What regulatory arbitrage happened in antiquity?

October 23, 2017 2:19 PM

I was talking to a co-worker about the ridiculousness surrounding the South Seas Bubble and in particular the Hollow Sword Blade Company and it occurred to me that there must have been similar goings on earlier but I'm unaware of them. What documented instances of what we'd call regulatory arbitrage do we have from before the Early Modern period? Especially interested in antiquity but I'll take whatever you've got.
posted by PMdixon to Society & Culture (8 answers total)

There's a story about Thales of Miletus cornering the olive oil market to refute critics of his supposed unworldliness
posted by thelonius at 3:07 PM on October 23, 2017 [1 favorite]

You may find this useful: https://en.m.wikipedia.org/wiki/List_of_stock_market_crashes_and_bear_markets

Of course the most famous crash is the tulip mania, but I don't know if it involved regulatory arbitrage as such.
posted by yohko at 3:52 PM on October 23, 2017 [1 favorite]

Best answer: Chinese economic history has two millennia of regulatory arbitrage around the production and distribution of salt, which in various dynasties was an end-to-end state monopoly and main source of government revenue, or a managed production system where the state sold production rights and regulated prices. Arbitrage of salt regulations was incredibly lucrative under certain dynasties, and the question of how salt should be regulated was a major debate of economic philosophy.

Some relevant passages from the Wiki article Salt in Chinese History:

In the Han dynasty, in the first century BCE: “Writers turned to poetry and fiction to continue a debate which had been started centuries earlier by Guanzi and the Han dynasty Discourses on Salt and Iron: practical men argued that monopoly revenues helped the state to carry out its mission while Confucian critics argued that government monopolies made some groups rich and left others poor and exploited, and that salt taxes afflicted the people and encouraged expansionary wars which would doom the empire. Each side claimed the moral high ground.”

In the Yuan dynasty, in the 13th century CE: “Hereditary salt merchants in the city of Yangzhou became the symbol of wealth. One merchant commissioned a chamber-pot made of gold which was so tall that he had to climb a ladder to use it. These families maintained their positions for generations by emphasizing education for their sons and steady payments to government officials.”

In the Qing dynasty, in the 17th century CE, Pu Songling writes: “Those who drive an illicit trade in salt, not only defraud the State of its proper revenue, but also prey upon the livelihood of the people. Those, however, whom the greedy officials and corrupt traders of to-day denounce as unlicensed traders, are among the most virtuous of mankind, needy unfortunates who struggle to save a few cash in the purchase of their pint of salt. Are they your unlicensed traders?”

posted by strangely stunted trees at 6:10 PM on October 23, 2017 [4 favorites]

Best answer: I'm guessing that the most common instances would have been religious institutions which were set up for ostensibly charitable purposes, but which turned their hand to making profits and keeping serfs. David Graeber, following Jacques Gernet, makes the Buddhist Inexhaustible Treasuries sound like that. They were repeatedly suppressed by the Chinese government, and some of the explanations offered for suppression would suggest that the government wasn't happy with the regulatory arbitrage they practised. However, there's still considerable debate about the role they played and the government response to it.

On similar lines, you could argue that Jesus was complaining about the moral equivalent of regulatory arbitrage when he overturned the tables of the moneylenders in the temple. "It is written, My house shall be called the house of prayer; but ye have made it a den of thieves." However, were there any actual regulations whose will they were bending?

Part of the challenge is that to achieve regulatory arbitrage, you need a sufficiently complex set of regulations and a government willing to enforce them even against its own interest. That's a rare combination in antiquity. If Rome had regulations about fire suppression, surely the notorious fire brigades of Crassus would've been a form of running a real estate business in the guise of a firefighting crew, but I'm not sure that Rome did have those regulations.
posted by clawsoon at 7:19 PM on October 23, 2017

Response by poster: Monasteries are a phenomenal example. Keep em coming folks.
posted by PMdixon at 7:46 PM on October 23, 2017

Temple prostitution seems like it must have developed via regulatory arbitrage: Your temple is running out of money. What do you do? Define sex as a sacred activity, and then define paying for sex as a donation to a religious institution. Money problem solved. However, I don't know if there's any evidence to support that sequence of developments; for all I know, prostitution came first and the religious institutions were later built around it.
posted by clawsoon at 8:28 PM on October 23, 2017

Medieval sale of indulgences?
posted by crocomancer at 4:06 AM on October 24, 2017

Best answer: Does Jews charging interest to Christians count?
posted by BungaDunga at 8:15 AM on October 24, 2017 [2 favorites]