A study of the Ottoman Empire’s economic history is instructive for several reasons. Many economic historians credit trade and the growth of cities for breaking the chains of the feudal system in Western Europe. Yet, the Ottoman Empire espoused free international trade three hundred years before Adam Smith. Ottoman traded extended from China to Morocco. And the Empire could boast of larger, wealthier, more beautiful cities so advanced in science and art as to shame any in Europe. But these did not transform the Ottoman Empire as historians claim they did Europe. It seems only reasonable to ask of historians who develop grand theories of economic development that their theories apply to more regions of the world than just Western Europe.
Islam itself cannot be blamed because 1) Europe had similar religious institutions until the Reformation and 2) Muslims have done well economically in the West. Waqf’s in the Middle East played a similar role to that of the Church in that they owned large portions of land. Until the advent of capitalism in the Dutch Republic, the main paths to wealth and prestige in Europe and the Ottoman Empire were the same: through the military or state bureaucracy. And both Ottomans and Europeans held commerce in contempt.
After Dutch and English per capita income began to rise rapidly, Catholic and Orthodox Christendom and the Muslim world remained mired in economic backwardness. The same plagues that afflicted the Ottoman Empire held Catholic and Orthodox Europe back for generations. At the same time, Muslims persecuted, murdered and forced to emigrate the two dhimmi groups, Christians and Jews, who had driven the small commercial successes the empire had and produced most of its science. What set Protestant Europe apart was the reformation in values in favor of the bourgeois that accompanied the Reformation.
The economist Timur Kuran in “The Scale of Entrepreneurship in Middle Eastern History” laments the failure to launch corporate structures in Muslim nations as a cause of continuing backwardness because, “Islamic law failed to stimulate the development of organizational forms conducive to pooling and managing resources on a large scale.” But that is a sign of the lack of bourgeois values. Businesses in the poorer nations of Europe and the Middle East were small and family-owned for the most part in spite of the adoption of corporate structures in the law because of the ethic of the family. The Middle East was very much as Fukuyama described Mafia culture, quoted in Lawrence E. Harrison and Samuel P. Huntington’s Culture Matters, “For the rest of Sicilian society, the prevailing norms can be described more as ‘take advantage of people outside your immediate family at every occasion because otherwise they will take advantage of you first.” Most businesses remain family-owned today because the owners can trust only family members to run the businesses.
Living the legacy
The Ottoman elite struggled to catch up to the mounting power of Europe and Russia, first with military reform, next with state-owned factories, then with wholesale westernization. While the continent of the cross waxed stronger, that of the crescent waned. For almost two centuries, the Ottomans positioned the empire as the kingdom of Allah on earth, a lighthouse to guide the rest of the world in the path of civilization, and Islam, the final and perfect revelation from Allah. They credited their military prowess to Allah’s desire to protect these treasures and spread their benefits to all mankind. That their conquests of new territories added to the sultan’s wealth was a merely a bonus.
The military defeats of the seventeenth century shattered this worldview. For the first time, events forced the elite to search outside the empire, and among modern techniques instead of past traditions, for solutions. They attempted to improve their military by purchasing European weapons and hiring European advisors. When those failed, the state built factories and schools modeled after the ones that ambassadors had toured in the West. Finally, in the late nineteenth century, the government tried to force Western culture on its citizens by encouraging European plays, music and clothing. At times, it made halfhearted attempts at parliamentary democracy. But while the Empire finished each century wealthier than when it began, the West, and Russia, always grew faster in wealth and military power. Bernard Lewis wrote,
In the course of the twentieth century it became abundantly clear that things had gone badly wrong in the Middle East. And, indeed, in all the lands of Islam. Compared with Christendom, its rival for more than a millennium, the world of Islam had become poor, weak, and ignorant. The primacy and therefore the dominance of the West was clear for all to see, invading every aspect of the Muslim's public and even—more painfully—his private life.
The Ottoman Empire no longer exists, but we can track the progress of the nations that sprang from it through what is known as MENA, or the nations of the Middle East and North Africa. MENA encompasses Turkey, all Arab countries and the old Ottoman enemy, Persia, which followed the same pattern of economic development as its nemesis. Little has changed in the Middle East since the collapse of the Ottoman Empire. The state and agriculture still dominate the economies of the nations of MENA, much as they did in the days of the Empire. Democratic freedoms are scarcer than cash. Productivity runs low. But rather than face these problems, most of the intellectuals in these countries take no responsibility for the miserable conditions in their nations, preferring instead to blame the U.S. and Israel.
Most economic analyses of the region focus on macro variables such as taxes, government spending, monetary policy, etc. Few economists have embraced the recent progress made in social studies concerning the importance of culture, but at least they are paying more attention to institutions. For example Ibrahim A. Elbadawi wrote in “Reviving Growth in the Arab World,” a World Bank paper in 2004, “Modern growth literature, along with development experiences in the field, suggests that high growth is associated with certain broad fundamentals: effective institutions for protection of property rights, a stable macroeconomic environment, adequate human capital, structural policies for promoting more open economies and efficient and lean government.”
The paper measured institutions using the International Country Risk Guide (ICRG), an index of political, economic, and financial indicators. Arab countries received an ICRG score of seventy on a scale ranging from forty to eighty-five, compared to a score of seventy-five for East Asian nations. However, most of the improvement came from oil exporting nations. Arab countries scored lowest in measure of corruption, rule of law and quality of the bureaucracy. Elbadawi wrote, “In fact, in the 1995-2000 period both groups continue to lag behind all other comparators, including Sub-Saharan Africa.”
Another measure of progress is the share of government consumption to G.D.P., called the government burden. Again, Elbadawi wrote,
Of the three indicators making up the macro-institutional environment, the quality of institutions measured by ICRG and excessive government burden seem to be the most important factors explaining the difference in growth...A large government consumption to GDP ratio is usually associated with a bloated bureaucracy, exorbitant taxes and, as such, constitutes a drag on private sector activities. The evidence suggests that the government burden in the Arab world is a serious problem.
What went wrong?
The explanation that has attracted the greatest following asserts that the failures of the Ottoman armies resulted from apostasy. Religious leaders preached that Muslims had strayed from the true path of Islam and displeased Allah. The clerics sold the Ottoman people on that explanation and began cleansing the Empire of sinful practices and infidels. Subsequent defeats launched periods of intensified cleansing, culminating in the murder of over 200,000 Christians in 1895 and more than a million Christians during the First World War.
The last Islamic Caliphate ended with Turkey’s defeat in World War I and soon afterwards Egyptians formed the Muslim Brotherhood to bring it back. The modern radical Muslim groups such as Al Qaeda and the Islamic State (ISIS) are merely splinter groups from the Muslim Brotherhood. Irreligious westerners dismiss religious zeal as a source of radicalism in the Middle East, blaming instead poverty and
corrupt, oppressive governments. But religion is the raison d’etre for radical Muslims. They find the backwardness, poverty and military weakness of the Muslim world, especially weakness toward Israel, humiliating and the only remedy they will consider is a purification of their countries so that Allah will return them to the hegemony they enjoyed during the Golden Age of Islam when the crescent arched from Vienna through the Middle East and North Africa and into Spain to the French border. The West egregiously underestimates the excitement that the ISIS in Syria and Iraq has caused in the entire Muslim world, not just in the Middle East. ISIS offers the hope of a restored caliphate and with it the likelihood in the minds of Muslims or a return to power under the banner of Allah.
Chapter 7 – The envy barrier resurrected and the decline of capitalism
The reader would be justified in thinking that a chapter on the decline of capitalism should begin with a treatment of Karl Marx. But he would think that only because of the poor state of the U.S. educational system. Marx did not invent socialism or communism and he contributed little to the movement. The first recorded depiction of a socialist society came from Plato’s Republic, while several quasi-Christian groups had tried communism, and failed, in the 1,800 years after Christ.
According to Hayek, the death of capitalism began with ideas of the philosopher Rene Descartes (1596-1650) who promoted the superiority of things designed by humans, especially institutions, which Hayek called Cartesian rationalization in The Fatal Conceit:
Descending in the modern period from Rene Descartes, this form of rationalism not only discards tradition, but claims that pure reason can directly serve our desires without any such intermediary, and can build a new world, a new morality, a new law, even a new and purified language, from itself alone. Although the theory is plainly false (see also Popper, 1934/1959, and 1945/66), it still dominates the thinking of most scientists, and also of most literati, artists, and intellectuals.
He had written earlier about Descartes in his “Individualism: True and False.”
Descartes argues that “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 then goes on to suggest (after, significantly, quoting the instance of the engineer drawing up his plans) that “those nations which, starting from a semi-barbarous state and advancing to civilization by slow degrees, have had their laws successively determined, and, as it were, forced upon them simply by experience of the hurtfulness of particular crimes and disputes, would by this process come to be possessed of less perfect institutions than those which, from the commencement of their association as communities, have followed the appointment of some wise legislator.” To drive this point home, Descartes adds that in his opinion “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.” It would be interesting to trace further the development of this social contract individualism or the “design” theories of social institutions, from Descartes through Rousseau and the French Revolution down to what is still the characteristic attitude of the engineers to social problems. Such a sketch would show how Cartesian rationalism has persistently proved a grave obstacle to an understanding of historical phenomena and that it is largely responsible for the belief in inevitable laws of historical development and the modern fatalism derived from this belief.
The historian Alister McGrath wrote in The Twilight of Atheism that “Descartes is a figure of immense importance to our study, as he is widely regarded as laying the foundations for modernity.” But as Hayek demonstrated, Descartes is equally important to the problem of the rise of socialism in the West. Nothing characterizes modernity better than the rise of the twin philosophies of atheism and socialism.
Descartes method of investigating the natural world helped give birth to modern science. But Descartes could not control how those who succeeded him would use his insights. Hayek was concerned about the influence of Descartes on the social sciences and the immense damage it caused in the field of economics. Closely allied was the damage done by applying Descartes’ methods to the field of theology: it killed God and redefined human nature. The damage to economics required first destroying the God of Christianity and the Christian view of humanity.
Though modest by today’s standards, the breakthroughs in the natural sciences of the eighteenth century convinced many people that mankind could achieve mastery over the material world. But some took a leap in logic the size of the Grand Canyon and applied the same thinking to humanity: mankind could use reason to create new institutions, morals, etc., from scratch and build not only a better society but a better humanity. Because modern science had proven wrong much of the old knowledge about the physical world, which consisted primarily of the writings of Aristotle, many assumed that all of the knowledge about humanity and society accumulated through the ages was wrong as well. It would have to be scrapped and the elite scientists would create new and better religions, institutions and morals.
Hayek dealt with that error, which he called “scientism,” in his book, The Counter-Revolution of Science: Studies on the Abuse of Reason. Scientism was the negative goal of the revolution. It tore down the old structures of society. However, two other fallacies that Hayek did not discuss, atheism and deism, fueled scientism and built up the positive objectives of the new rationalism in which elite scientists would perfect human nature and rid the world of crime, suffering and evil.
There were few atheists in Descartes day. The Dutch Republic where Descartes lived tolerated Catholicism and Protestant sects that differed from the dominant Calvinism, such as Lutherans and Anabaptists. Tolerance inevitably led to an expression of atheism, for atheists have always existed; they just kept quiet. The oldest recorded mention of atheism comes from Israel’s King Solomon who wrote that, “The fool has said in his heart, ‘There is no god.’” (Psalms 14:1, 53:1) He wrote that around 1000 BC. The fool said it in his heart and not out loud because he knew that advertising his atheism would prove dangerous. Atheists throughout history kept their doubts to themselves for the most part, but they never went away.
Modern science began with devout Christians such as Copernicus, Galileo and others glorifying God by discovering his secrets in the natural world. Alone among the many religions of the world with its emphasis on reason, Christianity had always held that God is rational. The gods of other religions tended to be capricious. Christian theology allowed no room for capriciousness in the Judeo-Christian God. Challenging the conventional wisdom that modern science had to fight the Church to be born, the historian Rodney Stark wrote in How the West Won, “The truth is that science arose only because the doctrine of the rational creator of a rational universe made scientific inquiry plausible. Similarly, the idea of progress was inherent in Jewish conceptions of history and was central to Christian thought from very early days.” Stark goes on to show that other religions, such as Hinduism, Buddhism and Islam, deny the notion of progress because they worship supreme beings devoid of rationality.
The unique role played by Christianity as the catalyst for modern science was recognized by the great British philosopher Alfred North Whitehead who was quoted in chapter 4. Even though the Christian Byzantine Empire accepted the rationality of its God, it resisted the notion of progress and held ancient philosophy in greater esteem than modern discoveries, which persuaded the government to prohibit innovations such as clocks and pipe organs.
The Christian and Jewish God is rational and has gifted mankind with reason. Reason demanded that God would have followed reason in the creation of the universe, and in the field of astronomy the early scientists found proof. The planets, stars and moons they surveyed moved in such regular patterns that they appeared to obey laws. This knowledge gave medieval Christians the courage to investigate the rest of the natural world to determine if it followed regular patterns that
the investigators could distill into laws and that search gave birth to the modern scientific method.
Hayek builds a good case against Descartes for having planted the seed of modern socialism, but the great nineteenth century French economist Frederic Bastiat (1801-1850) proposed that it sprang from the Renaissance and France’s veneration of classical Rome and Greece. In his essay “Academic Degrees and Socialism,” published in Selected Essays on Political Economy, he wrote, “I say that the subversive doctrines called socialism or communism are the fruit of classical education, whether provided by the clergy or by the university.” Greeks and Romans championed the accumulation of wealth by looting in war as well as slavery, promiscuity and absolute submission to the state. Bastiat allowed the leaders of the Revolution to testify to the inspiration they drank from ancient Greece and Rome. He quoted Fenelon, Rollin, Montesquieu, Rousseau, Mably, Mirabeau, Robespierre and others. Here is an excerpt from Montesquieu praising Sparta:
The ancient Greeks, imbued with the necessity of training in the virtues those who were to live under a popular government, designed institutions peculiarly fitted for this end....The laws of Crete served as the model for those of Sparta, and those of Plato corrected the latter.
God is a Capitalist Page 35
