This book pushes the birth of the debate to the earliest date of any proposed, back to 1500 B.C. when Moses led the Israelis out of slavery in Egypt and into their own land on the eastern shore of the Mediterranean Sea. Moses was one of the world’s most vigorous proponents of free markets while pharaoh was an early Marxist.
Economics alone offers an emaciated, one-dimensional picture of capitalism. Weaving the complete history of capitalism from Moses to Marx required pulling threads from other disciplines, including history, philosophy, anthropology, theology, sociology and more as well as economics. The rest of this introduction summarizes the process by chapter.
Chapter 1 – What is capitalism?
Before we can journey to the origins of the debate, we must know what we are looking for by defining our terms. Chapter 1 looks for a definition of capitalism. Adam Smith, one of the earliest English economists and author of the classic The Wealth of Nations, called his system one of “natural liberty.” The term “capitalism” came from followers of Marx and opponents of private property and free enterprise. If readers search for definitions of capitalism on the internet they will be overwhelmed with their number, variety and sheer ridiculousness.
One of the most common misconceptions conflates capitalism with commerce. Anywhere commerce for profit has taken place scholars have seen proto-capitalism. But if we accept that definition, then we have no explanation for the explosive growth in wealth and standards of living that took place in the seventeenth century in the Dutch Republic first, then England, because commerce has always existed. Something unusual must have happened in the seventeenth century to cause the unique event in world history that some economic historians have characterized as a hockey stick effect. In other words, if we graphed standards of living across time, the line would be flat like the shaft of a hockey stick from the beginning of history until the seventeenth century. Then suddenly the graph shoots upward like the blade of the hockey stick. Many economic historians do not seem to grasp that a unique event requires a unique explanation. Most explanations for that event were common through time and across geography, which begs the question: why did not the hockey stick inflection point in per capita G.D.P. happen before the seventeenth century or in other cultures?
Even under communism in the Soviet Union commerce existed in the form of the “black” or free market. So in addition to commerce being a non-unique cause, the co-existence of communism and capitalism in the same society at the same time is confusing. Capitalism must be more than just commerce for profit. Essentially, it is a set of institutions, formal and informal. The formal institutions are private property and the rule of law, but rule of law means more than just some parliament passing legislation. It means that people recognize a law existing above the mere legislation that parliaments and congresses may pass and that law binds governments as well as citizens. The essentials of that law can be summarized by the rights of individuals to life, liberty and property. And it means that the state enforces those laws for all citizens regardless of status.
Informal institutions are the values of the citizens that are instantiated by the culture. Citizens must hold to certain values in order for capitalism to work. Economic historian Deirdre McCloskey calls them the “bourgeois virtues.” Until the advent of capitalism, the public, intellectuals and religion held commerce in low esteem. McCloskey points out that even if the formal institutions existed, capitalism would not have happened without the informal ones.
Finally, capitalism is mass production for the masses. All production before capitalism was craft production, small lots of hand crafted goods intended for the wealthy elite because only they could afford them. Common people and peasants got by with homemade goods. Capitalism standardized products and made them cheaper through mass production so that the masses of poor people could afford them. The history of capitalism has been the record of making luxury products cheaper for the masses. Marshmallows offer a trivial example. When first invented only the nobility could afford them, but mass production put them within grasp of even the poorest families today.
Chapter 2 – How individualism broke the envy barrier
The values needed for the appearance of capitalism took thousands of years to reappear after they were lost and chapter 2 explains why – envy. This chapter is a review of the great book by Helmut Schoeck, Envy: A Theory of Social Behavior. Schoeck explained that envy is part of human nature and is so powerful that it determines how people organize societies. For most of human history, envy kept economic development and capitalism in irons as traditional cultures labored to achieve equality of wealth among the common people while avoiding wealth accumulation out of fear of the envy of others. Envy aborted the bourgeois virtues necessary for capitalism and stifled innovation by crushing individualism. The history of the world is little more than the history of how societies have dealt with envy.
Schoeck argued that Christianity catalyzed economic development and capitalism by finding a way to suppress envy without eliminating it. Christianity accomplished that through the invention of individualism, according to Larry Siedentop in his book Inventing the Individual: The Origins of Western Liberalism. The West has a unique sense of the individual that took close to fifteen hundred years to birth, but when it finally appeared, it transformed the world.
Chapters 1 and 2 lay down a foundation for the search for the origins of capitalism, knowing that history is so vast and contradictory that we will find in it what we are looking for. Those chapters ensure that we are looking for the right things.
Chapter 3 - The Torah economy: the first capitalist nation
Solomon, known by Christians and Jews as the wisest man who ever lived, said there is nothing new under the sun, and that is true of much of economics and politics because human nature has not changed. The search for the birth of capitalism goes all the way back to Moses. The ancient Egyptian society out of which Moses led the Hebrews was essentially a socialist command economy. Pharaoh and the state were the same institution and controlled all of the land and the people. Some historians have been confused by the existence of markets in ancient Egypt, but markets existed for the common people to trade among themselves the small amount of goods that the state had left them, such as crumbs of food and rags for clothing. Common Egyptians could trade in land among themselves and the law prohibited theft, so some property rights existed, but they applied only to the dealings of the common people with each other. Pharaoh, owned the land and could confiscate it at will and give it to whomever he pleased.
The Egyptian model has proven to be the most robust form of government in the history of mankind as Douglass North and the New Institutional School of economics have discovered. In that model, a pharaoh, king, Caesar, dictator, general, etc., assumes absolute power. But he needs help maintaining control, so he bribes a small group of people, usually known as the nobility, to help him. Pharaoh gives them a monopoly on police power and the authority to pillage the common folk with impunity in exchange for their support.
The common people put up with the abuse from the nobility because of their envy of each other. As Schoeck pointed out, human nature causes common people to envy those closest to them in status. They do not envy the nobility and pharaoh because they are so distant from the commoner in every way that 1) the commoner entertains no hope of ever achieving noble status; 2) their religion tells them that the gods have ordained the structure of society, and 3) the extreme wealth of the nobility is justified by their status and role in society. In turn, the commoner relies on the power of the elite to maintain the status quo, keep everyone equal in poverty and punish upstart peasants who think they are better than the rest.
Then along came Moses. Reasonable people can be forgiven for thinking that Moses might have modeled his new nation on the very successful state created by Egypt. After all Moses had grown up in the school that groomed future pharaohs as well as the children of the nobility and foreign diplomats. He had mastered the Egyptian system of organiza
tion and statecraft. It was one of the most successful in terms of endurance and power in all of history and admired across the known world. But Moses did not create Israel in Egypt’s image.
Chapter 3 explains the differences between the Egyptian and Israeli governments. Moses established a nation with a minimalist state that would be a modern libertarian’s dream. The structure of the new nation could not have been more different from that of Egypt. The government of Israel had no state, no president or executive branch, no legislative branch, no standing army or police. It had only judges to settle disputes while citizens enforced judicial decisions. Individual leaders were similar to Supreme Court justices in the U.S., except they were the top generals during war.
Most law in Israel was common law. God had given Moses a mere 613 pieces of legislation according to some counts and most of those referred to the practice of religion or moral laws. Some scholars believe that the courts, or the government, did not enforce the religious and moral laws, such as giving to the poor, because they understood that coerced morality is not morality and forced religion has no value to God. The government, that is, the courts, enforced only the civil law which dealt with the protection of life, liberty and property issues such as theft, murder and slavery.
This “libertarian” society lasted by some estimates more than four hundred years before collapsing. During that time neighboring states occasionally conquered Israel and forced their tyranny on the people for a generation, but God always called a judge to lead the people to throw off the oppressors and re-establish freedom and prosperity. For impatient readers who demand an immediate response to the Apostle Paul’s insistence on obeying the established authorities in Romans 13 of the Bible, the examples of the judges overthrowing such authorities in the book of Judges in the Old Testament offers a challenge to an absolutist interpretation of Paul. God clearly approved of some rebellions against the state.
A foreign power did not invade and end prosperity and freedom in ancient Israel. The people grew tired of freedom and voluntarily gave it up in one of the saddest incidents in the Bible. The people told God they wanted a king, a tyrant, like the nations around them. So God honored their wish, but with a warning of how terrible the tyranny would become. That is how the true dark ages began.
Chapter 4 – The dark ages
Most historians refer to Europe after the fall of Rome as the dark ages, but as historian Rodney Stark demonstrates that is due to their anti-Christian bias. Chapter 4 describes the dark age with respect to freedom and prosperity that began with the end of Israel’s libertarian government and the establishment of the monarchy. Tyranny did not immediately arise because the first three kings, Saul, David and Solomon, were relatively godly men. But under Saul and David the nation continually marched to war. Solomon introduced peace, but taxed the nation so heavily that when his son succeeded him and refused to lighten the burden he ignited a civil war from which the nation never recovered. After Solomon, most kings practiced pagan idolatry, which often included human sacrifice. Tyranny, immorality and poverty increased under the kings to the point that God allowed the Babylonians to conquer the nation and relocate most of the population to Babylon. Eventually, Nebuchadnezzar destroyed the city of Jerusalem and the temple.
Chapter 4 covers a lot of real estate, from the end of the libertarian society in Israel to the beginning of the Dutch Republic in the sixteenth century. That may seem rash and unreasonable to most historians, but in terms of economics and government not much of any significance happened in between. Per capita income remained flat the entire period. Wealth did not increase; it merely sloshed from one conquering nation to another. Technology changed little. Hollywood tries to depict a gradual evolution from the oldest societies to the later ones, but economic historians disfigure that portrait. This long dark age made up the shaft part of the hockey stick graph in which standards of living remained almost flat. A peasant or nobleman living in sixteenth century Spain would have noticed little change from the days of ancient Egypt. This period can take up volumes in conventional history, but it is a record of little more than war, murder, tyranny, brutality and theft with brief interludes of sanity.
The darkness did not begin to recede until church scholars gained the confidence to criticize Aristotle and to reason for themselves. Then modern science began to take form, but for freedom and prosperity the change happened with the abandonment of Aristotle’s economics. Then Church scholars began to examine the real world of commerce and reject Aristotle’s prejudices. Scholastic thought on commerce reached its highest level in the sixteenth and seventeenth centuries at the school of Salamanca, Spain, where the scholars codified the essentials of capitalism – the rule of law, respect for private property, free markets as the instantiation of private property, honest courts and limited government. They established the role of government as that of protecting the life, liberty and property of the citizens and nothing more.
Chapter 5 – The Dutch Republic
The scholastics laid the philosophical foundation necessary for commerce to morph into capitalism, but the philosophy needed someone willing to practice it. Chapter 5 tells the story of how capitalism finally found a home in the Dutch Republic. Protestantism had invaded the low lands and captured the hearts of the bourgeois. The King of Spain claimed the authority to rule the territory and he was a Catholic. Alarmed by the growth of Protestantism, he first decided to persecute, and then annihilate all Protestants in the Netherlands. The princes of the region tried to persuade the king to relent, but he grew more obstinate. Eventually, the princes saw no alternative to rebellion and, led by Prince William of Orange, raised an army to defend their countrymen.
After dethroning the Spanish king, the princes, in agreement with the people, searched desperately for a monarch to replace him. They appealed to princes in France and to Queen Elizabeth to rule over them, but all refused out of fear of Spain’s military power. So at first the Dutch settled for a republican form of government without a monarch. In the process of creating the institutions of the new nation they relied on the guidance of the Dutch scholar and student of the School of Salamanca, Spain, Leonardo Lessius. As a result, the Dutch created a nation with the capitalist institutions of free markets, respect for property and the rule of law. Two centuries later Adam Smith would recognize the Dutch as the first and most complete implementation of his system of natural liberty, or capitalism.
Chapter 6 – Fading empires
Chapter 6 considers the fates of the nations that opposed the Dutch system, France and Spain, and the superpower of the sixteenth century, the Ottoman Empire. France tried state directed commerce under the plan of the Great Colbert, with disastrous results. Spain limped along trying to survive on the gold and silver it could steal from its American colonies and eventually faded from the scene as a world power.
Like Spain and France, the Ottoman Empire never embraced the changes in attitude toward commerce, freedom and markets that swept parts of Western Europe. The Sultans retained the old traditional command and control economies that had existed since ancient Egypt. In the sixteenth century, the Empire had larger cities than Europe and a trading network that reached from Morocco to China, yet these advantages that so many economists trumpet as the cause of Europe’s development mysteriously did not help the Empire. It never declined in absolute terms; each new century found it slightly richer than the previous one. But its wealth never increased at anywhere near the rapid pace of Western Europe, and that relative decline caused it to fall behind in military technology. The Empire achieved its deepest penetration into Europe with the failed siege of Vienna in 1688. From then on it continually lost real estate until its defeat in World War I. The Ottoman Empire created the institutions for most of the Middle East and that is the reason the region today is so far behind Europe, North America, and much of Asia in terms of economic development and freedom.
The Dutch enjoyed over 200 years of freedom and prosperity, becoming the world’s wealthiest nation
with one of its most powerful militaries and navies. Because of the close relationship between the Dutch and English, the Dutch system spread across the channel quickly, then to the English colonies in North America and parts of Western Europe.
Chapter 7 – The envy barrier resurrected
Chapter 7 explains the decline of capitalism in Europe and the U.S. No one took freedom and prosperity from them. As in ancient Israel, they gave it away and this chapter tells the sad story. In the eighteenth century, atheism and deism became fashionable in much of Western Europe. Atheists and deists offered no proof against God or for atheism. Many people hated the Catholic Church in France because of its wealth, corruption and political power. Its opponents lacked the intellect to challenge it either theologically or philosophically, so they resorted to ridicule. For most French, their hatred was so great that ridicule was enough.
French intellectuals decided they did not need the Church. They could create from scratch their own moral codes and theology using reason. Of course, envy began to reassert itself without the restraining power of Christianity, as Schoeck explained. The first of the Church’s moral codes to be jettisoned were those relating to sex and property. Sex outside of marriage became a new moral act while property became the greatest of all evils. Henri de Saint-Simon led the assault against property and free markets and gave birth to socialism. Today, Karl Marx is the image of socialism and communism, but Marx contributed very little to Saint-Simon’s system.
God is a Capitalist Page 2
