Saint-Simon’s economics spread rapidly through France and Germany where people were the first to abandon traditional Christianity. After flirting with classical liberalism and free markets in the middle of the nineteenth century, most of Germany embraced Saint-Simon’s socialism. It became so popular in Germany that the Chancellor, Bismarck, found no way to preserve the monarchy but to co-opt socialism’s principles. Bismarck created the first welfare state by implementing most of the socialist agenda while retaining power in the monarchy. The socialist parliament had no real power.
In addition to the welfare state, German academics who had abandoned traditional Christianity invented a new form of Christianity without the Christian God. They denied the deity of Christ, his virgin birth and resurrection. They relegated all miracles in the Bible to mythical status. The sole message of Christ was to love your neighbor. Retaining the terminology of traditional Christianity, they emptied the words of their historical meaning and filled them with their own. This new version of Christianity without a Christ and worshipping an impotent god perfectly suited the growing ranks of deists. It spread to the U.K. and the U.S. As traditional Christianity receded, envy advanced and with it socialism. By the election of Roosevelt as President of the U.S., most of the West had embraced some form of socialism. The U.S. adopted Mussolini’s brand of fascism under F.D.R., but continued to call it capitalism.
In fact, most people considered Nazism and fascism to be forms of capitalism. When Hayek grasped that, he wrote his most popular book, Road to Serfdom, to explain to the British the socialist origins of fascism and Nazism. Both ideologies fooled people because they left owners with the paper titles to their property while the state took all control. But common people failed to see that property without control is not property. Most people in the West are still fooled by this fascist sleight of hand.
Chapter 8 – Christian capitalism
Chapter 8 looks at what a real Christian capitalism based on Biblical principles would look like. It starts with the different views of human nature that socialists and Christians have. Christian economics must begin with a Biblical view of human nature. Socialism is a counter-gospel to that of the Bible. It teaches that humans are born innocent and turn to evil only because of oppression. The greatest oppression is private property. If socialists could eliminate property, human nature would return to its natural state of innocence and end all crime and violence. Of course, socialists in the U.S.S.R. and China discovered that human nature is not as elastic as they thought and some force might be required. As a result, the socialist states murdered over sixty millions of their own citizens. That figure does not include the tens of millions of citizens murdered in other nations that embraced socialism.
Mainstream economics assumes a human nature more like a robot that responds to stimuli and has predictable ranges of preferences. Entrepreneurs do not exist and everyone involved in markets knows everything a Ph.D. economist knows as well as the plans of everyone else. At least, those are the assumptions necessary for the equilibrium theory on which mainstream economics has been built.
A Biblical view of human nature says that humans are born with a tendency toward evil that only God can change. Parenting, religion and education can bend the will, but people choose whether to be moral or not. The state does not have the power to change people even if it used all at its disposal. Economically, humans make choices that are revealed in the markets as prices based on supply and demand. They are ignorant, but not irrational, and cannot predict the future. The school of economics that has been built on assumptions about human nature closest to those of Christianity is the Austrian school. Chapter 8 applies Biblical and Austrian economics to the issues of poverty, inequality, government, money, taxation, conservatism, and libertarianism.
Chapter 9 – Romans 13
Finally, chapter 9 briefly looks at the issue of how Christians should relate to government in light of the passage in Romans 13 in which Paul exhorts Christians to submit to governmental authorities. It concludes that Christians have a right, and sometimes an obligation to rebel.
Chapter 1 – What is capitalism?
Until recently few trees succumbed to the demand for books on the origins of capitalism. The consensus simply explained the system as the outcome of a Darwinian process involving innumerable mutations over centuries; as mankind crowns biological progress, so capitalism formed the apex of mankind’s economic evolution.
“It is as if capitalism has always been the destination of historical movement and, more than that, the movement of history itself has from the beginning been driven by capitalist ‘laws of motion,’” wrote Ellen Wood, a neo-Marxist professor at the University of Toronto. Wood wrote The Origin of Capitalism out of frustration with the circular reasoning of both capitalist and neo-Marxist historians who assumed the conclusion they tried to explain. In other words, the ember of capitalism has glowed in the hearts of men since prehistoric times, patiently awaiting the peeling away of the smothering layers that prevented it from bursting into flame:
Even those who most emphatically insist on the system’s roots in human nature and its natural continuity with age-old human practices would not claim that it really existed before the early modern period, and then only in Western Europe. They may see bits of it in earlier periods, or detect its beginnings in the Middle Ages as a looming threat to a declining feudalism but still constrained by feudal restrictions, or they may say that it began with the expansion of trade or with voyages of discovery—with, say, Columbus’s explorations at the end of the fifteenth century. Some might call these early forms ‘proto-capitalism,’ but few would say that the capitalist system existed in earnest before the sixteenth century, and some would place it as late as the eighteenth, or perhaps even the nineteenth, when it matured into its industrial form. Yet, paradoxically, historical accounts of how this system came into being have typically treated it as the natural realization of ever-present tendencies.
Wood follows Marx by locating the birth of capitalism in seventeenth century England when the structure of land ownership changed from common to private as part of the enclosure system. Many farmers had to rent land to farm while peasants worked for wages. Renting forced farmers to invent new ways to improve the land, Woods wrote, and squeeze more profit from it in order to pay the rent. One of the problems with Marx’s theory, and there are many, is that most farmers had paid rent for centuries before enclosure began in England. By the fifteenth century, feudalism in England had changed to the point that peasants paid a portion of their produce in rent instead of working in the fields of their lords, yet capitalism did not sprout in that ground.
The critical element in the expedition for the headwaters of capitalism is the definition, because historians tend to find what they are looking for. One of the greatest evils of any time, and undiminished in ours, is the dishonest method of attempting to win a debate by redefining terms in such a way that the side who defines the terms automatically wins. As a result, words often have many definitions. Capitalism has suffered more than most terms with the number of definitions it has to bear, so any discussion of the origins of capitalism has to begin with some sort of corralling of the roaming herds of definitions.
For most historians, a capitalist is nothing more than someone who accumulates wealth through business activity, so it is understandable that they find capitalists existing throughout history. In their eyes, ancient Phoenicians, the merchants of Rome and Venice, monks at monasteries that brewed beer and the wealthy Fuggers of Germany were pioneer capitalists. The transition to a capitalist system came about gradually through the growth of cities and expansion of international trade along with the consolidation of markets through the rise of nation states.
Until Marx, the system of private enterprise did not have a name. Smith had called it the natural system of liberty and contrasted it with the mercantilism of his day in which the state tried to control commercial activity for its own benefit. Socialists resurrected mercantilism and renamed it
socialism. Late in the nineteenth century, followers of Marx invented the term “capitalism” as an insult to the free enterprise system. Capitalists were the owners of capital, which meant money, equipment, land, buildings, etc. - the things used to produce goods. Capitalists opposed labor, who Marx thought he championed. Capitalism to Marxists meant the control of the means of production by private individuals, or private property enterprise. But the concept of private property predates the advent of capitalism by millennia as does profit derived from commerce.
Lately, socialists have redefined capitalism again to mean a system in which large corporations control economic policy for their own benefit. The irony of this definition seems to have eluded socialists. First, Smith warned readers that businessmen were no friends of freedom. They often conspired to take advantage of consumers and used the power of the state to do it. Smith warned against the system that socialists mistakenly call capitalism.
Second, corporate control of policy was the definition of the systems of the national socialists in Germany and the fascists in Italy in the decades before WWII. The fascists and NAZIs considered themselves socialists who fought communism for political power while agreeing with them in principle. The differences between the two were small. Communists were more honest. They wanted the state to have legal and actual ownership of property. Fascists and Nazis wanted to maintain the illusion that private individuals retained ownership by letting them keep the paper title to property while the state controlled all aspects of the property. Of course, ownership without control is an oxymoron, but it fooled the people and that is all the fascists wanted. The deception worked so well that when Hayek realized his fellow Brits had fallen for it and considered the German system to be capitalist, he wrote his bestselling book, Road to Serfdom, to rescue his countrymen from the delusion.
Capitalism involves commerce and revolves around private property, but it is so much more. To begin, a definition of capitalism has to take into account the “hockey stick” shape of the explosion in per capita income around the beginning of the seventeenth century in Western Europe.
The hockey stick
Adam Smith titled his book An Inquiry into the Nature and Causes of the Wealth of Nations (1776) because he and many other people had noticed that some nations grew wealthier while others became poorer. In the two centuries preceding Smith, the Dutch Republic had risen from being a minor territory of Spain to one of the wealthiest and most powerful nations on earth, while its former master had deteriorated from being the super power of its day to an insignificant, poor has been. Proto-economists found the switching of roles remarkable for the fact that in the sixteenth and seventeenth centuries Spain has stolen hundreds of ship loads of gold and silver from its American colonies. By the economic reasoning of those centuries, the Dutch should have grown poorer while the Spanish waxed wealthier and more powerful because wealth came from the accumulation of greater amounts of gold and silver.
University of Chicago economist Deirdre McCloskey refers in her book The Bourgeois Dignity: Why Economics Can’t Explain the Modern World to the event that Smith noticed, the rapid rise of wealth in the Dutch Republic and England, as the “hockey stick” effect for the shape that a graph of world per capita G.D.P. takes when plotted against millennia. If the graph begins with, say 5,000 years BC, and runs to 2000 AD, the line is almost perfectly flat from the beginning until about 1800 AD, at which point it launches upward at about a forty-five degree angle, giving it the shape of a hockey stick. In other words, most people in the world in 1800 AD were just as poor as their ancestors living 6,800 years earlier.
One illustration of the hockey stick graph printed below comes from Google pictures. It starts with the first year A.D., but readers can imagine that the previous five thousand years were as flat.
McCloskey has written that this hockey stick effect is the most important event in economic history and the main event that economists need to explain although their models and theories of growth cannot explain the explosion in wealth that occurred.
The heart of the matter is sixteen. Real income per head nowadays exceeds that around 1700 or 1800 in, say, Britain and in other countries that have experienced modern economic growth by such a large factor as sixteen, at least. You, oh average participant in the British economy, go through at least sixteen times more food and clothing and housing and education in a day than an ancestor of yours did two or three centuries ago. Not 16 percent more, but sixteen multiplied by the old standard of living. You in the American or the South Korean economy, compared to the wretchedness of former Smiths in 1653 or Kims in 1953, have done even better.
In 1800 the average human consumed and expected her children and grandchildren and great grandchildren to go on consuming a mere $3 a day, give or take a dollar or two. The figure is expressed in modern-day, American prices, corrected for the cost of living. It is appalling.
And that increase in standards of living happened in spite of the fact that the world’s population has grown by a factor of almost seven since 1900. Writing before McCloskey, the economist William J. Baumol would have agreed. He wrote in The Free Market Innovation Machine the following:
The virtual absence of any explicit attempt to explain the fabulous growth record of the free-enterprise economies in general, with their transformation of living standards and creation of technological innovations undreamed of in any previous era, is perhaps the most glaring omission of recent economic growth theory, despite all of its substantial contributions. I have been unable to find any systematic theoretical work seeking to account for this incredible record, or any investigation of why this economic system is so different in its productivity accomplishments from all other economic systems that have ever been tried.
Baumol argued that the chief cause of this spectacular growth was the capitalist economic system that demands innovation of its participants. Without it, “the story appears as one great set of coincidences with little internal coherence, one that could just as easily have happened elsewhere, in radically different circumstances, and that could end as abruptly as it may appear to have begun.”
Innovation for Baumol is not the same as invention, for many items have been heralded as great inventions for which no one could discover a use. Innovation means “the recognition of an economically promising opportunity for change and the carrying out of whatever steps are necessary to implement that change.” Of course, the launching of per capita G.D.P., the most commonly used measure of standards of living, happened only in Western Europe and the U.S. for the first century. But if you break Western Europe down into its respective nations, the inflexion point moves backwards to around 1600 where it happened first in the Dutch Republic, quickly spread to England then the rest of Western Europe over the next two centuries.
A preliminary definition of capitalism might be the system that caused the hockey stick effect in per capita incomes. Even Marxists could agree on that definition because Karl himself endorsed it. In his theory of historical determinism, he believed the world had to go through the capitalist stage in order for productivity to rise enough to create the wealth that would be needed for an equal distribution of it to enrich everyone. Marx got everything wrong about history and economics except his admiration for the massive increase in productivity caused by capitalism. He was certain that under developed countries like China and Russia could not succeed with socialism without having gone through the wealth creating phase of capitalism.
The role of institutions
To complete the picture of real capitalism, we need to add to the definition the concept of institutions. The relatively new field in economics known as New Institutionalism has increased our appreciation of the role of institutions in the history of economic development and the definition of capitalism. “Economic institutions determine the incentives of and the constraints on economic actors, and shape economic outcomes,” according to economists Daron Acemoglu and Simon Johnson in “Institutions as a Fundamental Cause of Long-Run
Growth” published in Handbook of Economic Growth. Acemoglu and Johnson use North and South Korea as examples of a natural experiment in institutional change.
North and South Korea shared the same history and cultural roots. In fact, Korea exhibited an unparalleled degree of ethnic, linguistic, cultural, geographic and economic homogeneity...In terms of natural resources North Korea is better endowed with significant reserves of coal, lead, tungsten, zinc, graphite, magnetite, iron ore, copper, gold, pyrites, salt, fluorspar, hydropower. South Korea's natural resources are coal, tungsten, graphite, molybdenum, lead, hydropower potential. Both countries share the same geographic possibilities in terms of access to markets and the cost of transportation. The North enjoyed a significant advantage over the South in the advance of industrialization, but per capita incomes were identical.
By the late 1960's South Korea was transformed into one of the Asian "miracle" economies, experiencing one of the most rapid surges of economic prosperity in history while North Korea stagnated. By 2000 the level of income in South Korea was $16,100 while in North Korea it was only $1,000. By 2000 the South had become a member of the Organization of Economic Cooperation and Development, the rich nations club, while the North had a level of per-capita income about the same as a typical sub-Saharan African country. There is only one plausible explanation for the radically different economic experiences on the two Koreas after 1950: their very different institutions led to divergent economic outcomes. In this context, it is noteworthy that the two Koreas not only shared the same geography, but also the same culture.”
God is a Capitalist Page 3