God is a Capitalist

by Roger McKinney

  The elite can be nobility, courtiers, army officers, extended family members or the top group in a political party. The elite give their allegiance to the supreme leader in exchange for his agreement to allow them to plunder the wealth of the masses, although economists use a euphemism for plunder – “extracting rents.” The leader needs the elite to keep him in power and the elite need his authority over the masses to allow them to plunder. Throughout history the leader’s authority often derived from his assumed relationship to the gods. The elites maintained a gentleman’s agreement not to plunder each other most of the time.

  The limited access state is the most robust form of government in the history of mankind and for this reason North referred to it as the “natural” state: “We call this the natural state because we believe it is the natural response of human societies to the threat of endemic violence. The natural state first emerged historically about ten thousand years ago and remains the dominant form of human society today.” The limitations of natural states versus open states are clear: the need of the leadership to bribe the elite with privileges and power over resources at the expense of the common people increases corruption and restricts competition. Here is North again:

  The difficulty in starting a t-shirt factory in Peru, documented by De Soto, is a classic example of how the natural state not only refuses to support the creation of organized economic activity but actively discourages it for non-elites. The “crony capitalism” common in today’s developing world (Campos and Root 1996) represents another manifestation of the natural state’s inherent tendency to limit access to organizational forms to members of the dominant elite.

  Second, natural states face impediments to making the credible commitments necessary to protect the rights of non-elites. Non-elites cannot credibly threaten the state or coalition, because a natural state’s survival does not depend on the support of non-elites. Independent of what the laws or constitution of a natural state say, non-elites cannot credibly accept promises by the state to protect their rights. Non-elites therefore make significantly smaller investments in physical and human capital than they would if their rights could be credibly guaranteed. This too limits growth in natural states.

  Non-elites also employ what James Scott calls “the weapons of the weak” in order to protect what property and assets they do have. The rational peasant (non-elite) behaves in systematic ways to make it more difficult for the lord (elite) to determine whether the peasant is working hard and using resources effectively. Foot dragging, malingering, dissimulation are the order of the day. As a result, not only are property rights poorly defined conceptually, elites deliberately raise transaction costs.

  Transition from a natural state to an open access state is very difficult, as the limited number of countries having made the transition demonstrate. North wrote, “Despite the massive attention to economic development by international donor agencies, only eight countries have made this transformation since WWII...Moreover, none of these countries were the focus of international donor agencies.”

  The New Institutional School calls the open access system of government “modern,” but it has existed a few times in the past in ancient Israel under the judges and in Venice during its earliest centuries. It only gained a degree of permanence with the Dutch Republic. Open access governments are built around the rule of law (general principles) and equality before the law. The courts and police are relatively lacking in corruption and apply the law without prejudice. Those institutions protect private property from confiscation by the government, an elite or any other person. In other words, open access states protect the successful and innovators from the threat of violence by the envious.

  Open access nations protect the property of all citizens, not just the elites. As a result, the common people invest in improvements to their property because they know that they will enjoy the fruits of that investment. Investment increases productivity, creates better paying jobs, sparks innovation, reduces the costs of food and clothing and launches nations on the path to economic development.

  In an open access order, economics appears to be independent of politics. This seeming independence is reflected in both the famous classical liberal dictum about limited government and in neoclassic economics’ view that markets are antecedent to government and that the government intervenes into markets. A competitive economy requires not only a state that maintains open access, entry, defines property rights, and enforces competition, it also requires a state that is capable of providing the social infrastructure that sustains perpetually lived and extremely sophisticated and complicated organizations.

  Third, our perspective redefines the problem of economic development. In contrast to the perspective in modern economics, our framework suggests that economic development is not an incremental process, such as gaining more education, capital, and making marginal improvements in the rule of law. Each of these can improve a developing limited access order by moving it a bit toward the doorstep conditions, but these incremental changes can take a limited access order only so far: they are not the process of development.

  Changing rhetoric

  I have already mentioned University of Chicago economist Deirdre McCloskey’s series of books explaining the rapid development of the West as a change in values and attitudes toward commerce demonstrated in a change of rhetoric. We will see later that from at least the time of Aristotle until the sixteenth century Europeans held business in low esteem, often lower than prostitution. The culture valued plunder in war, bribery of state officials, kidnapping for ransom and monopolies on trade as the “noble” means toward greater wealth. Commerce was considered worse than prostitution and so evil that it condemned the merchant’s soul to hell. As a result of this disdain for their profession, merchants who became wealthy did not reinvest their wealth to expand their businesses but gave much of their wealth to the Church to redeem their souls from hell. They took what was left and bought titles of nobility and land to become members of the plundering class of elite. Innovation does not exist in such a climate.

  Then in sixteenth century in the Dutch Republic values changed. Venice produced the first green shoots centuries earlier, but they blossomed into tulips among the Dutch. McCloskey argues that the explosion in innovation that occurred in the Republic could never have happened without the change in values to what she calls the bourgeois values, essentially those of middle class merchants – faith, hope, love, temperance, courage, justice and prudence. McCloskey’s first book explains the virtues while the second proves that prudence alone can never explain the explosion of growth that began in the Republic. McCloskey patiently disassembles over a dozen of the most popular materialistic explanations for the industrial revolution, most of which fail because they use factors that existed to a greater degree in other locations, such as China and the Ottoman Empire, empires that did not develop as the West did.

  The essence of McCloskey’s argument is that a revolution in values had to occur before an industrial revolution would be possible and the lack of the change in values in other nations explains the lack of economic development. A career in business had advertised its material benefits for centuries, yet few people chose it as a career. Jews had no choice. Being barred from positions in the military or government and land ownership, they pursued the only options left – business and banking, which explains most of the animosity toward them by the “Christian” population who despised both fields. Christians who prospered in business abandoned it as quickly as modern entrepreneurs who send their children to law and medical school.

  The changes in values in the sixteenth century elevated the bourgeois values and allowed successful merchants to enjoy respect and political power. Instead of hiding their hard won wealth or abandoning their work for a life among the nobility, successful merchants expanded, innovated and grew their businesses, eventually spawning the industrial revolution.

  Conclusion

  Helmut Schoeck’ theory of envy as the dr
iver behind the way societies organize themselves unifies several seemingly unrelated fields – cross-cultural anthropology, New Institutional Economics, McCloskey’s bourgeois virtues rhetoric, Siedentop’s history of individualism, developmental economics, and Christianity. Schoeck argued that Christianity in the Reformation provided the first brake on envy and Seidentop filled in the detailed history of the slow and painful birth of individualism that accomplished it.

  Nations ranking high on Hofstede’s power distance index (PDI) scale correspond to Schoeck’s depiction of cultures that are organized to appease envy, such as one finds in socialist and economically backward nations. The masses do not envy those in leadership because they see entrance into the group of ruling elites as impossible for them, so they tolerate very large differences in power between the elites and the masses. While demanding strict adherence by their peers to the norm, they overlook abuses, corruption and lawless behavior by the elites.

  According to Schoeck, cultures in which envy dominates oppose innovations out of fear that one person will gain at the expense of others. That agrees with Hofstede’s individuality index (IDV) and uncertainty avoidance index (UAI). Traditional cultures suppress individualism and reduce uncertainty, both of which crush innovation that leads to economic development.

  Open access forms of government described by the New Institutional School of economics are rare and short-lived because they require the subjection of envy to reason and principle. Clearly that is a difficult task. They break through the darkness created by limited access societies like flashes of lightening. The question this arrangement raises is why did the masses put up with millennia of oppression by the elite? History offers many examples of peasant revolts against the elite, even though the resulting government usually substituted one set of elites for another and perpetuated the natural state.

  Schoeck answered that question this way: the masses envied each other but not the elite because the ranks of the elite were too far removed from them and access to membership in the elite group was impossible. So the masses ignored the luxury, abuse and corruption of the elite, as Hofstede demonstrated with his power distance index (PDI). On the other hand, the envy of the masses toward each other aided the elite in keeping the masses under control, for if anyone within the masses deviated from the law established for them by the elite, the elite could count on many within the masses to inform on them to the elite. This is the reason that the limited access system of government has been the most robust form of government throughout history. It uses the power of envy against those within the masses who might aspire to joining the ranks of the elite or overthrowing them. Today, politicians continue to use the power of envy to stir up the ranks of voters even in developed nations.

  Hofstede’s indexes of culture reinforce the new institutional school’s concepts of open vs. closed, or natural states. Open states could not occur without changes to the culture measured in the PDI, IDV and UA indexes. Open states did not appear until the Dutch Republic, the nation McCloskey credits with the values revolution that made development possible and enabled the change in cultures that Hofstede found necessary for such development.

  The Christianity of the Reformation broke the power of envy, which unleashed McCloskey’s values transformation and Hofstede’s cultural changes, leading to the birth of individualism, the formation of open states and the institutions to generate sustained economic development through wealth creation instead of expropriation for the first time in human history. From this perspective, socialism is a return to North’s closed economy, the natural state, and the ancient Greek and Roman caste system of inequality before the law.

  Chapter 3 – The Torah economy

  Many Christians who write on economic systems claim that the Bible endorses neither capitalism nor socialism. They think they cut off the heads of both systems with the sword of the Word and install their own system, referred to as a “third way,” in which they scavenge through the carcasses for the best parts of each and stitch them together into a new creature. Unfortunately, the creature resembles an economic Frankenstein more than the good doctors care to admit.

  Economic systems are nothing but laws concerning how people relate to each other with regard to property. No society has ever existed without an economic system because the things we depend upon to survive are scarce, especially food, clothing, housing as well as the land and resources needed to produce them. They are not like the air which everyone can have as much as they need of it. Because the necessities and pleasures of life are scarce, someone has to decide who controls them and gets to use them.

  The Egyptian economy

  The Israelis considered themselves blessed to have the law of God and claimed that no other nation enjoyed a system of law as perfect as theirs. To fully appreciate the government and economic system God gave the Israelis, we need to know something about the government and economic system of Egypt, with which the Israelis would have naturally compared their new law.

  Pharaoh

  To understand the Egyptian economy we must understand the role of the Pharaoh. In ancient Mesopotamian literature, the gods were active on the earth. But in Egypt, according to J. Assmann in Search for God in Ancient Egypt, whom John Walton quoted in his Ancient Near Eastern Thought and the Old Testament,

  …the gods had withdrawn from their presence among humans to their habitation in the sky. There were important cities (e.g., Thebes or Memphis), but cities were not as central to the identity of the state – rather the state was more directly related to the cult. “The absence of deities made room for a specifically human sphere of activity and responsibility: the state, which – despite or because of its being a divine institution – kept the divine at a distance that had to be bridged by ‘sacred signification.’ The founding of the state amounted to the same thing as the founding of the cult...”

  Walton went on to explain that,

  In the ancient world the king stood between the divine and human realms mediating the power of the deity in his city and beyond. He communed with the gods, was privy to their councils, and enjoyed their favor and protection. He was responsible for maintaining justice, for leading in battle, for initiating and accomplishing public building projects from canals to walls to temples, and had ultimate responsibility for the ongoing performance of the cult.

  In Egypt the almost total immersion of the persona of the king into the divine realm led inexorably to the conclusion that the acts of Pharaoh were the acts of deity.

  In Egypt priests operated only by authority delegated from the king, who had the sole right to perform the rituals of the cult. It was his task “to complete what was unfinished, and to preserve the existent, not as a status quo but in a continuing, dynamic, even revolutionary process of remodeling and improvement.” Thus in the ritual observances the order of the cosmos not only was maintained but was transferred to society, resulting in political and social order: “The royal performance of the cult, generally speaking, invoked the sacred power for the preservation of maat, the order of the world.”

  Pharaoh may not have been a god, but he was the closest thing Egyptians had to a god on earth and the primary intercessor between humans and the gods. The pharaoh Sneferu reigned about a thousand years before Moses and took the title neb maat. The word neb meant not just lord, but owner and keeper. Maat was the embodiment of truth, justice, righteousness, and created order, in other words, the divinely ordained pattern of the universe. The Greek word logos used by John in his gospel has a similar meaning. The pharaoh brought maat to the people through religious rites, government and the construction of sacred monuments and buildings. He repelled foreign enemies, adversity, injustice, and even barrenness through his power in war and his dominion over the earth. As the Oxford Encyclopedia of Ancient Egypt explains in the article on the “Economy,”

  By placing himself on a level with the gods, the king presents himself as the guarantor of the fertility of the land and the fecundity of the livestock. Thus the ki
ng possesses divine powers to confer well-being on the people. He imposes his superiority as victorious warrior; but he also orchestrates feasts that generate prosperity and organizes the country...The king guarantees the subsistence and protection of his people, who in turn owe him obeisance and work…. He has founded domains and constructed towns; in exchange, he can demand total obedience from his subjects, as well as all the fruits of their labor. The sovereign’s role as nurturer is proclaimed throughout pharaonic history: he is the provider of Egypt, he gives it an overabundance of provisions…coming from its own land and its neighbors, be they vassals or conquered territories.

  As a quasi-god, pharaoh owned all of the land of Egypt, but he granted the use of land and the right to earn income from it, to others in exchange for payment, which would be the equivalent of modern rent or taxes. Some of those grants continued long enough that they resembled modern leases which people could bequeath to descendants or sell, but it was understood that pharaoh owned the land and could give the lease to others at any time.

  Pharaoh granted the use of much of the land to temples for growing food and animals for sacrifices to the temple gods and freed them from payment of taxes. At one time temples controlled 300,000 hectares of land. Farmers would sometimes donate their lease to temples if the temple tax was lower than the government tax. Temple taxes could bring in more food or animals than the priests needed for their luxurious lifestyles and offerings to the gods, in which case they would sell the surplus in markets, a common practice for temples throughout the ancient world. However, the only group of people with the disposable income to buy the temple surplus was the nobility. Temples became so wealthy in the ancient world that they became the first banks, loaning vast sums to kings and nobility.