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FJORDMAN: THE BIRTH OF CAPITALISM…….

The blogger Fjordman files this report with the Vlad Tepes blog. KGS

The Birth of Capitalism

The Ottomans used a centralized power structure to extract a large proportion of the resources of the empire to use for military aggression, but they were successfully rebuffed by European states. The problem with an overly centralized power structure with high tax rates is that over time it will lead to economic and technological stagnation. Successful innovation requires some degree of decentralization, which could be found in regions of Western Europe with many free cities, from northern Italy via the Netherlands and Flanders in the Low Countries to England and northern Germany. This is where we encounter the development of capitalism.

The Ancient Economy: Evidence and Models, edited by J.G. Manning and Ian Morris, is a collaborative effort of various scholars on the economies of Egypt, the Near East and Greco-Roman Antiquity. The ancient world was not “capitalist” in our sense of the word. Slavery lessened incentives to develop labor-saving technology. People lacked a tradition of carrying on a sustained effort to produce a technological solution to a felt need (they had no “research-and-development” labs) and often suffered from a certain prejudice against work of the hands.

In the Greco-Roman world, wealth should preferably come from the land. Commerce was considered barely socially acceptable whereas industry was widely looked down upon. Sustained growth per capita requires sustained technological improvement. Roman economic growth was very slow because technological progress was slow – not necessarily nonexistent, but slow. There are few indications of what we might call a capitalist concept of making calculated investments in better technology in order to improve future productivity.

Western wealth began to grow with urban growth and commerce in the twelfth century and accelerated during the Renaissance into the seventeenth and eighteenth centuries with the development of a relatively autonomous class of professional merchants. Friedrich von Hayek (1899-1992), an Austrian and later British economist and philosopher, identified a new individualism provided by Christianity and the philosophy of Classical Antiquity which was developed during the Renaissance. He explains this in his classic The Road to Serfdom:

“From the commercial cities of Northern Italy the new view of life spread with commerce to the west and north, through France and the south-west of Germany to the Low Countries and the British Isles, taking firm root wherever there was no despotic political power to stifle it….During the whole of this modern period of European history the general direction of social development was one of freeing the individual from the ties which had bound him to the customary or prescribed ways in the pursuit of his ordinary activities….Perhaps the greatest result of the unchaining of individual energies was the marvellous growth of science which followed the march of individual liberty from Italy to England and beyond….Only since industrial freedom opened the path to the free use of new knowledge, only since everything could be tried – if somebody could be found to back it at his own risk – and, it should be added, as often as not from outside the authorities officially entrusted with the cultivation of learning, has science made the great strides which in the last hundred and fifty years have changed the face of the world.”

Modern economic growth has roots back to the medieval period. Initially, “the West’s achievement of autonomy stemmed from a relaxation, or a weakening, of political and religious controls, giving other departments of social life the opportunity to experiment with change. Growth is, of course, a form of change, and growth is impossible when change is not permitted. Any successful change requires a large measure of freedom to experiment. A grant of that kind of freedom costs a society’s rulers their feeling of control, as if they were conceding to others the power to determine the society’s future. The great majority of societies, past and present, have not allowed it. Nor have they escaped from poverty.

Europe exhibited an intellectual curiosity that cannot be reduced simply to a matter of economic interests. China was the world’s largest economy for many centuries but never produced anything resembling the Scientific Revolution. That does not mean that there is never any connection at all between wealth and accomplishment. The Medici banking family in Florence for generations sponsored great achievements, from artists such as Donatello to Galileo. Founded as a pawnshop in 1472, Banca Monte dei Paschi di Siena from the beautiful city of Siena in Tuscany, northern Italy, is today considered the world’s oldest surviving bank.

The German sociologist Max Weber (1864-1920) in his influential study The Protestant Ethic and the Spirit of Capitalism identified capitalism with the Protestant branch of Christianity. I do think it is accurate to say that Protestant nations proved especially dynamic in adopting science and capitalism; Protestantism encouraged ordinary people to read the Bible in the vernacular, which spurred the growth of literacy. Still, there is no doubt that the foundations of capitalism were created in Catholic Europe, in the medieval city-states of northern Italy.

Avner Greif in The Ancient Economy agrees with the view that economic growth has roots in the Middle Ages and reflects an economic, social, legal and political process through which Western European nations created the first modern economies. Waterwheels were not used as extensively by the Romans as they were in medieval Europe, but the waterwheel did represent a major conceptual breakthrough as “the first machine to capture nonanimated energy for on-land productive use.” In addition to this, the Romans left Europeans with a unifying learned language across political borders, Latin, and above all with the legacy of Roman law:

“Finally, the Roman heritage in the West includes the Roman legal tradition. Many economists would agree that in order to bring about and support modern economic growth it is necessary to have a particular legal tradition – a legal tradition in which rules can be changed to fit the evolving needs of the economy and that ensures that individuals have property rights and freedom. Such a tradition exists in the Western world, and it is a legacy of the Roman period. It was then that the European legal tradition was formulated, and despite various challenges, it has survived the test of time. One can only wonder if modern economic growth could have occurred in Europe if it had possessed one of the alternative legal traditions that emerged elsewhere, such as the divine law that dominates the Muslim world.”

Greif, who is an economics professor at Stanford University in the USA, elaborates his views in Institutions and the Path to the Modern Economy: Lessons from Medieval Trade. The scientific societies of the seventeenth century had a practical emphasis on experimental science rather than Aristotelian philosophy, but they built upon the foundation of the network of European universities. In the eyes of Avner Greif, the organization of society in the West was centered on intentionally created institutions and self-governed, non-kin-based organizations such as guilds and universities, not tribes or clans as in the Middle East:

“Since then, this particular societal organization – centered on self-governed, non-kin-based organizations and individualism – has been behind the behavior and outcomes that led to European-specific economic and political developments. This societal organization is the common denominator behind such seemingly distinct historical phenomena as the late medieval economic expansion, the rise of European science and technology (Mokyr 2002), and the creation of the modern European state, the ultimate manifestation of a self-governed, non-kin-based corporation composed of individuals rather than larger social units (Greif 2004b). If institutions are central to economic, social, and political outcomes, and institutional development is a historical process, the roots of the eventual success of the West may very well lie in its past political and economic institutions.”

While he generally praises European individualism, he also speculates whether excessive individualism has contributed to the cultural decline of the West in more recent generations.

There was a decline in medieval self-ruled political entities during the Age of Absolutism, but Greif wonders whether this should be considered an exception in the long run of European history for the past millennium. Medieval innovations are manifested in current practices such as trading in shares, limited liability, auditing, apprenticeships and double-entry bookkeeping.

Patricia Buckley Ebrey in The Cambridge Illustrated History of China details how the “appearance of commercial cities did not play the same political or intellectual role in China as it did in Europe slightly later. Chinese cities did not become places identified with personal freedom.” Hence, “both cities and rural areas were under the political control of representatives of the central government.” Moreover, “It is the universal king who embodies political order and possesses the power to transform the society below him for good or ill. Law, by contrast, was not granted comparable power by any Chinese thinker. Whether from a Confucian, a Legalist, or even a Daoist perspective, law was viewed as an expedient, not as something noble or inviolable, or something that exists above and beyond the ruler.”

In line with Confucian principles, punishments were graded according to the social relationships between the parties. Contributing to the death of a parent was a capital offence even if it was accidental, whereas beating a son to death was a relatively minor crime if he had done something to warrant punishment, such as curse the parent. The law code was interpreted and applied by regular civil servants from the local level up. China’s legal system had no independent judiciary, nor lawyers for the defense or any presumption of innocence.

Chinese officials were Confucians concerned with the rule of virtue, not the rule of law. Confucius had not reasoned from systematic principles, still less from any ideas about the rights of individuals. Confucian ethic stressed hierarchy and outward obedience. Challenging authority figures was seen as an unforgivable sign of disrespect. Offences against the authorities and the social order attracted special severity. Author Harry G. Gelber elaborates:f

“In China, justice rested not on codes of law but on social norms and universal principles of Confucian morality. These would be applied by a court to any particular case in a process which also invariably leaned towards state interests. The imperial code was strongly weighted towards social order, and law was – and in modern China largely remains – a tool of administration, without reference to any ‘higher’ notion of natural law or even any system akin either to Roman or to Anglo-Saxon common law. That naturally created much uncertainty not just for the accused, but for the judge himself. There was no commercial law in a modern Western sense, although written contracts, and even some oral agreements, could be enforced by magistrates….Nor…was there any sense of firms as legal individuals. There was no Chinese equivalent to Western notions of sanctity of a written and signed contract….Moreover, given China’s system of collective responsibility, someone who might be personally innocent could be executed simply as the representative of a group, or a scapegoat. Family solidarity being such a powerful element of Chinese society, guilt by association was often assumed and punishment of relatives was a regular practice.”

The respected scholar Joseph Schacht states in his major work An Introduction to Islamic Law that “The concept of corporation does not exist in Islamic law.” Moreover, “There is also no freedom of association.” This serious legal defect had major implications for Islamic civilization, not least in the sphere of economic development, as Timor Kuran has made clear.

As ex-Muslim Wafa Sultan puts it in her fine book A God Who Hates, the raids Muhammad and his companions carried out, which amounted to at least twenty-seven if you believe Islamic sources, occupy a major part of his biography. They were intended to acquire booty and to humiliate and inflict harm upon rival tribes in order to deprive them of their ability to resist. A philosophy of raiding “has rooted itself firmly in the Muslim mind. Bedouins feared raiding on the one hand, and relied on it as a means of livelihood on the other. Then Islam came along and canonized it. Muslims in the twenty-first century still fear they may be raided by others and live every second of their lives preparing to raid someone else. The philosophy of raiding rules their lives, the way they behave, their relationships, and their decisions.”

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