Correlated walks down the Babylonian markets

To investigate the evolution of market dynamics in different stages of historical development, we analyze commodity prices from two distinct periods —ancient Babylon, and medieval and early modern England. We find that the first-digit distributions of both Babylon and England commodity prices follow Benford’s law, indicating that the data represent empirical observations typically arising from a free market. Further, we find that the normalized prices of both Babylon and England agricultural commodities are characterized by stretched exponential distributions, and exhibit persistent correlations of a power law type over long periods of up to several centuries, in contrast to contemporary markets. Our findings suggest that similar market interactions may underlie the dynamics of ancient agricultural commodity prices, and that these interactions may remain stable across centuries in two distinct historical periods. Copyright c © EPLA, 2010 The emergence of markets and market economics is an active area of research in archeology and economic anthropology, where a main focus is to understand how markets developed in early civilizations and what their characteristics were [1–4]. A plausible hypothesis is that markets emerge in certain societies as a result of the exchange of goods, services or information, allowing a particular distribution of resources. Buyers and sellers, as primary market participants, exert demand and supply forces responsible, among others, for driving the price of any asset. The complex interactions between numerous market agents acting through feedback at different time scales within various economic conditions and market regulation lead to highly irregular and complex dynamics of market activity [5–10]. Recent empirical investigations have demonstrated that key market observables such as price, trading volume and frequency of trading do not change in a random manner but rather exhibit surprisingly robust dynamical patterns over a wide range of time scales (a)These authors contributed equally to this paper. (b)E-mail: [email protected] described by scaling laws [11–13]. To understand how these scaling laws relate to the underlying market regulatory mechanisms and interactions among market entities, most studies have focused on high-frequency recordings of modern market activity as represented by commodities, company stocks or currency foreign exchange over relatively short time periods ranging from months and years up to several decades [14–16]. However, every market is embedded in its historical, cultural and technological context, and market dynamics may evolve with changes in economic conditions, government politics and market regulations —e.g., correlations in stock price fluctuations change significantly when a company is transferred from one stock market to another [17], while networks of interaction of company stocks across the entire economy exhibit stable behavior over a limited time horizon [18,19]. The evolution of market dynamics across different historical periods has not been systematically studied. Here we investigate several key aspects of the dynamics of commodity prices in two distinct historical periods corresponding to different economic conditions and development of society —ancient Mesopotamia and medieval and early modern England.