that there was no "route 66" running from Beijing to Rome, I have never seen anyone take this stand. I have always seen the "silk route" described as an amorphous cloud that took many paths to reach its markets.

 

I may have misunderstood your Market-to-Market model as implying a discontinuous process by which goods moved east to west and visa versa.

 

But if I was not incorrect in that assumption allow me to explain the problems with that model.

 

You could well buy discounted surplus items and then bring them home and charge outrageous mark ups. The problem is that your competitor has a great deal of room to under cut you. Competition will drive the prices downward.

 

If on the other-hand we use the drug market model the costs of bringing the goods to market will keep the prices moving ever upward.

 

There are simple experiments to illustrate one of the problems with a strictly Market to Market approach.

Take 4 household cleaning sponges and line them up end to end.

Using a sprinkling can such as that used to water house plants.

Fill it with water and slowly pour water into the first sponge.

The first sponge represents China and its market.

The second is India.

The third Persia.

The fourth Rome.

In order for the water to reach the fourth sponge you have to drench the first sponge and keep pouring profusely until water can reach the fourth sponge.

 

Does this fit the evidence? I don't know. But in order to prove a strictly market to market model you need to show that it does. You also need to show a downward pressure in price not an upward movement.

Edited October 9, 2011 by Tribunicus Potestus

[Tribunicus Potestus]

Please note that this is on topic.

Rather than try and explain piecemeal what I mean by downward pressure, I will use a simplified story to illustrate my point.

 

There are a people living on a string of islands. The heebee Jeebee people. On the first island Alpha island people have discovered coconuts. At first they are thrilled by this new item and eat to their hearts content. But they have more coconuts than they can consume. A man/or woman paddles over from Beta Island, let us call him Jarvis. Jarvis tries out the coconut and realizes that he could sell these back on Beta. The Alpha people are now sick of the coconuts and sell some of them for a starfish. Jarvis knowing the Betas have no coconuts sells them for huge sums of fish. Sparky is a clever girl from Beta and thinks to herself "I could be rich too if only I had coconuts". She paddles across to Alpha and to her amazement sees that the people are up to their necks in coconuts. It dawns on her that Jarvis has been getting away with "murder". The natives of Alpha offer to sell Sparky coconuts in return for a starfish. Sparky refuses and says she will give a half-starfish to which the Alphas soon capitulate (better half a starfish than another one of those coconuts). Upon returning to Beta she tries to sell for the price being demanded by Jarvis. Jarvis being no fool and realizing he now has competition cuts his price in half. Sparky not to be outdone and knowing how little she acquired the coconuts for enters a price cutting war with Jarvis. Eventually driving the price down to sensible levels.

 

At some point Beta too is saturated with coconuts and someone named Bippo arrives from island Gamma and the process begins all over again.

[Tribunicus Potestus]

What would happen in a cloud model similar to the drug trade? [if the use of the term drug bothers you, substitute bananas or whatever you like, I just picked it up as the first thing that came to mind for unregulated trade]

 

Using the same hypothetical chain of Islands. Suppose that Sparky had an inspiration. Why not avoid competing with Jarvis in the first place and go on to Gamma island? There she would sell her coconuts at a high markup, perhaps to Bippo's sister Zippo. Zippo then takes Sparky's idea to heart and takes them on to Delta island. Since she paid a high price for her coconuts she would need to recoup her costs so the price would go up.

 

 

 

So there you have it. I am not taking either side in the question. I am approaching it Tabula Rasa. Is there a simple way to test each hypothesis and there is. Even if we knew nothing about trade between Rome and China, if there was a black box with China at one end and Rome at the other we could still determine the method goods took to arrive. All we would need is the price at both ends. And the relative saturation between.

Edited October 10, 2011 by Tribunicus Potestus

[GhostOfClayton]

To clarify:

 

Are you saying that the more links in the supply chain, the higher the ultimate retail price? The assumption being that there is a sort of critical supply line length, beyond which the ultimate retail price is above the value driven by the desirability of the goods.

[caldrail]

A more complex chain of markets will inevitably cause a rise in price at the end, but then, higher prices for rare items drive the luxury market though it will limit the market somewhat. At the end of the day a balance will be found as those who made a loss prefer not to risk their investment again and specialist dealers emerge. As a result, these specialiosts would tend to make exclusive agreements and try to ensure delivery of stock.

 

The existence of the Silk Road for a short period does not mean that chains of suppliers or alternative routes did not exist, rather that a certain route between chosen markets and established agreements made supply of commodities more reliable - especially considering the vagaries of sea travel and the difficulty of weathering adverse conditions in vessels of those times.

[Tribunicus Potestus]

To clarify:

 

Are you saying that the more links in the supply chain, the higher the ultimate retail price? The assumption being that there is a sort of critical supply line length, beyond which the ultimate retail price is above the value driven by the desirability of the goods.

I had hoped that my example story would be self-explanatory. But my hopes have been dashed. If we revisit the story of the islanders the first part represents the pure market-to-market version. Where movement of goods occurs only when a saturation point is reached. You can see where the pressure points are. Sparky is in a position of strength as a buyer, she can and will, negotiate a lower price from the people of Alpha Island. They will accept this because their own market is saturated. However when she tries to market her goods on Beta Island she must contend with Jarvis. Jarvis will try and undercut her, and she must respond in kind. That is the second point of downward pressure.

 

The second part of the story I over simplified. Which is the model that is driven not by saturation but by the hope of higher profits. In that model one tries to outreach the competition and seek higher profits. In that case what happens even if Jarvis were to catch on and tries to compete at the more distant island Gamma they both will incur mounting costs which will force the bottom price upwards. With a farther reach will come fewer competitors and higher costs both pushing prices upwards.

 

I know using the "drug" trade as a comparison is distasteful but try and imagine for example the cocaine model. We all know from the news and movies more or less how it works. Cocaine comes from Columbia or thereabouts it passes two choke points, one in Panama and one is Mexico. But it follows a more or less forward route to the U.S. where the cash is.

 

Try and imagine a market-to-market model with Cocaine only moving from Columbia after the market becomes saturated there and spilling into a neighboring country until that country is saturated and then to the next. By the time it reaches the U.S. it will be a surplus good and the price would be low.

 

This is not the model the drug lords have chosen. There is nothing to say that both models can not exists simultaneously with the number of steps existing between the east and the west. But you will then have upward and downward pressures at different parts of the chain.

 

Both models are possible but one leads to higher prices the other to lower. Bear in mind I am not saying one model is more or less profitable for the originator only that the end user will pay a different price.

 

In the U.S. we have a phenomena known as the 99 cent store. The model illustrates the point of downward pressure. The 99 cent stores purchase overstocks and items otherwise unsell-able at their full price and sell them for next to nothing or more precisely 99 cents.

Edited October 10, 2011 by Tribunicus Potestus

[Tribunicus Potestus]

A more complex chain of markets will inevitably cause a rise in price at the end, but then, higher prices for rare items drive the luxury market though it will limit the market somewhat. At the end of the day a balance will be found as those who made a loss prefer not to risk their investment again and specialist dealers emerge. As a result, these specialiosts would tend to make exclusive agreements and try to ensure delivery of stock.

 

The existence of the Silk Road for a short period does not mean that chains of suppliers or alternative routes did not exist, rather that a certain route between chosen markets and established agreements made supply of commodities more reliable - especially considering the vagaries of sea travel and the difficulty of weathering adverse conditions in vessels of those times.

Like I have said before we don't disagree. You take the words from my mouth.

[ in case you are unfamiliar with that phrase. It means you say what I might say before I can say it.]

Edited October 10, 2011 by Tribunicus Potestus

[Tribunicus Potestus]

To clarify:

 

Are you saying that the more links in the supply chain, the higher the ultimate retail price? The assumption being that there is a sort of critical supply line length, beyond which the ultimate retail price is above the value driven by the desirability of the goods.

I am sorry I did not answer this question directly. The answer in no. No matter how many links you have in a market to market model the price will remain low. On the length question yes the longer the expedition the higher the aggregate costs. No matter how much competition you have neither can afford to sell below cost. At least not indefinitely. I point to the failure of Texas Instruments to monopolize the digital watch, calculator, and home computer industries by selling below costs to eliminate the competition. They lost billions in futile attempts.

Edited October 11, 2011 by Tribunicus Potestus

[caldrail]

No matter how many links you have in a market to market model the price will remain low.

Then how do the middlemen make any profit? In any case, goods on the end of market chains are notoriously expensive.

[Melvadius]

What is missing from the original concept is the underlying econmic factors which Caldrail has pointed out. Von Thunen's theoretical model is a good example in which goods and services are only supplied/ grown AND transported as far as it is economic to do so ire there is a market for them.

 

By extrapolation irrespective of how goods were transported whether by land, riverine or maritime carriers whoever is doing the transporting needs to be certain that there will be a market for their stock in trade. THe carriers may change but the principle still applies that whoever ends up with the goods needs to make a profit - especially if they may be carrying some of their goods for long distances.

 

Overland trade is liable to mainly have comprised smaller or at least lighter high value items so spices and due to its weight silk would have been ideal. Longer distance trade of bulkier or mroe fragile items would have fitted better with the economic advantages derived from maritime/ riverine trade BUT it need not have been exclusive.

 

There is some evidence including the Byzantine period monkls whcih provide indications that some items continued to make their way across the overland route long after it had 'nominally' been closed.

[Tribunicus Potestus]

No matter how many links you have in a market to market model the price will remain low.

Then how do the middlemen make any profit? In any case, goods on the end of market chains are notoriously expensive.

Exactly. As long as there is no saturation.

[Tribunicus Potestus]

What is missing from the original concept is the underlying econmic factors which Caldrail has pointed out. Von Thunen's theoretical model is a good example in which goods and services are only supplied/ grown AND transported as far as it is economic to do so ire there is a market for them.

 

By extrapolation irrespective of how goods were transported whether by land, riverine or maritime carriers whoever is doing the transporting needs to be certain that there will be a market for their stock in trade. THe carriers may change but the principle still applies that whoever ends up with the goods needs to make a profit - especially if they may be carrying some of their goods for long distances.

 

Overland trade is liable to mainly have comprised smaller or at least lighter high value items so spices and due to its weight silk would have been ideal. Longer distance trade of bulkier or mroe fragile items would have fitted better with the economic advantages derived from maritime/ riverine trade BUT it need not have been exclusive.

 

There is some evidence including the Byzantine period monkls whcih provide indications that some items continued to make their way across the overland route long after it had 'nominally' been closed.

You appear to conclude that some sort of direct communication of goods was in effect and not simply a spill over of excess. So where is the myth? Was it just a matter of semantics?

Edited October 11, 2011 by Tribunicus Potestus

[Melvadius]

You appear to conclude that some sort of direct communication of goods was in effect and not simply a spill over of excess. So where is the myth? Was it just a matter of semantics?

 

It should be obvious from what I've posted here and elsewhere that I do not subscribe to the view of overland routes between China and the west as a 'myth'.

[Tribunicus Potestus]

You appear to conclude that some sort of direct communication of goods was in effect and not simply a spill over of excess. So where is the myth? Was it just a matter of semantics?

 

It should be obvious from what I've posted here and elsewhere that I do not subscribe to the view of overland routes between China and the west as a 'myth'.

Duh! No wonder I couldn't understand how you could be arguing for the "myth". Boy do I feel like an idiot.