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DISCUSSION PAPER SERIESIZA DP No. 670From Farmers to Merchants: A Human CapitalInterpretation of Jewish Economic HistoryMaristella BotticiniZvi EcksteinDecember Forschungsinstitutzur Zukunft der ArbeitInstitute for the Studyof Labor

From Farmers to Merchants:A Human Capital Interpretationof Jewish Economic HistoryMaristella BotticiniBoston UniversityZvi EcksteinTel Aviv University, University of Minnesota,CEPR and IZA BonnDiscussion Paper No. 670December IZAP.O. Box 7240D-53072 BonnGermany Discussion Paper is issued within the framework of IZA’s research area The Future ofLabor. Any opinions expressed here are those of the author(s) and not those of the institute.Research disseminated by IZA may include views on policy, but the institute itself takes noinstitutional policy positions.The Institute for the Study of Labor (IZA) in Bonn is a local and virtual international researchcenter and a place of communication between science, politics and business. IZA is anindependent, nonprofit limited liability company (Gesellschaft mit beschränkter Haftung)supported by the Deutsche Post AG. The center is associated with the University of Bonnand offers a stimulating research environment through its research networks, researchsupport, and visitors and doctoral programs. IZA engages in (i) original and internationallycompetitive research in all fields of labor economics, (ii) development of policy concepts, and(iii) dissemination of research results and concepts to the interested public. The currentresearch program deals with (1) mobility and flexibility of labor, (2) internationalization oflabor markets, (3) welfare state and labor market, (4) labor markets in transition countries, (5)the future of labor, (6) evaluation of labor market policies and projects and (7) general laboreconomics.IZA Discussion Papers often represent preliminary work and are circulated to encouragediscussion. Citation of such a paper should account for its provisional character. A revisedversion may be available on the IZA website or directly from the author.

IZA Discussion Paper No. 670December ABSTRACTFrom Farmers to Merchants: A Human CapitalInterpretation of Jewish Economic HistorySince the Middle Ages the Jews have been engaged primarily in urban, skilled occupations,such as crafts, trade, finance, and medicine. This distinctive occupational selection occurredbetween the seventh and the ninth centuries in the Muslim Empire and then it spread to otherlocations. We argue that this transition was the outcome of the widespread literacy amongJews prompted by an educational reform in the first century CE. Based on the growing nexusbetween education and Judaism in the first half of the millennium, we build a model in whichJewish men choose education, occupation, religion, and location. The model predicts thatwhen urbanization expands (as it did in the Muslim Empire), Jews move to new cities due totheir comparative advantage in urban, skilled occupations. Furthermore, before urbanizationa proportion of Jewish farmers are predicted to convert to other religions. The predictions ofthe model regarding conversions, migrations, and reduction in the size of the Jewishpopulation are consistent with the historical evidence about the first millennium provided bythe historians. Hence, our study presents evidence for the long-term economic implications ofchanges in social norms.JEL Classification:Keywords:N3, O1, J1, J2, Z1Jewish economic history, human capital, religion, social norms, migration,occupational choice, first millenniumCorresponding author:Zvi EcksteinEitan Berglas School of EconomicsTel Aviv UniversityTel Aviv, 69978

1IntroductionWhy since the Middle Ages have the Jews been engaged primarily in urban, skilled occupations,such as crafts, trade, Þnance, and the medical profession? Why were the Jewish people aminority in many urban centers and towns? When and why did this occupational selection anddemographic characteristics become the distinctive mark of the Jews? Is there an economictheory that can explain these facts and pass the test of its other implications? In this paper weprovide an answer to these questions based on a human capital theory that is consistent withfacts collected, described, and interpreted by historians.1The distinctive occupational and residential structure of the Jews has attracted the attentionof scholars of Jewish history. Abrahams (1896) and Roth (1938) promoted the well-acceptedview that the Jews were not engaged in farming like the rest of the population because of therestrictions and prohibitions imposed by the local rulers. Since the late Middle Ages, in manycountries Jews were prohibited from owning land, and in certain areas they were forbidden fromliving in rural areas. Moreover guilds excluded them from working in certain crafts within urbanareas.Kuznets (1960) also addressed these questions. Like Reich (1960), he established the factthat at the end of the nineteenth century and the beginning of the twentieth century, the Jewsin Europe and North America were not engaged in agriculture independently of the size of theagricultural sector in a given country (Table 4 in Appendix B). Furthermore, although engaged inalmost all urban occupations, the Jews specialized in trade and Þnance. Kuznets explained thisfact as the outcome of an endogenous decision within an economic theory of small minorities.Taking the minority status as exogenous, he argued that the minority’s noneconomic goal ofmaintaining its identity made the Jewish minority specialize in certain occupations.In stating their arguments, both Roth and Kuznets were inßuenced by the observed economicstructure of the Jews in the nineteenth and early twentieth centuries. However, the transitionof the Jews away from agriculture into crafts, trade, and Þnance occurred in the eighth centurymainly in Mesopotamia and the entire Muslim empire, and later in western Europe wherethe Jews migrated. At the time when the occupational transition was occurring, none of therestrictions and prohibitions discussed by Abrahams and Roth existed. Jews owned land butwere not engaged at all in agricultural work. Narrative evidence also indicates that at this time,the Jews were aware that their new urban occupations enabled them to improve their standardof living. Hence, the restriction theory cannot account for the occupational transition. As forKuznets’ theory, notice that before the occupational transition, in the Þrst half of the millenniumthe Jews were farmers and were also a minority in the lands of the Roman and Persian empires.2Given that they were a minority even when they were farmers, Kuznets’ theory would predictthat they should stay in this occupation to preserve their group identity that had been built atthat time for a farming society.3 Yet, Jews did not remain farmers despite their minority status.1Our model follows Becker and Lewis (1973)’s and Becker (1975)’s theory of children’s quality. The utility andcost speciÞcations are similar to those of Iannaccone (1992), the speciÞcation of the intergenerational transmissionof religious traits is similar to the one in Bisin and Verdier , and the occupational choice is the same asRoy’s (1951). At the same time, we use the historical evidence provided in the academic works of historians.2In Palestine the Jews became a minority from the fourth century on. The province of Judaea was renamedSyria Palaestina by the Romans after the Bar Kokhba Revolt in 135 ce.3The geographic dispersion and minority status of the Jews just before the transition to urban occupationswere similar to those of the Jews in the nineteenth and twentieth centuries. For example, in Babylon from theÞfth to the eighth century the Jews were a minority like in Poland in the early twentieth century.1

The historians Baron (1937; 1952), Ben-Sasson (1976), and Gil (1992; 1997), who describedand analyzed the transition from farming to crafts, trade, and Þnance in urban centers inMesopotamia, Palestine, and the rest of the world during the eighth and ninth centuries, maintained that deteriorating agriculture and urbanization in the Muslim empire made almost allthe Jews move into urban occupations. The question is: Why did the Jews move into theseoccupations whereas almost all other inhabitants remained engaged in agriculture?Our thesis is that the distinctive characteristic of the Jews at that time was that almostall Jewish men were literate. The Jews had a comparative advantage in the skilled, high-paidoccupations demanded in the new urban centers developed by the Muslim rulers.Why were Jewish farmers (and Jews in general) literate whereas the rest of the rural population was illiterate at the beginning of the seventh century? The Jewish religion made primaryeducation mandatory for boys in the Þrst century when the high priest Joshua ben Gamala (64ce) issued an ordinance that “teachers had to be appointed in each district and every city andthat boys of the age of six or seven should be sent.”4 In the Þrst century ce, the Jewish warrior and writer Josephus underlined that children’s education was the principal care among theJews.5 After the destruction of the Temple in 70 ce, Judaism changed from a religion that wasmainly concerned with sacriÞces and ceremonies performed by priests in the Temple to a religionwhose core was centered around learning the Torah. The synagogue became the center of thisactivity. From the second to the sixth century, Jewish leaders promoted further the learning andreading of the Torah and the recently redacted Mishna and Talmud by degrading the status ofthose who remained illiterate (“am ha-aretz”). The compulsory education for boys and the reading of the Torah, Mishna, and Talmud became the essence of Judaism.6 The monumental workof Goitein (1967—1988) from the documents of the Cairo Geniza provides extensive evidence ofthe full implementation of mandatory primary schooling for boys in the Jewish communities inthe Mediterranean at the turn of the millennium.7Based on this historically documented nexus between education and Judaism, we build amodel whose main assumption is that Jews derive higher utility from their children’s literacy(education) than non-Jews. An adult Jewish man chooses the level of education for his children,his occupation (trade or farming), religion (Jewish or non-Jewish), and location (migration).We further postulate that Jewish education (literacy) has a positive effect on a merchant’sincome but not on a farmer’s income. Obviously the model predicts that Jews invest more intheir children’s education, and given that, that they always prefer to be merchants. Yet, the4It is a popular view (see the debate in Brenner and Kiefer (1981) and Ayal and Chiswick (1983)), that Jews(and other diasporas) invested in human capital because, unlike physical capital, it is portable and cannot beexpropriated. However, the decision by Jews to invest in human capital came before the migrations and wasmotivated mainly by religious reasons.5Josephus Flavius, Against Apion, Book I, sec. 12, and Book II, sec. 19.6The Mishna consists of six volumes of rules. It was written in Hebrew during several hundred years and wasredacted in Eretz Yisrael in about the year 200 ce by Rabbi Judah the Prince. The six volumes of the Mishna are:Zeraim deals with the rules for land cultivation, Moed with feasts, Nashim with wedding, divorce and intimaterelations, Nezikin with Þnancial issues, Kedeshim and Teharot with sacriÞces and other Temple related issues.The Gemara consists of interpretations of the Mishna, debates and allegories told and written by Jewish scholarsand rabbis in Palestine and Babylon from the third to about the end of the sixth century. Mishna and Gemaratogether form the Talmud. There are a Jerusalem Talmud and a Babylonian Talmud.7The Cairo Geniza documents refer to the thousands of contracts (sales, marriage deeds, loans, businesspartnerships), last wills, letters, and courts records that were found in a synagogue in Old Cairo in Egypt. Thedocuments marvelously depict the economic, demographic, and social life of many Jewish communities in theMediterranean from about the ninth throughout the thirteenth century.2

demand for merchants restricts the proportion of Jews employed in urban occupations. Whenurbanization expands (as it did in the early Muslim empire), the Jews move to the cities wherethe returns to their human capital are high. Hence, our answer to the main question raised inthis paper is that the occupational selection of Jews into urban, skilled occupations was mainlythe outcome of (i) the Jews’ investment in literacy, and (ii) urbanization.The model’s other important implication is that the cost of children’s education for farmersmakes a certain proportion of Jewish farmers convert to non-Jewish religions in each generation.The question is whether historically these conversions were signiÞcant. According to historians(Baron 1952, 210; 1971) and demographers (DellaPergola), the key demographic fact in theÞrst millennium was the sharp decrease in the world Jewry from about 4.5 million in the Þrstcentury to about 1-1.5 million in the sixth century.8 This is the period when Jews worldwidewere still farmers and, yet, education became the center of the Jewish religion. At the sametime, Christianity emerged as a segment of Judaism that did not assign the same importance toliteracy and education. Historical sources indicate that about one million Jews lost their livesduring the revolts against the Romans in Judaea (70 and 135 ce) and in Egypt (115 ce). Thereis also evidence of some forced conversions to Christianity, but the description of these episodesof conversions from the fourth to the sixth century cannot account for the remaining reduction(2 milli