God is a Capitalist

by Roger McKinney

  Hofstede performed statistical analyses on the relationships between per capita income in countries and the scores of those countries on the power distance index (PDI), uncertainty avoidance index (UAI), and the individualist/collectivist (IDV) indexes. He uncovered strong statistical correlations between them and concluded that PDI and UAI contribute to wealth while wealth causes IND. Schwartz agreed that increases in wealth contribute to individualism, but we will see later that the rise of individualism preceded economic development in the West.

  I performed my own analysis on Hofstede’s data, but for per capita G.D.P. I used Angus Maddison’s data from The World Economy: A Millennial Perspective. My results paralleled those of Hofstede, but differed slightly because I used different per capita G.D.P. figures and I included interactions and nonlinear affects. I analyzed the effects of Hofstede’s cultural factors on Maddison’s per capita data for 1950, 1975 and 1998. The IDV factor dominated as the strongest predictor of per capita G.D.P. for all periods, followed by UAI, with PDI appearing only as it interacted with the other two. For 1950, the model accounted for 67 percent of the variation in per capita G.D.P. among nations; for 1975, 74 percent; and for 1998 54 percent. The p-level for each model was 0.0000, indicating that we can be 99 percent confident that the results of the model are not flukes and that the resonance between wealth and the cultural factors is real. For 1975, the model indicates that we can be 95 percent confident that an increase of one in the IDV scale will raise per capita G.D.P. from $1.00 to $1.78 in a country. Schwartz performed similar analyses using surveys of 15,000 teachers worldwide. He wrote that,

  The first basic issue confronting all societies is to define the nature of the relation between the individual and the group. A large literature suggests that resolutions of this issue give rise to the most critical cultural dimension. This dimension is frequently labeled individualism–collectivism (Hofstede, 1980; Kim et al., 1994). It is also described as contrasting individualism–communalism, independence–interdependence, autonomy–relatedness, and separateness–interdependence...

  For example, in societies where individual ambition and success are highly valued, the organization of the economic and legal systems is likely to be competitive (e.g. capitalist markets and adversarial legal proceedings). In contrast, a cultural emphasis on group well-being is likely to be expressed in more cooperative economic and legal systems (e.g. socialism and mediation).

  Development economist William Easterly performed his own calculations by merging Hofstede’s and Schwartz’s data with that of the World Values Survey and came up with similar results. Easterly arrived at this conclusion:

  To drastically oversimplify, values across different cultures lie along a spectrum between two separate poles: (1) valuing individual autonomy, believing in equal treatment of individuals, reliance on formal law, the same moral standards apply to all, enforcement of morality is between individuals vs. (2) seeing the individual mainly or only as part of the group, different standards of treatment for group insiders and outsiders, morality only applies to interactions within the group, group enforcement of moral standards, reliance on informal rather than formal institutions...So the bottom line (again drastically oversimplified) could be something like ‘the value of individual liberty promotes prosperity.’”

  Cultural anthropologists demonstrate that ancient Greek and Roman collectivism still dominates most of the modern world outside of the English-speaking nations and parts of Western Europe. One way it manifests itself is in the different attitudes toward families versus outsiders. For example, I lived in Morocco a few decades ago and needed some furniture for our apartment. A college student I had befriended, Hamid, offered to take my cash and negotiate with the dealer for me while I drank coffee in a nearby qahwa because, as he said, the price of the furniture would triple if the merchant glimpsed an American within a block of his store.

  I hesitated to take Hamid’s offer only because I didn’t want to put him to so much trouble, but he mistook my pause for distrust. He assured me that he could not cheat me because I had eaten dinner with him and his family and therefore enjoyed a status similar to that of a family member. No Moroccan can cheat a family member or anyone who has eaten at their table. I gave Hamid my cash and later returned home to find a nice selection of furniture at a good, Moroccan, price.

  Later, I met the owner of a construction firm who enlightened me further on business ethics in Morocco. He told me he spent a large part of his time thwarting the efforts of suppliers, customers, and employees to cheat him. The cleverness that went into dreaming up new ways to cheat him surprised me. He confirmed what Hamid had told me: cheating others is not considered unethical at all but a sign of an astute businessman. But cheating family members is immoral. Since then I have read similar stories about the business ethics in Iraq after the war when American companies rebuilt some of the war-torn nation.

  This family ethic results in poor countries being dominated by either small, family-owned businesses or giant state-owned, corrupt ones with few private corporations because the owners cannot trust non-family members. In fact, they can trust that family outsiders will cheat them in any way possible. As a consequence, capital is tied up in small, inefficient businesses and cannot be reallocated by investors to more efficient enterprises.

  Pseudo-individualism

  Why, then, do so many in the West find the concept of individualism repugnant? Part of the answer lies in the deliberate false interpretation of terminology. Adam Smith wrote that self-interest guides the decisions of business people in a free market, but socialists interpreted self-interest to mean selfishness. However, Smith was a moral philosopher first and considered economics a subset of ethics. He was no promoter of selfishness. If self-interest equals selfishness, then the English language has no word for the morality of the activities of the business person to provide food, shelter and financial security for himself and his family, the actions that Smith meant by the term “self-interest.” Surely, those activities are not selfish and evil.

  Another deliberate misunderstanding comes from socialists twisting the relationship of individuals to associations. Free market individualism opposes forced association, for example the state requiring everyone to join a church. Socialists distort that principle to claim that free markets oppose any kind of association at all and that it advocates an atomistic form of society where every individual is a loner and self-sufficient. However, the division of labor and specialization form the core of free markets, both of which require every person to rely on others for the goods, services or help they cannot provide for themselves. That reliance on others requires associations. Hayek wrote in Individualism and Economic Order, “The consistent individualist ought therefore to be an enthusiast for voluntary collaboration – wherever and whenever it does not degenerate into coercion of others or lead to the assumption of exclusive powers.”

  In addition, Socialist polemics has often used the technique of redefining terms in order to predetermine victory in debates and they accomplished that with the term “individualism.” Socialists manufactured a second definition of individualism, which Hayek labeled as false. Unlike Christian, or true, individualism, socialist individualism sprang from the mind of Descartes in the Dutch Republic, as Hayek quoted the philosopher, "There is seldom so much perfection in works composed of many separate parts, upon which different hands had been employed, as in those completed by a single master." He gave as an example the perfection of the building of a bridge by an expert mechanical engineer. Then he applied the same principle to “engineering” society. He wrote, "the past pre-eminence of Sparta was due not to the pre-eminence of each of its laws in particular...but to the circumstance that, originated by a single individual, they all tended to a single end."

  Descartes’ social engineering took root in eighteenth century France and blossomed in the atheistic Enlightenment. After the French Revolution, its greatest proponent was Rousseau, but the fathers of socialism, the Saint-Sim
onians, were its greatest promoters. It was rationalistic, meaning the false use of reason, in spite of the fact that the Saint-Simonians insisted that they worshipped Reason as if it were a person. Hayek called Descartes’ application of engineering methods to society “scientism” because it was the false application of methods from the natural sciences to the control of human beings.

  False individualism asserted that for any principle to be true, the individual must be able personally to understand it and foresee the consequences of implementing it. Otherwise, he need not submit to it. Of course, such individuals suffered from such near-sightedness that all of their analyses concerned only the immediate effects of their principles. False individualism insisted that any organization of society must be consciously designed by a superior human mind. They idolized reason, but did not credit everyone with the ability to reason well. Only an elite group of scientists who reasoned appropriately could engineer society and would organize society according to scientific principles. All non-elites, the “masses,” would submit, by force if necessary. They would achieve material equality for the masses, but not allow the masses equality under the law with the elite. Any institution that might stand in the way of the will of the elite scientists would be crushed, especially the church. That resulted in the scrapping of all tradition built up over centuries and all religion. They allowed nothing to interfere with the elite’s direction of the masses.

  Hayek recognized the Christian origins of what he called true individualism: “To the accepted Christian tradition that man must be free to follow his conscience in moral matters if his actions are to be of any merit, the economists added the further argument that he should be free to make full use of his knowledge and skill, that he must be allowed to be guided by his concern for the particular things of which he knows and for which he cares, if he is to make as great a contribution to the common purposes of society as he is capable of making.” But Hayek was only half right. Siedentop demonstrated that Christian individualism was born of a long struggle to institutionalize the Christian concept of the moral equality of individuals. Long before the “Enlightenment,” the Dutch Republic had instantiated Hayek’s freedom of the “use of his knowledge and skill” in production and in the market because they had regained the Hebrew respect for commerce, work and production.

  The Enlightenment definition of individualism morphed into the opposite and spawned collectivism, socialism and totalitarianism because of its insistence that a superior human mind must design and control all social processes. As Hayek wrote, “The concentration of all decisions in the hands of authority itself produces a state of affairs in which what structure society still possesses is imposed upon it by government and in which the individuals have become interchangeable units with no other definite or durable relations to one another than those determined by the all-comprehensive organization. In the jargon of the modern sociologists this type of society has come to be known as ‘mass society’.”

  Both versions of individualism are closely tied to two views of human nature. The traditional Christian view held that mankind enjoys the power to reason, but its rebellion against God had weakened that power and made it less that perfectly reliable in that no individual can foresee all the consequences of policies. Traditional Christian theology labeled this “original sin.” It gave mankind a tendency toward evil. Hayek called it antirationalistic and wrote, “The antirationalistic approach, which regards man not as a highly rational and intelligent but as a very irrational and fallible being, whose individual errors are corrected only in the course of a social process, and which aims at making the best of a very imperfect material, is probably the most characteristic feature of English individualism.” In other words, the original, Christian individualism included humility about things one knew little and what one could control. “From the awareness of the limitations of individual knowledge and from the fact that no person or small group of persons can know all that is known to somebody, individualism also derives its main practical conclusion: its demand for a strict limitation of all coercive or exclusive power.”

  False individualism, took an irrational leap of faith, insisting that humans are born innocent and turn toward evil only because of oppression. The state, guided by the rationalism of scientists, can remove oppression and return mankind to its original state of innocence and goodness. What is most relevant to this discussion is the fact that the rationalists of the Enlightenment determined through their vast intellects and powers of reason that the great oppressor of mankind is the unequal distribution of wealth. Equality before the law lost all value and only material equality remained. If Schoeck was correct that the insistence on material equality issues from envy then it becomes clear that envy gave birth to socialism. Socialism elevates envy to a virtue.

  To summarize Hayek, here are the main points of disagreement between the true and false versions of individualism:

  Rule of law. True individualism requires that general principles of conduct apply, within which people are free to differ. Pseudo-individualism insists on pragmatism; the “right sort of person,” that is the socialist, knows the correct course of action in each circumstance and needs no principles to guide him. He labels as ideology any demand that principles be followed.

  Equality. True individualism requires that the state treat all people equally without regard for race, gender or status, in other words equality before the law. Pseudo-Individualism abandoned equality before the law in favor of equality of material goods, at least for all but the elite.

  Morality. True individualism respected traditional morality and tended to be religious. Pseudo-individualism rejected tradition, especially morality, in favor of variable rules of behavior based on pseudo-reason in which the individual could understand the rationale and see the immediate consequences of his actions.

  Envy. Original individualism tamed envy; pseudo-individualism inflamed it.

  Government. True individualism required limited government in order for the individual to have room to actualize his abilities. Pseudo-individualism demanded absolute power for the state to mold human nature in its image.

  Associations. True individualism allowed people the freedom to choose with whom they would associate. It valued family, church, small communities and other voluntary associations. Pseudo-individualism valued only the state and sought to devalue all other associations.

  Religion. True individualism embraced traditional Christianity. False individualism tended to be atheist or deist.

  Reason. For true individualism, every person has the power to reason for himself and choose his own goals and means as long as he remains within the borders of general principles, such as not stealing and not committing murder. Pseudo-individualism accorded true reasoning ability only to an elite group, especially scientists headed by mathematicians. Commoners had to relinquish their abilities to reason and blindly follow the elite. On this point, socialism is clearly a regression to the caste system that Siedentop attributed to ancient Greece and Rome in which only an elite group possessed the ability to reason.

  True individualism started with the idea that all men are equal before God. God treats the peasant and the king equally and requires both to obey his laws. It encouraged personal salvation instead of corporate salvation. Its emphasis on private property and the condemnation of envy, along with the demand that people be allowed to enjoy the fruits of their own labor subdued envy for the first time.

  New Institutional School

  Another respected body of academic work that reinforces Schoeck’s view of the organizing power of envy and Siedentop’s history of individualism is the New Institutional School in economics. Three leaders of the school wrote,

  The fundamental question of economic history can be asked in two ways: how did a handful of countries achieve sustained rates of economic growth and development in the late eighteenth and early nineteenth centuries? or why have most nations failed to achieve sustained economic growth over the last three h
undred years? What historical process(es) have generated institutions in a handful of countries capable of sustained economic development in the twentieth century, while most countries still fail to develop thriving markets, competitive and stable politics, and cultures that promote deep human capital accumulation for most of their populations? Economists have thoroughly documented that no one factor explains economic development – not capital accumulation, human capital, resource endowments, international trade, or geographical location to name a few prominent examples. Instead, the complex ways that societies structure human relationships – the institutions that shape economic, political, religious, and other interactions – appear to be the key to understanding why some societies are capable of sustained economic and political development (North 1981, 1990, Acemoglu, Johnson, and Robinson 2002, Greif 2005, Rodrik, Subramian, and Trebbi 2004).

  The New Institutional School describes two broad forms of government – limited access and open access, sometimes called extractive and inclusive. Limited access forms of government are those with a single leader supported by an elite ruling over the masses. The single leader can be a pharaoh, king, Caesar, president, secretary of the politburo, military dictator or other term. He and his elite enjoy nearly absolute power.