The origins of capitalism

The origins of capitalism go as far back as the XI century when Pope Gregory VII dictated the Dictatus Papae letters asserting that the deposal of an emperor was under the sole power of the pope and excommunicated Henry IV to reinforce the power of the Church. Unintentionally, he created the church-state with most of the legal and administrative institutions necessary for the subsequent commercial revolution. However, capitalism only overtook the feudal system in the early XIX century.

During this long period of eight centuries the following events represent important milestones: the Champagne fairs in France (XII-XIII centuries), the banking and Italian Renaissance (XV century), the Portuguese and Spanish discoveries connecting Europe with the rest of the world (XIV-XVI centuries), the establishment of chartered companies and stock exchanges (1555,1652), the rise of mercantilism (XVI-XVII centuries), the scientific, transport and industrial revolutions (XVI-XVII centuries), the enlightenment (XVIII), the publication of Adam Smith’s Wealth of Nations (1776) and the emergence of joint stock companies (XVIII century).

The creation of a commercial economy at the beginning of the XIII century, initially in the eastern Mediterranean, but quickly extended to the Italian city-states and the rest of Europe brought not only new products (spices, etc.) but new developments in business practices. For instance, the Champagne annual fairs revived the international trade between France and Italy and led to the development of merchant law (Lex mercatoria) and the creation of an international payment system based on bills of exchange.

The development of a new class of rich merchants and bankers in Northern Italy enabled the development of the double-entry accounting system and new banking techniques. This new class was essential for the development of the new trade made possible by the Portuguese and Spanish maritime voyages of discovery and the cultural renaissance in Italy.

Foremost in the development of capitalism was the expansion of credit. This was permitted by the progressive abandonment of the usury laws initiated with the English law of 1550. At the same time, another important progress in terms of company law was the establishment of Charted companies that latter led to the joint stock company.

Mercantilism, as an economic theory, is the opposite of market capitalism. It advocates the role of the state to protect infant industries and domestic markets while trying to control the main trading routes to secure a balance of payments surplus. Nevertheless, paradoxically, by promoting a new form of imperialism based more on trade supremacy than on pure conquest, it was initially a major driver of the international trade that preceded the industrial revolution. But, its nationalistic and protectionist policies led inevitably to wars and inefficiencies that could only be solved by the rise of free trade and the progressive abandonment of mercantilism. However, today, in countries like China and other transition economies, mercantilism is still evident in their new type of state capitalism.

The birth of the so-called scientific revolution can be said to have started with the publication in 1543 of Nicolaus Copernicus's De revolutionibus orbium coelestium or with Newton's 1687 Principia. The subsequent debate on rationalism and empiricism revived the interest in science and the progressive development of experimental research that led to the subsequent revolutions in transportation and manufacturing.

First, long-distance transportation of coal and other heavy materials between the mining regions and the cities became possible due to the canal mania in England between 1790 and 1810, which was driven by financial speculation. This was continued by a new railway mania that followed the design by George Stephenson of first steam locomotive in 1814. Meanwhile, based on Watt’s 1794 improved steam engine, steam-powered beam engines stimulated the construction of more sophisticated power looms and increased the scale of production in textile mills in the early years of the so-called first industrial revolution.

On a doctrinal level, the enlightenment philosophers promoted the idea that God expressed his purpose through the laws of nature so that the legitimacy of the ruler’s power was no longer granted by God but by the enlightened elected men. And, most importantly, replaced the heaven paradise by the pursuit of prosperity on earth.

Among them, Adam Smith’s 1776 Wealth of Nations refuted mercantilism and advocated free trade as the basis of classical economic theory.

Finally, the English Joint stock companies act of 1844 and the Limited liability act of 1855 completed the institutional requirements needed to consolidate capitalism as the dominant economic system.

By then the six basic pillars of capitalism – private property, the profit motive, free markets, the rule of law, joint stock companies and limited liability – had been largely adopted in Western countries and capitalism began its process of globalization.

Listing Virtues and Vices

The pursuit of virtues and the avoidance of vices are important for the progress of humanity. Both sets of rules and personality traits are designed to improve humankind individually and collectively. Two important affiliated questions are how many rules or qualities we need and how to enforce them.

Fortunately, nowadays, the internet facilitates listing the inventory of such rules. For instance, this site lists a total of 650 virtues and 350 vices. Obviously, not everyone will agree with the classification of a given rule or trait as a virtue or a vice and many rules are correlated or are only variants of other rules. For this reason we need taxonomy to group and classify them.

Indeed, the Wikipedia entry for list of virtues is based on 5 categories defined in relation to their purpose, namely: self-control, self-efficacy, regard, respect and kindness. Others choose to select the top 5, 10 or whatever number they feel appropriate. What is undeniable is that such lists or taxonomies reflect both their historical context and their religious or philosophical roots.

In fact these are often outdated and prevail over a classification system based only on an empirical analysis of their contribution to the betterment of humankind. For instance, the Ten Commandments, The Hadiths, The Modes of Sattva and the Ten Perfections followed by Jews, Muslims, Hindus and Buddhists, respectively, have many virtues in common but cannot explain the civilizational differences between their followers.

So, when picking up a list of virtues one must choose on the basis of their universality, longevity, and rationality. On the basis of the first two criteria we must certainly include Aristotle´s list of virtues and using the third criteria one must include lists based on the philosophy of enlightenment.

Aristotle defined a virtue as a balance point between a deficiency and an excess of a trait that lies not in the exact middle, but at a golden mean sometimes closer to one extreme than the other (see list here).

From the enlightenment philosophers we can build multiple lists ranging from the popular list of 13 virtues by Benjamin Franklin to Adam Smith´s analysis of the amiable, respectable and intellectual virtues discussed in his Theory of Moral Sentiments.

Yet, some modern philosophers have associated the virtues of enlightenment with being tantamount to bourgeois virtues (e.g. McCloskey) or have criticized them for failing to include the Aristotle´s concept of mean (e.g. MacIntyre´s book After Virtue).

Following on Francis Wheen's defense of the principles of the Enlightenment against various strands of irrationalism in his book How Mumbo-Jumbo Conquered the World; we believe that it is possible and desirable to merge the ethics of Enlightenment and Aristotle. We will try to do so in future posts on specific virtues and come up with our own list of enlightened virtues.

Art Is About Emotions Not Truth

Copenhagen currently hosts two interesting exhibitions of paintings by Gauguin and Lautrec. Paul Gauguin (1848-1903) and Henri Toulouse-Lautrec (1864-1901) were contemporaries who used different techniques to paint marvelous pictures of two different societies.

The first painted the primitive inhabitants of Polynesia while the second painted the sophisticated Parisians in the late 19th century. Their different styles can be appreciated in the following two paintings.

Lautrec

Gauguin

While Lautrec choose to depict the theater and brothel-going Parisian bourgeoisie drawn in bizarre drawings to give us a sarcastic view of his epoch, Gauguin has drawn the native Polynesian girls in a favored way to make them look much prettier than they really were.

In fact both gave us distorted views of reality. Have they lied to us? Yes and no.

They would have lied if their intent was to give us a realistic representation of those two different societies. However, as they simply wanted to criticize the vanity of the Parisians and the simplicity of the Polynesians they did so in a truthful and beautiful way.

Moreover, despite using simple colors and drawings, they also demonstrate that they dominated the drawing and painting techniques often only associated with the realist painting school. This is in contrast to most of the modern artists currently shown at the Copenhagen Modern Art Museum who do not need to know how to draw or to paint.

To sum up, art in general, and painting in particular, are aimed at arousing our aesthetic emotions in relation to humankind and nature; and this can be done using realism or abstraction with recourse to friendly or vicious approaches. Technique in itself may also generate admiration but it is not essential for the aesthetic arousal of bad and good emotions. Neither is the pursuit of beauty the sole purpose of art. However, the happiness of humankind is better served by an abundance of beauty and good sentiments.

Arguments Against the Death Penalty

Based on liberal principles, we argued before that individuals should not have the right to voluntarily terminate their lives. We shall consider now whether the State should have the right to capital punishment.

Most countries have renounced that right, but about 60% of humankind still lives under regimes with death penalty. Some of those regimes are dictatorships, like China, Iran or Saudi Arabia, but others are democracies, such as Taiwan, Japan and the United States.

Leaving aside the case of dictatorships and countries at war where human rights are ignored, we shall focus on the use of death penalty to punish non-political crimes in democratic countries such as the United States.

The case for using the death penalty to punish horrible crimes (e.g. homicide) is usually based on the principles of reciprocity, proportionality and deterrence. All these arguments are flawed.

The principle of reciprocity has its roots in the Hammurabi Code that introduced the law of an eye for an eye. However, it is now clear that you cannot correct a wrong by repeating it. Moreover, vengeance is not certainly among the enlightened virtues.

The principle of imposing penalties proportional to the seriousness of the offense is obviously just, but must be kept with reasonable boundaries. For instance, the assumption that death is the ultimate punishment is false. Torture, forced labor or isolation can be used as the harshest forms of punishment. However, societies need to balance redemption and punishment on the basis of its costs and benefits to society as whole; as well as the risk of committing irreparable mistakes in the administration of justice.

It is certainly true that lenient punishments or unrealistic beliefs in the recuperation of criminals can encourage crime. This can be easily observed in countries like Portugal which, after introducing a maximum effective prison sentence of 15 years and various forms of soft prison regimes and house arrests, experienced one of the highest rises in crime in the world.

Nevertheless, the statistics for the United States, where not all states have death penalty, also show that capital punishment does not work as a deterrent of violent crime. First, some homicides are not premeditated (e.g. passion crimes). Second, crimes are mostly the result of widespread possession of lethal weapons that often turn what would be simple fights into murders. Finally, and not least important, the perpetrators of premeditated crimes believe that the odds of being caught and executed are small and worth taking.

To sum up, none of the three arguments in favor of death penalty is strong enough to waive the liberal principle about the inviolability of the right to life. Only fallacious reasoning or prejudice can justify this barbarous historical relic.

Taxation and Moral Values – the Case of Conspicuous Consumption

Everywhere, politicians advocate public policies to foster virtues (e.g. philanthropy) and discourage vices (e.g. smoking) through both the revenue and the spending side of the budget. However, they frequently treat them differently by failing to measure separately the costs of tax breaks and surcharges applied to achieve such policies.

Free markets do not require neutrality in the rates of taxation on property, income and consumption. Indeed, they should not be neutral in relation to the taxation of consumption for the satisfaction of basic needs (food, healthcare, etc.) and the taxation of luxuries and conspicuous consumption. Fiscal neutrality is often defined as in the FT Lexicon: “when the impact of taxes and of government spending cancel each other out, with demand neither boosted nor curbed”. Others add the requisite that it does not cause distortions. Besides, to some extent, the use of taxation for policy purposes goes against the principle of budget unity, and the repudiation of earmarking specific revenues for given expenditures.

However, in general, when it comes to differentiating between different classes of conspicuous consumption there is a strong case to advocate the rule of fiscal neutrality. We will exemplify with a choice between spending on impressionist masters and trophy wives, because the first may have some cultural value while the second may be morally degrading.

Imagine for example an ostentatious billionaire who is considering spending 50 million on a master’s painting or in marriage to a super-model under a pre-nuptial agreement that grants her the same amount if the marriage lasts three years. Since he is neither an art lover nor is he in love with his trophy wife both types of investment are morally questionable.

Yet, most countries will treat differently the two investments when he decides to file for divorce or sell the painting. Assuming that he cannot earn transfer fees on his wife and makes a capital gain in the painting, some tax codes will give him a tax credit on his divorce settlement and charge capital gains in the sale of the painting. As a result, he will be rewarded in the most degrading investment and will be punished in the cultural investment. This is exactly the opposite of the proclaimed objective of encouraging virtue and discouraging vice.

Not only is the taxation of virtues and vices difficult on practical grounds. For instance, it is impossible to distinguish between a genuine and a convenience marriage. But it is also impossible to make a distinction between capital gains and losses on ethical grounds. Therefore, taxation should be kept away from policies based on moral judgments. Its concerns should be based mostly in a fair sharing of the funding and the minimization of the government revenue collection costs.

You do not need to agree with James Buchanan and other libertarians that a moral order is preferable to moral anarchy and moral communities because it only requires a minimal intervention of the Government. Simple common sense tells us that governments are not apt to judge on the basis of moral merits, without becoming an easy prey of vocal interest groups.

Means vs. Ends: Hedonism and Happiness

Our blog is mostly about reflections on the means to achieve human happiness. Still, from time to time, we need to keep sight of what are the end pursuits of humankind. Often, these are not easily distinguishable from the means like when we pursue a long but healthy live or when we need to trade immediate pain for future pleasures.

The later is often discussed when pursuing a hedonist approach to achieve happiness. A hedonist is defined as “someone who strives to maximize net pleasure (pleasure minus pain)”. This definition is vulnerable to the usual caveats of defining inter-temporal maximization in an environment of life uncertainty and volatile preferences. Equally important is the trade-off between individual and group satisfaction (family, social, national, etc.), sometimes called utilitarianism.

Constrained maximization is not only complex but also a poor guide for action when inter-temporal choice is involved. Despite the fact that at the unconscious level we seem to be wired in a hedonistic way to seek pleasure and avoid pain at the conscious level the science of the brain has not yet uncovered ways to explain masochist or depressive behaviors and similar deviations. Consequently a simplistic taking up of hedonism would lead us to sacrifice the future for the present.

Yet, despite its limitations, hedonism can also help us to tackle the eternal human despair over life expectancy. Almost 2000 years ago, when Seneca wrote his essay “On the Shortness of Life”, life expectancy was about one third of what it is now in developed countries. Nevertheless we continue to suffer over the same issue. Should medical science find ways to treble it again our descendents will still despair over the same issue and so on until eternity? Like Seneca, in the end we all conclude that life is never too short if we do not waste most of it. By living a full life we mean enjoying both the immediate sensorial pleasures as well as the pleasure obtained from friendship and idealistic conscious pursuits, whether metaphysical or not.

In conclusion, a mild and responsible pursuit of hedonism when complemented by love and enlightened virtues is an essential means to achieve human happiness.

Sex and family relationships as pillars of human happiness

This month SlutWalk marches, sparked by a Toronto’s cop remark about the role of provocative dressing in rape, brought sex again to the forefront of public debate. Given the importance that sex (or the lack of it) has in our daily lives, and the fact that family relationship always come top in any surveys about human happiness, we need to explain why we did not include them among the six pillars of human happiness.

The reasons for exclusion are different from those we used to exclude religion. They derive mostly from the fact that all controversial issues surrounding sex and family relationships depend on historical context and involve moral values that are better debated within the principles of liberalism, enlightenment and science.

For instance, the right to indecent exposure or promiscuous relations that is invoked by some of the feminists among the SlutWalk promoters is better discussed in the context of the limits to freedom in a society ruled by liberal principles.

Namely, such limits must be defined bearing in mind the historical experiments with free love in the 1920s and the 1960s and the attempts to eliminate the family institution in communist regimes. Both experiments ended up degrading the role of women. The first by turning into sects whose leaders abused women into coercive sex while the second degraded women turned into second class citizens or forced to prostitution.

Likewise, old debates about the use of sex for pleasure or procreation, the health consequences of masturbation, incestuous relations and other non-conventional forms of sex can now be studied scientifically. Other issues such as the age of consent, monogamy vs. polygamy, cohabitation vs. marriage, divorce, etc. should be discussed under enlightened principles and bearing in mind their impact on society cohesiveness and productive capacity.

For all these reasons, and despite the vital importance of family relationships for happiness, we did not separate them as one of the six pillars of human happiness.

Loony left and wing nuts in American politics

Today the problem for American conservatives (Republicans) is that they seem to be caught in a perverse phase of politics that usually follows a prospective long spell in opposition or a strong leadership (in the Republican’s case Reagan).

During such periods political parties become confused and immerse in fratricide fights between candidates that should never, ever have been considered for leadership. Such second-rate figures of the time, usually called loony leftists or right-wing nuts, take center stage while moderate common sense politicians are simply dismissed as wobbly or wet.

Such periods affect both right and left-wing parties. Recent episodes in the UK were experienced by the Labor Party during the 1980s and by the Conservatives at the beginning of this century. During such periods the parties turn to three types of politicians – nice idealists but foolish, symbolized in the UK by Michael Foot; radical but treacherous, as epitomized by Arthur Scargill; or maverick and devious as represented by Ken Livingstone.

Nowadays one easily finds comparable figures among the American Republicans. Sara Palin falls in the first category, while Newt Gingrich fits the second and Donald Trump represents the third category.

The question is: how can parties regain their sanity and get rid of such potential candidates? Since during such periods prevails a denial of reason, often one has to let time pass by until people regain their senses. Unfortunately, this remedy usually means waiting many years until a new generation of politicians arrives (as the UK Conservatives know too well).

Is this wait inevitable? Not necessarily, if well meaning party members join their efforts to combat this disease and to promote the emergence of a serious competition among a new generation of leaders. Men and Women embedded with the party’s ideals, not sound bites exploiting the ignorance, greed and hurry of the masses. That is why the renaissance of the enlightenment spirit is so important.

New Year Wishes

I end this year with an apology to my readers for not having posted anything lately. I will start the New Year with the customary list of resolutions and wishes. My first and most obvious promise, starting in February, is to write here more often. The second pledge is that I will explore further the relationship between aims and means to reflect in particular on the role of fairness and fraternity as important parts of human happiness.

Apart from the usual longing for good health and peace, here are two of my wishes for 2011:
a) A return of enlightened reasoning in the media and politics. The “celebrity” &”sound-bite” takeover of modern culture has to be reversed. As a strong believer in individualism and market competition I am still hoping that the ongoing revolution in the entertainment and publishing businesses will be able to generate quality products. However, failing daily to find a single worthwhile prime time TV program after zapping more than 100 channels is getting me distressed. After all, even during the Roman Empire decline there was more than the Coliseum.
b) On the Portuguese (domestic) front my wish is that 2011 will see the departure of the current Prime Minister. He bankrupted the country and, to add shame to injury, rather than go to the IMF he is now peddling the world’s dictators (China, Libya, etc.) for financial assistance. What a disgraceful record for the democratic process in Portugal. After dilapidating the huge reserves inherited from Salazar and wasting the billions in grants received from the European Union the country is now broke. And for what? For an economic record that pales in comparison with that of Salazar, an unprecedented rise in inequality, a frightening increase in criminality and an education system in disarray? Still, despite this horrendous cost I would still chose the freedom gained in 1974. It was not democracy’s fault that we replaced a right wing form of state capitalism with a left wing variety. Nor do I believe that replacing Socrates will necessarily reverse the situation. But, even if the outlook is the same as with his predecessor, and the new Prime Minister turns out to be worst than the current one, it is still essential to change him to reach the bottom and get rid of the generation of “Jotas” who is destroying the country.

To finish on a positive note: best wishes for 2011!

The origins of enlightenment and liberalism

Liberalism and enlightenment are sometimes taken as synonymous. It is true that they are both indispensable pillars of human progress and rose intertwined to preeminence in the middle of the 18th century.

Enlightenment traces its origins to Descartes' Discourse on the Method, published in 1637, while John Locke’s Two Treatises (1690) established the liberal idea that government acquires consent to rule from the governed, not from supernatural authorities. However, they can develop separately and do not need to tag along, in the way the scientific method and the enlightened virtues do.

Besides, there are two distinct schools of enlightenment, the French Enlightenment focused on the power of reason and the members of the British Enlightenment emphasizing its limits. For an excellent summary contrasting the role of these views on reform and gradualism read this post by David Brooks on two theories of change.