God is a Capitalist

by Roger McKinney

  The notion that individualism was discovered seems absurd to the modern mind...Nevertheless, some cultures emphasize feelings of separate individuality while others stress collectivity and suppress the sense of self. In the latter kinds of culture, which seem to be in the great majority, a person’s real sense of “being” is quite collective: whatever rights individuals possess are accorded not to them but to their group and are, in turn, conferred upon them by their group. In such circumstances, no one supposes that “I am the master of my fate.” Instead, it is the idea of fatalism that rings true: that one’s fate is beyond one’s control, being fully determined by great external forces.

  Societies need individualism in order for innovative people to achieve their potential to create new tools and processes that will benefit the group. Christian Europe carried the seed of the idea for almost 1,500 years, but it never sprouted in the sphere of economics until planted in the soil of the Dutch Republic. Much of the credit should probably go to Erasmus for his influence and teaching about personal spirituality. Erasmus taught people to obey the group, the Church, outwardly but to care for their own soul through person Bible study, prayer and helping the poor. Individualism, in turn, initiated a greater respect for equality before the law in which the nobility no longer formed an elite group that was above the law. The nobility could not steal the property of common people or start wars to plunder the wealth of others among the nobility.

  The United Provinces made common people equal in status to nobility before the law, which shocked other Europeans, and they prohibited confiscation of property by the state without just compensation. They created militias to thwart the efforts of criminals to steal or defraud even the humblest citizen of his property and they enforced contracts. They reduced corruption among the militia and the court systems so that those charged with enforcing the law would do so without partiality. And the Republic respected the property of other nations, for while the Spanish continued to loot and pillage in the Americas, the Dutch traded with the natives.

  In Europe outside the Republic, peasants enjoyed few rights to property. The nobility could take what they wanted from peasants, and as William of Orange learned, the king could take a noble’s land if he fell out of favor. In contrast, the United Provinces established a legal structure that provided unprecedented protection for private property. Theologians since Thomas Aquinas had defended private property on the grounds that taking it without the consent of the owner violated the eighth commandment as well as the many other prohibitions of theft in the Bible. The Protestants of the Dutch Republic continued to sanctify private property, but while the Catholics wrote about its importance, the Dutch created laws and institutions to protect property.

  On that foundation, Church scholars descending from the university at Salamanca, Spain, influenced the Dutch to recover the Biblical attitude of respect toward commerce and wealth. They rediscovered the “bourgeois values,” as McCloskey wrote, for even if people have free markets they will not take advantage of them if they do not value commerce. The Dutch elevated business to a position of high esteem in society and church and encouraged profits as a sign of a man’s diligence. In fact, Adam Smith wrote that in Holland it is “unfashionable no to be a man of business. Necessity makes it usual for almost every man to be so, and custom everywhere regulates fashion.” They permitted the charging of interest on loans on the grounds that interest was nothing more than rent on money and no different than rent on land, which the Bible did not condemn. The result was, as Pieter de la Court wrote,

  And seeing the inhabitants under this free government, hope by lawful means to acquire estates, may sit down peaceably, and use their wealth as they please, without dreading that any indigent or wasteful prince, or his courtiers and gentry, who are generally prodigal, necessitous, and covetous as himself, should on any pretence whatever seize on the wealth of the subject; our inhabitants are therefore much inclined to subsist by the forenamed and other like ways or means, and gain riches for their posterity by frugality and good husbandry.

  The preferred methods for gaining wealth throughout the Middle Ages involved war, extortion, ransom, accepting bribes, tax collection and rent-seeking, that is, getting a grant of a monopoly on trade or transportation and charging exorbitant prices. The Dutch made all of these illegal on the grounds that they violated the teachings of Scripture, leaving men with little but business and religion to exhaust their ambitions on. For the first time in European history, business achieved respectability.

  Chapter 1 demonstrated that attitudes and institutions provide the greenhouse conditions for the innovation and technological advance that raised per capita income by enabling people to produce more for the same amount of effort, i.e., increased productivity. Many economists have written about the connection between institutions and economic development, as Prak noted in Early Modern Capitalism:

  At a basic level growth or stagnation is determined by the constant and self-reinforcing struggle between forces that obstruct or encourage technological progress (the approximate causes of growth). Yet the balance between constraints and stimuli depends on the institutional environment, most notably the system of property rights and the size and efficiency of the market (the ultimate causes of growth)…The transition to modern economic growth involved revolutionary changes in the political and institutional framework as well as the introduction of ground-breaking technologies.”

  In the United Provinces of the sixteenth and seventeenth centuries, the Dutch overhauled virtually every institution, including church, finance, government, schools and charity. These new institutions created the environment for great leaps in productivity that led to the world’s highest standard of living. Such institutions do not spring to life from nothing, but owe their existence to the core values, beliefs and attitudes of the society and those come from their religion. According to Hofstede, the attitudes most important for economic develop are individualism, tolerance for ambiguity, and egalitarianism.

  Without a doubt, Protestantism caused the rupture between the states of the Netherlands and the Spanish Empire. Most historians assert that the people rebelled against new taxes imposed by Spain, but they ignore the historical fact that the Dutch people paid much higher taxes under the Republic without bolting. The people of the Netherlands rebelled because they wanted to follow the Protestant faith, and the King of Spain tried to murder them for it. They rebelled not for economic reasons, as Marx and many historians insist, but for self-defense and religious freedom. Devout Protestants, such as William of Orange and Johan van Oldenbarnevelt led the fledgling nation, and its chief economist, Willem Usselincx, intended the Dutch West Indies Company to evangelize the heathen in the Americas. The Dutch may have acquired the necessary courage to break with millennia of precedence, established political theory and theology to establish their new nation without a monarch from the Huguenot (French Protestant) writers who insisted that kings and princes must be subject to the same laws of God as the people and could be deposed if they abused their privileges.

  Hugo Grotius, the leading philosopher during the formative years of the United Provinces and founder of international maritime law, was also a Protestant theologian. Grotius and Oldenbarnevelt teamed up to shape a consultative government without a monarchy. Grotius argued in his writings that a consultative government with a strong constitution best preserves liberty, stability, virtue, and prosperity, and compared the Dutch Republic to ancient Judea, Athens and Rome. He venerated Erasmus, defended the Trinity, and fought for tolerance on secondary theological issues in the Dutch Reformed Church against the absolute conformity demanded by the radical Calvinists.

  But Grotius also insisted that self-government would never work unless the majority of citizens submitted themselves to God. Gary De Mar in God and Government quoted Grotius who wrote, “He knows not how to rule a kingdome, that cannot manage a Province; nor can he wield a Province, that cannot order a City; nor can he order a City, that knows not how to regulat
e a Village; nor he a Village, that cannot guide a Family; nor can that man govern well a Family that knows not how to govern himselfe; neither can any govern himselfe unless his reason be Lord, Will and Appetite her Vassals: nor can Reason rule unless herselfe be ruled by God, and (wholy) be obedient to Him.” In The Netherlands, Grotius is best known as the father of Dutch law. The obsession that the Dutch founding fathers had with the rule of law was their most significant contribution to Dutch economic development, because the rule of law made the Dutch Republic a safe place to invest in new businesses ventures.

  The Dutch Protestants established another institution essential for the protection of private property – free markets. Markets implement the right to private property by freeing owners to use and dispose of their property as they desire. The opposite of a free market is a controlled one and control defines ownership. When the state sets prices and regulates the uses of property, it also takes away ownership and appropriates some of its value.

  In the medieval economy, the church and state wrested control of property from its owners by regulating wages, prices, content, quality of work, working conditions and interest rates while promoting monopolies in order to block competition. Dutch Protestants freed property owners from most of these regulations. Also, the Dutch had elevated spiritual matters to the position of highest importance; they sacrificed their lives and property throughout an eighty-year war to achieve religious freedom. Economic matters held such a subordinate position to religious ones that the Dutch may have considered giving people more freedom in the market place to be a trivial matter.

  Calvin was not the father

  It is ironic that Weber and Tawney chose Calvinism as the spiritual father of capitalism when Calvinists, from John Calvin down through the seventeenth century, fought to preserve medieval economics and regulations with its low regard for commerce and property rights. Calvin had removed the stigma of charging interest for loans, but he insisted on the state’s obligation to regulate every aspect of finance as well as the prices, wages, etc., of all other markets. Calvin’s followers carried forward his emphasis on regulation. For example, Bucer, a disciple of Calvin and professor of divinity at Cambridge, tutored King Edward VI on economic matters. He encouraged the king to nationalize the textile industry, to force landowners to plow pastureland, and to fix the prices of merchants. He held merchants in low esteem, writing of them, “next to the sham priests, no class of men is more pestilential to the Commonwealth,” according to Tawney in Religion and the Rise of Capitalism.

  Calvin’s Geneva emphasized order to the exclusion of freedom. Laws regulated what people could wear, eat, how they could entertain themselves and how late they could stay out. They controlled how servant girls could dress in order to maintain distinctions between social ranks according to Graham in The Constructive Revolutionary. Geneva fixed interest rates at 5 percent and penalized lenders for exceeding the limit by confiscating the principal and fining them. Eventually, the number of lawbreakers forced the city council to raise the limit to 6.67 percent. Still, many of those with money to lend found the risks too great for a 6.67 percent return and preferred to keep their money idle.

  Geneva suffered from the general price inflation that hit Europe in the sixteenth century, and workers responded by demanding higher wages. In 1559, the Council passed maximum wage laws, as Graham wrote:

  Here there was discussion of workers who are so expensive and proud, a strange thing, so that no one can be found who wants to work in the vineyards. Therefore it is ordered to make public edicts that no one may pay masons, hat-makers, nor other workers nor laborers more than six sous per day, and to women ten quarters; and when they are fed, just half that, at a penalty of sixty sous, both for the worker and the master.

  The Geneva city council censored the output of the printing industry and prohibited masters and laborers from organizing, requiring that they submit to the judgment of the council members on matters of wages and labor disputes. The law guaranteed job security to journeyman printers until a piece of work was complete, fixed the number of hours that the journeyman could work an apprentice and determined the number and length of holidays. The council abolished copyrights for editions of the Bible, catechisms, prayers and psalms, making them common property after the first impression. Since religious publications were the most popular and profitable, making them common property prevented printers from making up their losses on other topics with new editions of religious materials. The Geneva city council established quality standards and repossessed the licenses of those who failed to meet council standards. Most of the restrictions on commerce in Geneva did not originate with Calvin; many were ancient and part of the traditional attitude toward markets. But Calvin and the Consistory approved of them and expanded many.

  Geneva allowed no room for privacy, even in the home according to Graham, for the council hired people to “play peeping tom to catch persons in private peccadilloes,” and sent spies to parties in order to discover heresy. Unlike Erasmus, Calvin allowed no freedom of religion, public or private, no freedom in commerce, and stingy freedom in the bedroom. Society in Geneva suppressed the attitudes of individualism, acceptance of uncertainty, bourgeois values and egalitarianism that are necessary for capitalism to take root.

  Radical Dutch Calvinists fought to rein in the freedom cherished by the Erasmian Protestants and mold the United Provinces in Geneva’s image. Had Oldenbarnevelt, Grotiusand others failed to curb the radical Calvinists of their day, the creation of a capitalist society may have been delayed until the establishment of the United States, if then.

  Dutch influence

  The Dutch perpetuated their economic hegemony for about two centuries. As late as 1720, “Novelty, innovation, cleanliness, prosperity, the magnificence of the towns, and relative absence of poverty compared to neighbouring countries: these were the hallmarks of Dutch society.…” Israel wrote. That year England and France witnessed two manic/depressive episodes, the South Seas bubble in England and the Mississippi bubble in France. Both were financial disasters that would make the earlier tulip bubble in the Dutch Republic wither in comparison.

  The United Provinces, not England, “was still the world’s technological showcase down to around 1740.” Per capita income slipped in the latter part of the eighteenth and early nineteenth centuries, falling from $2,110 in 1700 (calculated in 1990 dollars) to $1,821 in 1820 according to Maddison in The World Economy. The rapid rise of protectionism and high tariff rates among all of its trading partners, as well as crushing taxes to pay for the many wars its neighbors had launched against it, were the chief causes of the decline. Other than the pre-emptive strike against England in 1688, the Dutch never initiated a war with its neighbors. With no new markets outside the country and a small domestic market, the Dutch responded by exporting technologies and investing in promising opportunities behind the barriers.

  Still, the Dutch lived better than the British who had to get by on just $1,707 in per capita income in 1820. British per capita G.D.P. did not surpass that of the Dutch, which began growing again, until the latter part of the nineteenth century. British per capita income grew faster than that of any other European country from 1688 to 1820, Maddison wrote, due to the “improvement of its banking, financial and fiscal institutions and agriculture on a line which the Dutch had pioneered, and to a surge in industrial productivity at the end of the period.” Even the “surge in industrial productivity,” also known as the Industrial Revolution, owed a large debt to the improved security of private property and patent laws patterned after the Dutch model as well as transfers of Dutch technology and investment.

  How did Dutch success influence the rest of Europe? Heckscher wrote in Mercantilism, “The Netherlands were the most hated, and yet the most admired and envied commercial nation of the seventeenth century.” The so-called mercantile writers studied the Dutch economy for clues to its power and often cited it as the ideal system. Like the peasant in the Russian tale who did not ask
for a goat from a visiting angel but that the angel might kill his neighbor’s goat, their chief aim was to find ways to destroy Dutch wealth and power.

  For example, the Great Colbert saw economics as a form of war. The Dutch in his opinion increased their trade in order to build their military power, and with sufficient power, the Dutch would dictate policy to the rest of Europe. For Colbert, limiting Dutch power meant destroying Dutch trade in any way possible. Heckscher quoted from a letter he wrote his cousin, the Intendant at the naval base of Rochefort in 1666 that, “Trade is the source of finance and finance is the vital nerve of war.” Of the Dutch, according to Heckscher, he wrote that they

  acquire the trade of the whole world into their own hands…and to rob other nations of the same...Upon this they base the principal doctrine of their government, knowing full well that if they but have the mastery of trade, their powers will continually wax on land and sea and will make them so mighty that they will be able to set up as arbiters of peace and war in Europe and set bounds at their pleasure to the justice and all the plans of princes.

  In 1670, Colbert expressed French economic policy in this way according to Heckscher:

  It seems as if Your Majesty, having taken in hand the administration of your finances, has undertaken a monetary war against all European states. Your Majesty has already conquered Spain, Italy, Germany, England and several other countries, and has forced them into great misery and poverty. At their expense Your Majesty has waxed rich and so acquired the means of carrying out the many great works Your Majesty has undertaken and still daily undertakes. There remains only Holland, which still struggles with all its great power...Your Majesty has founded companies which attack them (the Dutch) everywhere like armies.