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David the Economist (Repost from July 5th, 2013)

 

In 1122, King David IV. reconquered Tbilisi from the Muslims. In those times, a bloodbath among the former oppressors would have been the logical consequence of such a victory. Leaders of the High Middle Ages took merciless revenge against their enemies once they had defeated them. Yet David did not! To the contrary, he did not only let the former rulers live, but David was even anxious that the Muslim population might leave Tbilisi after the fall of the city. In order to send a strong signal of appreciation and friendship to the Muslim population, he exempted Muslims from the state tax for one year.

When David IV., known as David the Builder, assumed the Georgian crown in 1089, Georgia had effectively been under foreign rule for at least three centuries. Through farsighted administrative and military reforms, he strengthened the power of the local aristocracy and finally led his people into a successful rebellion against the foreign oppressors. This led to the victory at the Battle of Didgori in 1121 against the Seljuk Turks, arguably the greatest military success in Georgian history ever.

David aimed to create a strong and independent Georgia, but he did not want to isolate his country from the rest of the world, in particular not economically. While he is mainly known for his military and political achievements, David was also a great economist. Hundreds of years before the rise of modern economics, Georgia had a king who understood the importance of human capital and the role of free trade for the well-being of his country. He even managed to establish a medieval lead currency. In the 12th century, Georgia had a king who was centuries ahead of his contemporaries in Europe and elsewhere!


ATTRACTING FOREIGN INVESTORS

Making Georgia a hub economy is not an idea of the Worldbank or contemporary Georgian politicians. Though the abstract concept of a hub economy was unknown to him, David the Builder wanted to develop Georgia’s international economic relations and make the country a center of trade. Yet after so many years of foreign rule, the Georgian population was primarily working in the agricultural sector and did not produce many commodities that could profitably be transported over long distances. Many Muslims, Armenians, and Jews, on the other hand, were skilled craftsmen and traders. Consequently, the king offered favorable conditions to these groups for doing business in Georgia. While a Georgian had to make the highest contribution to the state budget, namely 5 Dinars per annum, Jews were taxed by 4 Dinars, and Muslims only by 3 Dinars.

In this time, the city of Gori, previously a small and pathetic settlement near the capital, became a center of trade and workmanship. This upgrade was primarily driven by Armenians who were attracted to settle in Gori under favorable conditions that were offered to them by the king.

Remember that this took place at a time when elsewhere in the world foreigners and members of minority groups were barely tolerated. In many parts of Europe, Jews were not allowed to settle at all, and where they could settle, they were heavily overtaxed in exchange for unreliable security guarantees of the rulers. In Islamic Spain, Jews and Christians were not expulsed, but they had the status of dhimmis, forcing them to pay extra taxes.


INFRASTRUCTURE

Developing markets and fostering trade though the provision of infrastructure is not a new invention either. In the Roman Empire, a network of stone roads guarded by the army allowed for safe, fast, and far-distanced transports of commodities at relatively low rates. Many maritime cities had enclosed ports that protected anchoring ships from stormy weather, and light houses along the coasts provided navigation services.

Under David, Georgia was not as huge as the Roman Empire, and so he gave his infrastructure policy a particularly Georgian flavor. While he engaged in the classical measures of building stone roads and bridges, he also established Carvaslas, hostels in which foreign merchants were staying free of charge. Indeed, the word Carvasla originates from caravan – oriental groups of merchants traveling together, mutually assisting and defending each other. So even in his infrastructural efforts, David understood that a small country like Georgia can only prosper through foreign involvement.

David’s farsighted policies yielded juicy fruits. In the 12th century, Georgia became one of the world’s foremost producers of wooden furniture, clay vessels, plates, dishes, and gold jewelry.


ESTABLISHING A LEAD CURRENCY

Modern market economies are often associated with the emergence of so called fiat money. Fiat is a Latin term, meaning “let there be”. While traditional money derived its value from the amount of precious metals used in minting the coins (the so called intrinsic value), modern money is valuable solely because there is a general consensus and sometimes a legal obligation to accept the money as a means of payment. As suggested by the term fiat, something is just declared to be money.

Guess who was the first one to introduce fiat money in the occident? Yes, it was David the Builder, King of Georgia.

David introduced new coins that were not made from silver anymore, but from copper. He announced that these copper coins had to be accepted for making payments at the same rate as the old silver coins. Finally, the silver coins were removed from circulation and Georgia remained with the first fiat money outside China. Yet beyond being accepted in Georgia, the new coins became a popular currency all over the Caucasus and even in the Muslim world. How did David manage to establish a lead currency in the 12th century, comparable to the Euro or the Dollar today?

First of all, the value of the new currency derived from its purchasing power. This, in turn, was a direct result of the new strength of the Georgian economy. There were many attractive commodities one could buy with David’s coin, and so nobody cared whether it was made from silver or from copper. In addition, the new coins were engraved both with Georgian and with Arabic letters, making them more attractive for Muslim traders who could read the nominal value of the coin in their own alphabet. This shows how farsighted David was – he did not create a lead currency by accident, but through rational planning and considerations. In the picture, one can see one of David's copper coins, probably minted between 1118 and 1125 CE. It contains 10.73 g of copper and has a diameter of 33 mm. Today it is in the British Museum in London.

In the contemporary policy debates in this country, one should always keep in mind that Georgia is too small to be economically self-contained. Georgia needs foreigners to bring in know how and capital, and Georgia depends on foreigners for buying locally produced goods and services. David the Builder understood that even those people who had been his military enemies could be his economic partners. In Georgia, the insight that economic success conflicts with nationalism and chauvinism is 900 years old, but it is still as valid today as it was in David’s times.

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Guest - zviad bakhurauli on Saturday, 06 July 2013 04:42

thanks for this article. :)) economy of small countris like georgia are very different to big ones and it needs an individual approach by policy makers. I think, in 12th century georgia created the rules and economic environment which are very like to principles of modern democracy. trade can make everyone better off.

thanks for this article. :)) economy of small countris like georgia are very different to big ones and it needs an individual approach by policy makers. I think, in 12th century georgia created the rules and economic environment which are very like to principles of modern democracy. trade can make everyone better off.
Guest - Lasha on Saturday, 06 July 2013 04:46

Many thanks to authors for this wonderful blog. Now I know King David the Economist. I wish Georgian policy makers read this and take it right.
It worth to mention that David the Builder gave close attention to the education. Academies of Gelati and Ikalto are the great examples. He also sent children to Byzantine Empire to study the language and bring translated materials in Georgia.

Many thanks to authors for this wonderful blog. Now I know King David the Economist. I wish Georgian policy makers read this and take it right. It worth to mention that David the Builder gave close attention to the education. Academies of Gelati and Ikalto are the great examples. He also sent children to Byzantine Empire to study the language and bring translated materials in Georgia.
Guest - KingOfKolchis on Monday, 08 July 2013 06:17

This is a very nice piece and would be particularly useful to feed into popular economic policy debate. To this end, would be great to have it translated into Georgian. Would encourage the authors to expand it to cover other aspects of reforms also mentioned in other comments.

This is a very nice piece and would be particularly useful to feed into popular economic policy debate. To this end, would be great to have it translated into Georgian. Would encourage the authors to expand it to cover other aspects of reforms also mentioned in other comments.
Guest - makachitanava on Monday, 08 July 2013 14:58

Thank you all for your comments.

I agree that David the Builder's reforms and policies deserve much more attention from economics point of view. Lasha thanks for mentioning education policy. I would add that David's attitude towards health policy is also interesting. For instance, existence of Qsenons (ქსენონი) which can be considered as prerequisites of current state hospitals. I am sure we still can discover a lot of new, fascinating things about the greatest ruler in Georgian history.

Thank you all for your comments. I agree that David the Builder's reforms and policies deserve much more attention from economics point of view. Lasha thanks for mentioning education policy. I would add that David's attitude towards health policy is also interesting. For instance, existence of Qsenons (ქსენონი) which can be considered as prerequisites of current state hospitals. I am sure we still can discover a lot of new, fascinating things about the greatest ruler in Georgian history.
Guest - Giorgi Kelbakiani on Wednesday, 10 July 2013 14:51

Great! Excellent Example why Georgia should dig more in its own past for the role model examples of the policies rather than looking around in all possible directions

Great! Excellent Example why Georgia should dig more in its own past for the role model examples of the policies rather than looking around in all possible directions
Guest - Vakho Tkeshelashvili on Wednesday, 10 July 2013 15:34

I liked the post very much. The author knows that the term is not less popular than it was in 12th century, so it's clear that we can study much more from our history than as can be seen at a glance...

I liked the post very much. The author knows that the term is not less popular than it was in 12th century, so it's clear that we can study much more from our history than as can be seen at a glance...
Guest - Nino on Friday, 19 July 2013 18:02

Thanks a lot for such an interesting insight into the works of David the Builder from the modern perspective! I guess that every singly Georgian person is aware of his high importance for our country and not only the whole Caucasian region but also the Christian world of those times. I just would like to underline once again that there was not left a single sphere which King David did not pay attention to. He launched several (and quite painful) reforms and followed his goals consequently and never let to be led astray. Not least are to mention his loyal advisers who have always supported him.

Thanks a lot for such an interesting insight into the works of David the Builder from the modern perspective! I guess that every singly Georgian person is aware of his high importance for our country and not only the whole Caucasian region but also the Christian world of those times. I just would like to underline once again that there was not left a single sphere which King David did not pay attention to. He launched several (and quite painful) reforms and followed his goals consequently and never let to be led astray. Not least are to mention his loyal advisers who have always supported him.
Guest - Tariel Zivzivadze on Monday, 05 August 2013 19:14

I enjoyed the reading ... truly
I wish there were more people who will study the business history of Georgia
WE HAVE A RICH HISTORY!
These success stories need to be uncovered, studied and publicized!

I enjoyed the reading ... truly I wish there were more people who will study the business history of Georgia WE HAVE A RICH HISTORY! These success stories need to be uncovered, studied and publicized!
Guest - Maya on Monday, 05 August 2013 20:20

The article is great, and my best regards to the Authors. Guess would be even greater if someone can think of "translating" the concept behind this great article for contemporary Georgian Economists and Politicians. I bet Ilia Chavchavadze's works on economic systems of Georgia and his vision of the country's development contains no less interesting and important information and notions that can be applied today. We should not be hanging his pictures everywhere but study his works and use them in life.. ...

The article is great, and my best regards to the Authors. Guess would be even greater if someone can think of "translating" the concept behind this great article for contemporary Georgian Economists and Politicians. I bet Ilia Chavchavadze's works on economic systems of Georgia and his vision of the country's development contains no less interesting and important information and notions that can be applied today. We should not be hanging his pictures everywhere but study his works and use them in life.. ...
Guest - RT on Tuesday, 27 August 2013 03:25

Kakha Bendukidze had a nice blog post on the same topic: http://zarbazani.blogspot.com/2010/06/blog-post_11.html

Kakha Bendukidze had a nice blog post on the same topic: http://zarbazani.blogspot.com/2010/06/blog-post_11.html
Guest - kijong kim on Friday, 06 September 2013 19:05

This post is a very delicious food for thoughts. Thank you!

This post is a very delicious food for thoughts. Thank you!
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