Middle Easterners Invented Entrepreneurship (with Nima Sanandaji)

Dr. Nima Sanandaji joins us this week to explain how and why ancient Middle Easterners invented capitalism and entrepreneurship.

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Dr. Nima Sanandaji has a PhD in Engineering from Stockholm’s Royal Institute, and he has written over 20 books on policy, philosophy, current affairs and history. He joins me now to talk about his latest, “The Birthplace of Capitalism,” which explains how and why ancient Middle Easterners invented capitalism and entrepreneurship.

Nima Sanandaji’s Wikipedia entry

His latest book, The Birthplace of Capitalism: The Middle East, Timbro (2018)

Dr. Sanandaji’s 2016 speech on Nordic socialism at the Cato Institute

Roderick Long joins Free Thoughts to talk about libertarian themes in Confucianism

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00:08 Anthony Comegna: It’s been a while since we’ve done much world history here on the show. And you know what? That kind of makes me sad, because we libertarians have much to learn and the more we learn about new places and new things, the better. But even more than that, studying world history in broad swathes demonstrates several deeply important truths, we would do well to recognize. I’m thrilled to welcome my next guest to the show, whose latest book argues that libertarianism is a necessary precondition for human flourishing. And every civilization has been libertarian, at least in some way. Dr. Nima Sanandaji has a PhD in Engineering from Stockholm’s Royal Institute, and he has written over 20 books on policy, philosophy, current affairs and history. He joins me now to talk about his latest, “The Birthplace of Capitalism,” which explains how and why ancient Middle Easterners invented capitalism and entrepreneurship.

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01:10 Anthony Comegna: Welcome to Liberty Chronicles, a project of libertarianism.org. I’m Anthony Comegna.

01:23 Anthony Comegna: So Dr. Sanandaji, this is a really, really fascinating book. And I thought it was packed with interesting information, especially if you have a limited knowledge of non-western history. But three things immediately leapt out to me and more or less blew my mind just in the introduction. First, that Adam Smith was a plagiarist. Second, that medieval Syrians used carbon nanotubes to make the best swords ever made. And third, that ancient Persian irrigation networks, built and maintained by private landowners over thousands of years ago, still provide water to about three quarters of Iran. Can you tell us more about each of these amazing facts and give us some idea of how they fit into your overall argument?

02:16 Dr. Nima Sanandaji: Yes, yes. It’s a pleasure talking to you. Number one is, we believe today commonly… Modern libertarians believe that Adam Smith is the father of economics. And one of the reasons is Adam Smith is the first guy to describe specialization on the private labor market. And this is the invisible hand of the market place. In my book, I show that Adam Smith in no way was first with anything. He was not the first to describe the specialization of the market place. He was not the first to describe the invisible hand of the market place. And that these things were described thousands of years before Adam Smith. Now, one of the most important things is Xenophon. Xenophon is a Greek historian. He is one of the first historians ever. And he’s actually a warrior historian. He was part of the Greek mercenaries who campaigned in ancient Persia and whose accounts inspired Alexander the Great to invade Persia.

03:16 Nima Sanandaji: But anyway, Xenophon writes the first text about specialization on the marketplace. And what has been found out is that Adam Smith used to refer to Xenophon. So Adam Smith would say, “Listen, 2000 years before me, his time, Xenophon described how the ancient market place worked based on specialization.” But this was Adams Smith in his unpublished lecture notes, which have recently been discovered. When Adam Smith writes his very famous book, “Wealth of Nations,” he omits this fact. He omits the fact that he is actually taking an idea which is 2000 years old. And Adam Smith is a plagiarist. And more importantly by doing this, he kind of pushes the modern free market thinking to saying, “Okay. So the first guy who wrote about specialization on the marketplace was Adam Smith. He was looking at the modern European economy, and this is the beginning of capitalism.” Whilst if you understand that almost exactly the same thing was noted around 500 years before Christ in ancient Persia, that tells you that they had a marketplace which functioned based on the same merits as a modern marketplace.

04:48 Nima Sanandaji: And this fits in my narrative, because what I show in my book is that the first enterprises, the first early banks, the first markets, all of them arose around 4000 years ago in Babylonian Assyria, and that the Middle East for many, many centuries has been a place of free markets. And Xenophon’s accounts were written about the ancient Persian Empire. And in my book, I also showed that Xenophon’s accounts of ancient Persia also includes the first account of free market policies. Now, if I may say this, Cyrus the Great, the ancient Persian king who is famous in the Bible for having liberated the Jews from slavery, who is recognized by the United Nations as having written an early Declaration of Human Rights, the same Cyrus the Great, as told by Xenophon, believed in free markets. Essentially, as he was a prince, they taught him that a wise king should never intervene in the marketplace. That a government has nothing to do with if a market transaction is efficient or not, and that the only thing a wise king should be concerned about is property rights and voluntary contracts.

06:05 Nima Sanandaji: This is about from 2,500 years ago, Ancient Middle East. And you ask two other questions. Yes, Medieval Syrians, Medieval Middle Easterners, they had very strong swords. Their swords were always stronger than the Christian swords. Now this was the best kind of sword that the Muslim soldiers had. And interestingly, these kind of swords, the Europeans were never able to replicate them. And the technology was nearly lost until some years ago, researchers examined them and found out they had carbon nanotubes. And this fits in my narrative because I showed that market economy had a Renaissance around thousand years ago in the Islamic Middle East. And this was not only a Renaissance for market economy, but for an early industrial revolution and these swords with carbon nanotubes are just one of the most fascinating things about that industrial revolution. And currently, the thing about the underground irrigation systems, I think myself is the most fascinating thing in my book. Because in the book I said, “Listen, the most Ancient civilizations in our planet are Egypt and Mesopotamia.”

07:24 Nima Sanandaji: And Egypt and Mesopotamia civilizations are both very very old. But if you read history, you will see that Egyptians stagnate. The Egyptians don’t change the world. A lot of the human progress comes from the Middle East, but not from Egypt. And it fits in my narrative because Egypt had much more centralized government control. They were much more like the Soviet Union economy, while the Middle East during antiquity was quite free market oriented. Now, the Egyptians build the pyramids. And many people say, “You’re fascinated by the pyramids. How could they build them? How was that possible? Maybe aliens built them.” But I think the very simple truth is the pyramids are the greatest example of government waste. For hundreds of years, this ancient and advanced civilization was using it’s resources to build mountains, human made mountains. And which have no value. They really are astonishing, but they have no value. And in the Middle East, they were building the canals. The canals are something that Westerners don’t know about. But listen, think about it.

08:35 Nima Sanandaji: Countries like Iran, Syria, these places played a very important role in human civilization. But they are too warm and they don’t have water. How could so many people live in these countries, and of course, a lot of countries around this? What they invented 3,000 years ago in Iran was an extremely advanced system of underwater channels and these channels would run for kilometers and they could be hundreds of meters, typically like 50 meters, 100 meters, underground and they were built with the precise technique. They had to have an angle of around 0.5 degrees, no more, no less. And it’s very difficult to dig them. But they did dig them. And they dug thousands, tens of thousands, and they irrigated large parts of the world including parts of Europe. And a research article written from around the ’70s said that until 1970, three quarters of Iran’s water came from this ancient, thousands of years old infrastructure. And this is the true accomplishment of humanity. This is the true wonder of the world. Because these were actually very very very useful. They made human civilization possible.

09:53 Nima Sanandaji: And they’re completely the opposite of the pyramids, which you can see on the ground which are impressive and are government waste. Now how did they build the canals? Which if you think about is, is the most impressive thing perhaps they ever built in the ancient world. They built them through capitalism. The canals were not built by kings. The canals were built by farmer cooperatives, or they were funded by them. Because the system was whoever pays for that, whoever owns the canals, owns the land and the water. If you irrigate a piece of desert, you own that piece of desert. And this was how it worked. A group of farmers would come together, they would go to private contractors, tell them, “Listen guys, we will give you a third of our crops for 20 years if you dig us canals.” And this intricate system of ownership and private contracting made it possible to irrigate large parts of our planet 3,000 years ago.

10:57 Anthony Comegna: Now I’d like to dig into your thesis a little more. Could you explain… I think the main thrust of your book is that capitalism, entrepreneurship, free exchange, private property, these bundle of concepts that we take as sort of the Libertarian package today. These things are actually necessary pre-conditions for human flourishing. And because of that, everywhere there’s been a civilization, there has been some variation of these different ideas, which are the only things really that allow large scale flourishing to happen and to last. Could you dig into that a little more and explain that and maybe give us some examples of this process occurring around the world?

11:46 Nima Sanandaji: Yeah. Well I mean, the thing is that, I have been a free market thinker for some time now. And I’ve always been by bugged by fact that the Western narrative says that free markets are quite recent Western innovation partially, because I’ve always… I come from Iran, I’m Kurdish, so I’ve known this ancient eastern tradition and it’s obviously very free market oriented. But another thing is that, I was sure that this is true, because all of this human accomplishment that happened in antiquity, all of this human accomplishment that has happened for the past 4,000 years, how could it have occurred if not through private enterprise? And once I started writing this book, I was captivated because recent Archaeology… For example, the Middle East, they’ve deciphered a lot of this clay tablets. They found a lot of clay tablets from ancient Babylonia, ancient Assyria, and these clay tablets, it turns out, are mostly economic… They’re receipts. They’re just telling economic transactions. That’s why they made up the alphabet, for business. And from them, we know a lot of detailed accounts. And we know that Babylonian Assyria, 4,000 years ago we had the first market economies of the world, and they were pretty advanced actually.

13:09 Nima Sanandaji: One of the most fascinating things is the Babylonian astronomers, they wouldn’t only write down how the stars moved, how the zodiacs changed, they would actually write down how market prices of various goods changed from one month to another month, and even within a month. Today, we know how the market prices of Babylonia changed, month to month and even week to week. And this is not only the Middle East. Independently, it would seem, market economy arose also in China, in the Indus Valley and to a limited extent, also in Meso-America among the people who would become the Mayans and the Aztecs. So the four cradles of human civilization, all of them in one way or another, had market economy. And I think this really tells you that market economy is not a new institution, it is an institution that has been a part of the Golden Ages of human civilization throughout history.

14:11 Anthony Comegna: Now I’d like to dig into each one of those examples a little bit, if we could. I don’t know, do you have an order of which ones do you think were the most oriented toward freer markets and which were the least? Would you put the Americas or India at the bottom of the list, for example?

14:31 Nima Sanandaji: I would put the Americas at the bottom of the list because the early Spanish who wrote about, for example, Aztec civilization before it crumbled, was that in some degrees it was a laissez faire economy, but they didn’t have a market for labor or market for land. They were like… If you wanted land, you would conquer it. If you wanted labor, similarly, was a patronage feudalist system. And they had, for some reason, not developed the technology of trade well. They had free trade, but they didn’t have ships. So they had some elements of free markets but quite limited. India at some point was very market liberal and the ancient Indians actually developed an early form of, you could say, kind of corporation. The Shreni was a mixture of a guild but it was also somehow a corporation, because it was an independent [15:36] ____ institution similar to a corporation.

15:39 Nima Sanandaji: India’s free market era was more limited, though, and so I would put Meso-America at the bottom definitely. Third place comes India. Then, it’s very interesting, China had periods of losses for free market capitalism, and the Chinese intellectual tradition of free markets is very, very strong. Now, one reason might be that the ancient Chinese philosophical texts have survived, while the ancient Middle Easterners haven’t. And what I know… I mean, the findings I have about free market ideas in the Middle East come from Greek historians. But I would say that China probably, at least surviving, they had a stronger free market intellectual tradition in antiquity, but the Middle East was more free market overall. And the reason for this, I think, is that the Middle East often was a number of small states, which sure had institutional competition. China unfortunately, had often one big government and Chinese emperors would often shift from free market to government control. And then again it would shift back to free market because government control didn’t work, so that’s how I see it.

16:57 Anthony Comegna: ‘Cause something that I’ve picked up from reading Chinese history is that their most productive and vibrant, culturally explosive periods are those warring states periods. Where the empire breaks down and the emperor loses the mandate of heaven and other people are trying to pick it up and you have all these competing small statelets, and that’s where Confucianism thrives for example, and Lao Tsu’s Daoism thrives in that kind of an environment. But I was also always taught, in Chinese history, that Confucianism did not really respect mercantile work. That they might have understood its value, but it was not very high up on the social chain of different labor types. It was even lower, as I understand it, than the common farmer. At least I was taught that Confucians were sort of like physiocrats. They thought agricultural work was the basis of all wealth and so that was the most important. Mercantile work was sort of you’re just a middleman dealing with other people’s product, and so it’s not terribly respectable.

18:07 Nima Sanandaji: Yeah, I think that Confucius himself kind of had that position, however, he was the proponent low taxes, regardless. Mencius, who’s the second most important Confucian, philosophy is just astonishing. In short, what he was saying was very similar to Reaganite republican. He wasn’t Libertarian, then he was Libertarian conservative, and his stance on economic policy is more or less as advanced as contemporary free market thinkers. And in… I don’t remember all the names in my own book, but there are many Chinese intellectuals whose ideas from like 2,500 years ago, we would recognize as pretty sophisticated free market thinking, and there are ancient Chinese books on state graft, and one of them has a description of the invisible hand of the free market, which is just astonishing. It basically says that goods flow from one market to another, the goods arrive, where they’re supposed to arrive. There’s no government seeing to this. Government is not involved. And this is just an incredible system of free markets. And a text further describes that merchants are analyzing the marketplace and they’re teaching their sons the language of profit. So the ancient Chinese had a very deep understanding on how to market economy functioned, and also they had a deep understanding on how government destroyed it. Because again, China would fluctuate in its economic policies.

19:58 Nima Sanandaji: So, very much like our modern western world, the ancient Chinese had a deep understanding on free market policies and the limits of government control. And of course, the Chinese besides Confucianism, they have Taoism, and Laozi was, by all accounts, I think we should regard him as a first libertarian. And he said, “The state is more dangerous than even a ferocious tiger, and as many hairs as an ox has on his back, as many laws and regulations, the state has, which destroy people’s lives.” One thing when I’m writing about history is these people, they were as intelligent as you and me. There were fewer people on the earth, they had less technology, but they were sophisticated. And this is what I’m seeing in these descriptions really, we might think, okay, he’s comparing government regulation to the hairs of the backs of an ox… But that was the way for them to make people understand what they’re saying. And many of these texts, many of this writing, actually, it strikes me as being very well formulated. A critique against big government, an explanation of the importance of free markets. And the same, of course, goes for the many, many Iranian and Arabic Islamic thinkers, which came around the 1000 years, I mean the early middle ages, 1000 years ago, in the Islamic olden age of free markets. So they were also very sophisticated, and in some regards, their free market thinking was even more, let’s say radical, than today’s free market thinking.

21:42 Anthony Comegna: And that’s what I’d like to go to next. The biggest portion of your book is reserved for the Middle East. These are the centers of so much of world history for so long. This is where economic progress really explodes and travels around the world, to all sorts of different places. And I think, at least it seemed to me, you were making the case that this is culturally speaking, the center of entrepreneurship and free trade.

22:14 Nima Sanandaji: Yes, yes. The first enterprises in the world, the first market, the first early banks, they evolved in Babylonia, which is today Iraq, and in Assyria, which today of course, is Syria. And this happens in both of these countries around 4000 years ago, and we now know that this was a very advanced market model. And of course throughout world history, the wealth of Babylon, the progress there, it astonished people for thousands of years. And technological advancement, human advancement, all of them happened in these places. And not only did they have trade, but they had advanced for the time factories to produce different textiles and industrial goods, and metal work, etcetera. And then we have the Persian Empire. The Persian Empire is important, because this is an empire, which is the first large global empire, almost half of the world population at a time were living in this Persian Empire. Well, what did the Persians do? They respected free markets, they built what would later, they built a royal highway, which would later become linked to China and become the Silk Road, and they spread the first standardized gold coins.

23:37 Nima Sanandaji: The first standardized gold coins come from Croesus, who was a contemporary king of Lydia, and the Persians spread them. So you have all this progress and somewhere around 750 BC, the concept of enterprise comes to Greece, from the Middle East. It goes to [23:54] ____, and then comes to Greece, but throughout ancient history, for many, many many hundreds, a couple of thousand years, the ancient Greeks and the ancient Romans, they kind of do get market economy banking from the Middle East, but they don’t like it. The ancient Greeks, the ancient Romans, they didn’t like commerce and enterprise. A citizen of Rome and Greece would not be a merchant. They would not be a banker, because this was seen as a very low status work. So Jewish people, Syrian people, slaves would be the bankers, would be the ship captains of Rome, would be the entrepreneurs. And this is why in ancient Rome, you would have slaves who would become by their standard millionaires, and would buy themselves free and be rich individuals. But of course, they would not be seen as respectable people because trade and enterprise in the European tradition were not seen as respectable.

24:53 Nima Sanandaji: And this is actually one of the conclusions of my book, is that really if you think about it, we still have this. We still have a culture in the Western world, which doesn’t look… Doesn’t like capitalism. Culturally, the Western world doesn’t like capitalism. And one very interesting way of looking at it is look at how Europeans, Americans portray capitalists in culture. The capitalist is very seldom the hero of the movie, often they’re the villain, but I contrast it with stories of One Thousand and One Nights. Now, One Thousand and One Nights is one of the most influential story collections in the world, of course, because it captures the most interesting stories of Iranian, Arabic, and Indian tradition for many centuries.

25:46 Nima Sanandaji: Now, in that storybook, the heroes are merchant capitalists. The merchant capitalists are often the heroes and throughout… I mean, Kurdish culture, Indian culture, Arabic culture, Turkish culture, Armenian culture, read their stories, their stories often end with the hero becoming very rich. That is the moral ending of many, many Eastern stories. And my favorite one is an Indian story of a rat merchant. Ancient India, they had this story, that there’s a very, very poor guy, his father is like the poorest farmer you can be. And his father says, “Listen son, I have nothing for you. Go to the city.” So, this guy has nothing, he owns nothing. He goes to the city and he listens on a conversation that I think the chief of finance is having, the finance minister. And the finance minister says that in our economic model, even a person who starts with only a dead rat as capital will become rich.

26:47 Nima Sanandaji: So, this poor guy finds a dead rat and he goes around with it. And, everybody’s laughing at him, “Look at that poor beggar with a dead rat.” But then, he sees a guy who’s a rich merchant, he has a cat, the cat wants to eat the rat. So, he gives him a coin, the guy says, “I have one coin, what should I do?” He buys a pitcher of water, goes and finds some nice water, thinks, “Where do people like water?” So, he goes and waits until people are really thirsty in the fields then he gives them water. He’s analyzing the market, he gives them water, and these guys are planting flowers. They say, “You want money?” “No, no. Give me some flowers.” And then he thinks, “Where do people want to buy flowers?” So, constantly, he just analyzes the marketplace. He puts effort into it, and he expands his capital through voluntary exchange that benefits everybody. And at the end of the story, this guy, the rat merchant. They said, “He’s a rich guy, he owns a huge house. He owns elephants, he owns large wagons. He’s a rich guy.” Think about this story, this Indian ancient story. This is a perfect story about capitalism, because the moral of the story is that capital accumulation and voluntary exchange is something everybody can rely on to become prosperous and this is a good thing. You’re the hero of the story if you become rich.

28:11 Anthony Comegna: I’m left wondering then and by the end of the book, I was wondering this too. Although I think that you do offer answers. How did we end up with all these different regimes across the Middle East that embrace what you term Arab socialism? Was it mainly all colonialism’s fault? Was it the Europeans fault for spreading their new market embraced by the point of the sword and with cannons on their ships? That’s how they spread markets around the world and open up contact with new peoples. I’m wondering, has Marxism been something embraced by popular voting majorities? Has it been more of a set of excuses for classical elites to do the same sort of parasitism on a new scale? How do you explain the rise of Arab socialism in such a richly, deeply entrepreneurial culture?

29:11 Nima Sanandaji: Yeah, this is very interesting. So, there are many explanations, one of them is actually colonialism, because the Europeans have two traditions dealing with the Middle East. The first is the Italian tradition, because modern capitalism evolves in the renaissance Italy, and it evolves through direct contact with the Middle East. Italians take the Middle East, the market model and make it more advanced. Now, in many ways, Western capitalism is more advanced than Eastern forms of market economy. For example, just one example, corporations, modern corporations are a Western invention. Secondly, intellectual property rights are a Western invention, but this happens when the Italians are working with the Muslim world, and it happens at a time when the Jewish people of Europe have been expelled from most of Europe and they’ve gone to Italy. And of course the Jews are immediately some people with this culture of enterprise.

30:08 Nima Sanandaji: Now, the Italians really promoted Middle Eastern, North African free market model. There’s a book that the English wrote, they were kind of spying on the Italian network, they were saying that there were like 4,000 Italian families who lived in present day Syria, Lebanon, that region, Israel, Palestine, and they were engaged in working with a network of factories that stretched into Aleppo, Mosul, Baghdad, all the way to Iran. And the British spies, which are very envious, they report that in Iran people are wearing Venetian wool during winter and the Venetians, a lot of them are wearing Persian silk.

30:52 Nima Sanandaji: Now, the British did not like this because the British tradition was of companies and their companies were monopolistic firms which had the backing of the British empire’s military and often private militaries and they were going out to destroy free enterprise and control it. So unfortunately, this kind of model really undermined the global market. And what the British also did, one example, in 1701 the British who would… They would almost control all of the word through the empire, all of the trade, they imposed sanctions on the textiles, carpets, all of that from Persia, India, and China. And at the time, that was the popular industrial goods that people used to buy, were textiles. So colonialism was one explanation.

31:44 Nima Sanandaji: Second explanation is that the Western capitalist model is more advanced, the Middle Easterners don’t really adapt it, so they fall behind. Thirdly, what you have is you have bad governments, you have the rise of big governments in these countries. You have the rise of corrupt governments and this destroys the market model. And then in our modern time, oil. Oil is their curse because oil is an extremely valuable resource that a government can easily control. For example, the Saudi Arabian oil company is very secretive so nobody knows how much money they have, what their worth is, but the worth of the Saudi Arabian government oil company might be 10 times more than Apple, which is I think the most… The biggest American firm. So oil is the curse that destroys much of the Middle Eastern market model. And the fact that the Middle East, unfortunately, during the cold war, the global powers, Soviet Union, America, etcetera, they were kind of fighting a proxy war between between the Soviet sphere and the Western sphere and the Middle East gets kind of caught up in this. The Middle East gets caught up in both of the World Wars. So I think these things, all of them play a role in undermining this.

33:13 Nima Sanandaji: And lastly, I would only like to say that the current state of the Middle East, we should remember, is fortunately not the normal state. The normal state of the Middle East is that it’s a rich place, it’s a place of commerce, enterprise, industry, and my hope is that the Middle East will return to that.

33:39 Anthony Comegna: I’ve always been fascinated by the idea that if ancient civilizations hadn’t died out one way or another, human history would be thousands of years advanced from where we are now. Constantly and forever, governments have squeezed people of their entrepreneurial energies. If only history had developed an even slightly more libertarian directions, just imagine where we would be.

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34:14 Anthony Comegna: Liberty Chronicles is a project of libertarianism.org. It is produced by Test Terrible. If you’ve enjoyed this episode of Liberty Chronicles, please rate, review and subscribe to us on iTunes. For more information on Liberty Chronicles visit libertarianism.org.