This is a fascinating, if somewhat depressing, video about "the big sort."
I have this coming up on my "to read" list. This vid makes me want to get to it faster. It also gets me wondering what the church's role should be in this context.
This is a fascinating, if somewhat depressing, video about "the big sort."
I have this coming up on my "to read" list. This vid makes me want to get to it faster. It also gets me wondering what the church's role should be in this context.
Christian Science Monitor: Black middle-class comes into view
Christian Science Monitor: Is Barack Obama really a socialist?
Interesting article. I offer my reflection below.
When I evaluate candidates, political parties, and elections, I tend to process them through several lenses. Contrary to the Enlightenment and modernist notions about the perfectibility of human beings, I’m a big believer in human depravity. I wholeheartedly embrace Lord Acton’s axiom that, “Power corrupts. Absolute power corrupts absolutely.” Maintaining the balance of power between competing branches of government is one important response to this concern but what about the role of government with regard to other facets of life?
Society is not merely an aggregation of individuals under supervision of a government. Society is individuals living in an organic interdependent set of communities and institutions. Culture shapes the form and interrelatedness of communities and institutions but every society has them. Family, neighborhood, city, school, business, government, and religious communities, are just a few institutions that are common to most cultures.
It is my perspective that government exists to protect and care for the soil from which these institutions spring forth. That is what I believe the framers of the U. S. Constitution intended. I also believe it corresponds well with the Judeo-Christian heritage of decentralization and personal responsibility. Two related perspectives have emerged within Christianity over the past century or so that I believe give us important lenses through which to evaluate government and society: Sphere sovereignty and subsidiarity.
Sphere sovereignty was first articulated by Abraham Kuyper more than one hundred years ago in the Netherlands, but it is grounded perspectives that preceded Kuyper. Others have since reworked Kuyper’s conceptualizations. At is core, sphere sovereignty maintains that a set of institutions and traditions emerge in a society that address a particular aspect of human existence. These institutions and traditions form a sphere of competence that is not directly under or over the sovereignty of another. Thus, there are spheres of marriage and family, government, business, the arts, religion and so on. We don’t run our families like we would run a business and we don’t run our government like we would run a family. While all spheres of life do interact and touch on each other, there is a need for each sphere of society to be reticent about intruding to deeply in the institutions and traditions of other spheres.
Subsidiarity is a term coined by Pope Leo XIII in 1891 to describe a principle that holds that government should only get involved in initiatives that exceed the capacity of individuals and private groups. Within society’s various institutions, functions should be carried out at the most localized level possible, with regional and national levels executing only those functions that can not effectively be done locally.
Whether in name or not, this concept long preceded Pope Leo XIII. For instance, the tenth Amendment to the U. S. Constitution says:
This is just one example of subsidiarity evidencing itself within Western thought.
Some see these two perspectives as expressions of libertarianism. Not so. Pure libertarianism believes in the perfectibility of humanity through the elimination of not only government, but other institutions that constrain individual liberty. Sphere sovereignty and subsidiarty value societal institutions, including government, and they see the panoply of institutions as essential for human flourishing among carnal human beings.
Barack Obama and Present Democrat Leaders
American liberalism is deeply influenced by the opposing wing (to libertarianism) of the Enlightenment and Modernist belief in perfectible humanity. Here government is not the enemy of personal freedom but rather the vehicle to personal freedom. It is reasoned that if people are simply provided with basic needs and made independent of stifling societal institutions and cultural values holding them back, then their natural goodness will spring forth. FDR said that:
In response he proposed a Second Bill of Rights that included the following rights:
No one will deny these are highly desirous outcomes but necessitous people are indeed free because they have the freedom to take responsibility for themselves and improve their lot through cooperative participation in society’s institutions. But notice what happens when we cast these desirable outcomes in the language of “rights.” They cease to be goals to be achieved by virtuous people working together within various semi-autonomous spheres of life. They become realities that government is mandated to create without regard for the impact such efforts will have on the other institutions and traditions of the culture.
Instead of government playing a subsidiary role to the mediating institutions of society, everything is stood on its head. All other institutions are relegated to a subsidiary position under the national government. Their freedom to function is granted only insofar as they do not conflict with the national government’s duty to grant people their “rights.” Instead, of vibrant semi-autonomous spheres of life engaged in be free and virtuous people, these mediating institutions are made impotent shadows of their historic selves with the primary relationship in society becomes the one between individuals and the federal government.
This is what Barack Obama was referring to in the recently released recording of a 2001 radio interview. He characterizes the U.S. Constitution as flawed because it did not contain these “positive rights” as presented in FDR’s Second Bill of Rights. While we have historically understood that the wealthy in society have a responsibility for the poor, and part of that responsibility is met through taxation, we have always upheld the centrality of personal property rights. Based on Obama’s sense of positive rights, all wealth becomes first and foremost society’s wealth to be redistributed according to whatever sense of “fairness” he or the government may deem just.
This is the brave new world into which Obama intends to lead us. It is not a world of apocalyptic doom but it is a world, as Boudreaux so we eloquently says is based on, “…a parasitic ideology that has slowly drained entrepreneurial energy – and freedoms – from its free-market host” in Europe. It is the slash and burn of a societal ecosystem for a world where only the government fills the societal landscape.
Despite his carefully crafted image and his charming charismatic eloquence, Obama is not a centrist seeking a middle way. He is a man on a mission to create a world that is an updated version of New Dealism and is grounded in 1960’s political radicalism. There is nothing at all “third way” in his vision.
Emerging Church and Obama
One of the most ironic things I’ve seen in this election is the broad embrace of Obama by so many Emergent or emerging church folks. The vary name “Emergent” comes from the philosophical notion of “emergence,” which Wikipedia explains refers to, “…the way complex systems and patterns arise out of a multiplicity of relatively simple interactions.” Thus, the emerging church resistance to hierarchical ecclesiastical structures and the cherished notion of generative communities giving witness against the Empire (in true Hauerwasian fashion) in their independent contexts, watching new ways of being spontaneously emerge and converge.
Yet when it comes to justice and governance, so many of this community warmly embrace repackaged modernist visions of perfectible humanity through government supported individualism, with its corresponding assault on the mediating institutions of society. Their idealistic quest for justice in the face the Empire places the populous evermore firmly into the grasp of a centralized empire.
And just in case you were wondering, I won’t be voting for Barack Obama on Tuesday. :-)
Wallet Pop: Top 25 Things Vanishing From America
Christian Science Monitor: Monitor shifts from print to Web-based strategy
In related news: Editor & Publisher: Most Major Papers Continue Circ Decline
And also: International Herald Tribune Time Inc. plans about 600 layoffs
Christianity Today: Keeping the End in View
Christianity Today: Inside Bob Dylan's Jesus Years
Federal Reserve Bank of Minneapolis: Where has all the Income Gone?
This article has several well done graphs that illustrate some of the points I've made repeatedly at this blog.
So how can per person income rise while household income remains relatively stagnate? Household composition is key and it has changed significantly over the last the thirty years.
... or in tabular form ...
Notice the 20% drop in the proportion of households consisting of married couples (63.5 to 50.5) combined with more than a 20% increase in the proportion of households headed by females with no spouse present (22.9 to 27.7) and a new near doubling of households with only a man present (9.3 to 16.6). These single headed households have much lower incomes on average than do married couple households as you can see in the table above. If we look at the household income for the four types of household in the chart above independently, median income has risen significantly for each type of household over the last thirty years. What has changed is that significantly more adults are living with no spouse.
Think of it this way. A 1976 household has two people that earn $20,000 (inflation adjusted income) for a household income of $40,000. Both individuals experience an increase of 80% in their real income and by 2006 their household income is $72,000.
A second household also has two people making $20,000 with a household income of $40,000 in 1976. Both individuals experience an increase of 80% in their income but they are living apart by 2006. This means there are now two households and the median household income is $36,000 instead of the $72,000 above, even though the personal income is the same in both households. If there is a growing trend toward this single living arrangement, then the aggregate median household income will fall.
What this table points out is that while median household income increased only by 26%, each household category median income improved beyond that. The fact is that more people have abandoned a high earning married couple household to live in a single adult household over the last thirty years. The changing nature of household formation significantly masks economic growth in wages and income. (Another side issue is that top quintle households have about 3.2 people per household while bottom qunitle households have only about 1.9. Thus, on a per capita basis, incomes are closer than they first appear.) Check out this revealing table.
Further adding to the confusion is the fact that most reports about median household income use Census data which does not include non-monetary distributions. When we add this in we get the following picture.
The article acknowledges that the highest part of the highest quintile has grown significantly faster than the rest of the distribution. But this simply is not a case of the rich getting richer while the middle class stagnates or gets poorer.
Imagine doing a comparison of times for swimmers in the men's freestyle event for the 2004 and 2008 Olympics. Suppose we find that the 2nd through 8th place finishers in 2008 all swam one second faster than their counterparts in 2004. But Michael Phelps won the race by swimming three seconds faster than the previous winner. Do we now say the fast are become faster and the slow are becoming slower because of the growth in difference between fastest and slowest? Of course not, but this is precisely what so many activists would have us believe today income inequality.
Finally, this article talks about the fact there has been growing inequallity. I believe this article is looking at data through 2006, which misses an important development.
The GINI Coefficient is a number used to measure and compare inequality. A score of 1 is perfect inequality and a score of 0 is perfect equality. It is now usually measured in terms of households, although it was orignially in terms of families. In 2007, the US GINI droped from 0.470 to 0.463. That is the largest one year move in either direction for housholds since household numbers were first calculated in 1967. The GINI in 2000 was 0.462 at the end of the Clinton administration. There has been no net change over the last 7 years.
In short, claims of stagnate middle class wages and rapidly gowing inequality are the stuff of campaign fantisies, not economic reality.
Wall Street Journal: Pennies From Heaven Peter Berger (This article is brilliant! I've posted in its entirety.)
Related: Paul Gifford in Christian Century, Expecting miracles: The prosperity gospel in Africa
Related: Richard Mouw at his blog, Understanding the “Prosperity Gospel”
What does “missional” mean? Earlier this month I was at a Presbyterian Church, USA, meeting that included presbytery and synod executives, General Assembly Council members, and few other leaders of denominational entities (see earlier post). We had read articles by Darrell Guder in advance and then heard a presentation on being missional by Guder to kick-off our time together.
As the group engaged in small group discussions, it was clear that the term “missional” had a range of diverse meanings for us, some would likely be unrecognizable to those who first popularized the term. Feedback from small groups suggested that we must first define “missional” before we seek to explore its implications for our live together. There was real doubt about whether or not we Presbyterians could ever settle on such a definition?
However, some among us asserted that we had already defined “missional.” Chapter 3 of the PCUSA Book of Order is a description of being “missional.” Here is what the writing team offered up as a “definition” of missional. For those of you who are passionate about being a missional church, what do you think?
(Book of Order, Chapter III, “The Church and Its Mission,” G‐3.0100, 3.0200‐3.0400, 3.0401c,d.)
Christian Science Monitor: China's land reform aims to revolutionize 750 million lives
This really is a major turning point in China's economy. Not only will it bring a better economy with more efficient allocation of resources, it will also likely increase the demand for more just government. When a broad range of people have more of a stake financially, government reforms to protect those "stakes" usually follow
Last month in Snowbird, Utah, Presbyterian Church, USA, middle governing body (MGB) executives and the General Assembly Council had a joint meeting to reflect on the future of the church and explore how the two groups could more collaboratively work together. Darrell Guder got things going with an address about being missional. MGB Executives and General Assembly Council members met over the next two days to explore what this all might mean for the future of the church.
Written comments were collected from discussion groups and given to a five person writing team (I was privileged to be one of the five) to bring together what we read and heard into a document that would provide a snapshot of what we collectively discerned were the issues that confront us in September of 2008, as well as suggestions for next steps in addressing the issues we identified.
The document is being called "A Working Covenant for Review." We are expecting more input from MGB executives and GAC folks over the next couple of months before we finalize the document in January. The intent is to use the document to focus our discussion over the coming months until we meet again next fall. The document is at the MGB Connect site and the link directly to the pdf document is: An Invitation to Renew Our Commitment and Mission Together
I thought some of my Presbyterian readers might find this an interesting window into how these two groups of leaders in the denomination are trying to process the changes that confront the church.
The Economist: Into the storm
Christian Science Monitor: Latin America better girded for financial crisis
Vanguard Church (Bob Robinson): Reasons Why Evangelicals SHOULD Vote for John McCain
Obsessions with buildings. Churches run like corporations. Command and control hierarchies with professional Christians dispensing services to passive spectators. Are these endemic to our contemporary church culture? Frank Viola thinks so and he believes they are without biblical warrant.
Reimagining Church: Pursuing the Dream of Organic Christianity is Frank Viola’s follow up to Pagan Christianity. The earlier book highlighted how many of our cherished traditions in the church have little to do with the Bible or early Christianity. Viola explores in this work how we might move from an institutional church model to a more organic form of Christianity communities.
I’m not fully persuaded by all of Viola’s reasoning. Other scholars I’ve read suggest that there were already some formal structures of church leadership emerging by the beginning of the second century. Scholars like Rodney Stark estimate that there were only a few thousand Christians at most scattered across the empire by the 100 C.E. Elaborate institutional structures simply were not needed at this early stage. That would not preclude their emergence later as sociological dynamics changed.
However, Viola’s larger point about the co-option of the church by Greco-Roman structures as the church moved into the fourth century is, I believe, an important discussion that needs more of our reflection. He correctly points out that the Reformation reformed our soteriology but for all practical purposes left our ecclesiology unphased. We still have a ubiquitous Christian caste system with clergy in a higher caste and laity in a lower (and Viola correctly notes that this not entirely, or even primarly, because pastors desire it to be so.) Former president of Princeton Seminary Tom Gillespie (and a colleague I serve with on the General Assembly Council of the PCUSA) tells me that the terms “clergy” and “laity” have no place in Reformed theology. Karl Barth said that laity was one of the most destructive words in the Christian lexicon. And yet, we still persist in the language in our PCUSA world and the baggage these conceptualizations entail.
Viola is clearly an important leader within the growing American house church movement. He doesn’t speak for everyone in this diverse movement but if you want to have a good appreciation for what is developing among a number of Christians in America, Viola gives you considerable insight into the thinking and practice of many who have become disaffected with the traditional church milieu. So whether you agree with all he has to say, the book will likely push you to reflect more closely on beliefs and practices you hold concerning God’s mission and the nature of the Church. The book is well written and I appreciate the window it is into this important emerging movement in American Christianity.
Related: Washington Post: Young Voters, Get Mad Robert Samuelson
Christian Science Monitor: A push for development abroad
International Herald Tribune: Wal-Mart to toughen standards for suppliers
To illustrate the impact of technological and infrastructure changes on daily life, imagine that the year is 1789 and you are living in Philadelphia. George Washington has just been elected president of the United States. You have always been one of George’s biggest fans. He just dropped by your house and appointed you secretary of state. How long will it be before the rest of the country knows of your appointment from the newspapers?
Here is the average number of days you should expect to lapse before people in other cities hear of your good news:
Ten years later in 1800, you are living in the New York and decide to go on the lecture circuit telling about your experience as the first secretary of state. Thirty years after that, in 1830, a biographer will retrace your steps, traveling to the same places you visited. How long should you expect your commute to be to any given city in 1800 versus how long your biographer’s commute will be in 1830 to the same cities?
Clearly improvements were happening in transportation in the early nineteenth century. Travel times declined considerably and average travel fares dropped by 50-80%. Still, as late as the 1840s, transportation was very costly. The average non-farm laborer’s wage was about $1.00 a day and a free agricultural laborer’s wage was about $10.00 a month. Travel in the north would cost about 2.0-4.5 cents a mile and about 5.5-6.0 cents a mile in the south (where wages were about 50-75% of northern wages.) Furthermore, many of these trips required food and lodging expenses along the way. A round trip from Baltimore to New York could easily consume one month’s wages for a northern agricultural worker and two months or more for a similar person traveling similar distances in the south. (3)
Today we travel distances in minutes that took travelers days to cover less than 200 years ago for pocket change. More than once I have risen in the morning in Kansas City, flown to Chicago 500 miles away, attended a meeting, flown back home, and gone to bed at my home in the same day. The cost was less than one day’s wages. What happened in the last 150-200 years? The four factors of prosperity!
Many historians differ about which technological events had the most significant impact. The first steam powered pumps emerged in England in 1705 to pump water out mines. This technology was tinkered with over the next several decades. The watershed moment appears to be James Watt’s invention of the steam engine in 1765. It took another thirty years of tinkering before the technology could be perfected and engines could be put to practical use.
What no historian disputes is that at the beginning of the nineteenth century, production was no longer limited to the power provided by man and beast for the first time in human history. But the mass production of such machines was anything but cheap. The raw materials were expensive and they had to be finely crafted by expensive skilled laborers. The potential for exponential growth in manufacturing was staggering but the cost to the manufacturers to make engines and the cost to the end users to purchase them was equally staggering. These were the dynamics that drove governments to create laws that facilitated the aggregating of capital into limited liability corporations.
However, increased production was rather pointless if you couldn’t transport your products in large quantities. I noted that the English had developed horse drawn rail systems for transporting coal to various distribution centers. It wasn’t long before innovative entrepreneurs began exploring how to use the new technology to move these carts. This led to the birth of the steam powered locomotive.
The United States faced an enormous transportation problem. I have illustrated the travel issues above. There was a desire to expand territory but the land area was already enormous at the beginning of the nineteenth century. The Louisiana Purchase came in 1803 and doubled the size of the nation. How could a government effectively govern such a diverse and disconnected expansive area?
Some turned to the ideas of building canals. The Erie Canal which took nearly a quarter century to build was completed in 1825 across the state of New York. It was far more expensive to build than the government was willing to risk so a quasi-corporation was established to finance its construction. Some inventors took steam technology and applied to boats that could navigate the highly developed network of waterways. Sea going vessels were modified for international travel. The steam locomotives began to appear in England and in the United States during the 1820s-1830s. Meanwhile, English engineer John Loudon McAdam perfected a road building process called macadamization that revolutionized the quality and durability of road construction.
The construction and maintenance of all these canals, ships, railroads and roads required huge sums of capital. Not surprisingly it was in the 1830s that the United States saw the emergence of limited liability companies. The railroads in particular would become the most significant corporations of the nineteenth century.
As amazing as the transport revolution was, even more transforming was the invention of the telegraph. It came into use in England and the United States in the 1840s. For the first time in human history information could travel faster than a man on horseback. It was not just faster but virtually instantaneous. One author describes the telegraph as the Victorian Internet.(4) Capital markets thrive on having a broad range of buyers and sellers with as complete a view of markets as possible. The telegraph ballooned the number players participating in markets on a real time basis. Using the analogy I started with above, the travel of critical information quickly went from taking weeks and days to minutes and seconds.
We talk about our era as being a time of rapid transformation but I am inclined to agree with William J. Bernstein in his conclusion that the most rapid period of change in human history is not our current era. It was the time between about 1825-1875.(5) Most of what we've seen since is a refinement and elaboration of the changes experienced during those times. The internal combustion engine was invented during the nineteenth century. It further expanded our ability to travel by automobile and travel long distances at radically reduced costs. The technology was further elaborated to create air and space travel in the twentieth century. Electricity which had been critical for telegraphs (which morphed into telephones) went on to create power for almost everything we touch. Radio waves were discovered and turned into radio and television signals in the twentieth century. Microchips were invented to handle electronic signals. They were made into computers that morphed with telephones and wave technology to create our present digital and wireless communication networks including the internet and cell phones. Then there is the controversial development of atomic energy. The list goes on.
Each succeeding step has expanded and integrated ever broadening markets. Science and technological knowledge has mushroomed and is more widely shared than ever before. (6) All of these have led to broadening prosperity throughout the planet. As Bernstein notes, when a significant number of people in poverty begin to experience prosperity they begin to take a greater interest in the rule of law and property rights to solidify and perpetuate that prosperity. (7)
This is not to say this transition of the past 200 years has been absent of its share of abuse or harmful effects. Dissecting each and every influence of these technological changes is beyond our scope here. The point that I hope is clear is how the emergence of property rights, scientific rationalism and capital markets interacted in a way that gave birth to modern technology and infrastructure. It was the rise of this technology and infrastructure that put pressures on the other three that has led to their transformation and elaboration. The four combined have generated the prosperity we know today.
(1) Allan R. Pred, Urban Growth and the Circulation of Information: The United States System of Cities, 1790-1840 (Cambridge, MA: Harvard University Press, 1973) 37.
(2) Pred, 176-177.
(3) Pred, 175-185.
(4) Tom Standage, The Victorian Internet (Berkley, CA: Berkley Trade, 1999)
(5) William J. Bernstein, The Birth of Plenty: How the Prosperity of the Modern World was Created, (New York: McGraw-Hill, 2004), 187-188.
(6) An astronomy professor friend tells me we have learned more about the universe in the past ten years than in all of human history combined.
(7) Bernstein, Chapter 10.
Presbyterian News Service: To church or not to church
New York Times: Can a President Tame the Business Cycle?
Check out the nifty interactive graph. Unfortunately, the graph doesn't indicate where the ups and downs in the business cycle are. I think that, by and large, the answer to this post's question is "no."
We have briefly reviewed three of William J. Bernstein’s four factors that led to today’s unprecedented prosperity: property rights, scientific rationalism and capital markets. Bernstein refers to the fourth factor as “power, transportation and light.” I’m simply referring to this as “technology and infrastructure.” (1)
Not every technological innovation that contributed to Europe’s growing prosperity originated with Europeans. A number of inventions similar to ones Europeans developed appeared earlier in other cultures like China or in the Muslim world. But the central issue is not how early a specific invention occurred but the ability of that invention to have an impact on culture and the economy. Europe made slow but steady innovations in the 1,200 years following the fall of Rome. Then over the last 200-300 years, an explosion in technological innovation began, nurtured and sustained by property rights, scientific rationalism and capital markets. The advances in technology in turn influenced these other factors.
One of the theses of Rodney Stark’s book, Victory of Reason, is that the so called “Dark Ages” were not so dark. (2) Historians often point to the days of the Roman Empire as the Zenith of Western Civilization. The fifth century saw Rome’s demise and then there was 1,000 years of “darkness” until rediscovery of the classical West gave birth to the Renaissance and Enlightenment. The evidence says otherwise.
Stark points out that Roman society knew nothing of waterwheel powered technology. When William the Conqueror took his census in England in 1066 he counted approximately one water powered mill for every fifty families.(3) What had changed over the previous five centuries? Motivation. What need did the master of a Roman villa have for water power when he could simply acquire more slaves to do the work? Common Europeans had no such luxury and turned to ingenuity to solve their production problems.
Much is made of the elaborate Roman road system but rarely is it noted that roads were largely restricted to military traffic and luxury goods “extracted” from outlying regions for the wealthy in the city. They had little impact on the economic wellbeing of the average person in Roman society.
Most of the significant early European innovations were related to agricultural production. Roman agriculture was based on a two crop rotation system and required half the land to lie fallow at any given time. Europeans created a three crop rotation system in the seventh century in which only one third of the ground had to be kept out of production. By rotating crops in a particular order, the land’s fertility was actually enhanced. The fallow land also served as excellent grazing land for livestock. Livestock produced manure and further increased the lands fertility. These innovations began to produce an agricultural surplus, freeing some for pursuits other than agriculture. Monasteries owned vast tracts of land and benefited greatly from the technological advances, allowing them to begin to specialize in other activities. They eventually became centers of commerce in European life and developed many features of modern corporations.
Rodney Stark points out that it was Europeans who invented the horse harness and horseshoes by about the eleventh century. A horse with a harness can pull more than an ox and can work twice as long. The horseshoe greatly decreased the injury to horses and improved their traction on difficult surfaces.(4) The Europeans also invented wagons with brakes and swiveling axels. These wagons combined with harnessed horses greatly enhanced the ability to move heavy loads over long distances.(5) Europeans also greatly improved ship design including the use of rudders. They invented windmills that greatly increased the agricultural productivity in the lowlands of Northern Europe. Eyeglasses were invented in the thirteenth century, greatly extending the working life of many craftsmen.(6) From the end of the Roman Empire to the eighteenth century there was a slow but steady flow of technological improvements. From about the eighteenth century on, the steady flow became a tidal wave.
Proto-capitalist enterprises were emerging in Northern Italy in the first centuries of the second millennium. Forerunners of the modern corporation were in place that included double-entry bookkeeping, by-laws and financial markets. Water powered fulling mills, developed in England during the thirteenth century, created small factories all across the English countryside. The thirteenth century also was when a reliable mechanical clock was invented. Town clocks were installed in bell towers with chimes to mark the day. For the first time people over a wide area of real estate could coordinate activities. By the end of the seventeenth century property rights and capital markets had been well established and more people than ever had strong incentives to innovate. The pace of innovation and invention began to increase in a variety of areas through the use of scientific rationalism.
(1) William J. Bernstein, The Birth of Plenty: How the Prosperity of the Modern World was Created, (New York: McGraw-Hill, 2004), 161-188.
(2) Rodney Stark, The Victory of Reason: How Christianity Led to Freedom, Capitalism, and Western Success, (New York: Random House, 2005), Chapters 2 and 3.
(3) Stark, 38.
(4) Stark, 40.
(5) Stark, 48-50.
(6) Stark, 43-48.
National Post: Thirty years of warmer temperatures go poof
Wall Street Journal: A Liberal Supermajority
New York Times: Thomas L. Friedman: The great Iceland meltdown
I lived in Philadelphia for a brief time and I gotta admit I have a soft spot for the Phillies. However, this being the first time for the Rays, I gotta pull for the Cinderella team. Go Rays!
Wall Street Journal: The Rich Support McCain, the Super-Rich Support Obama Robert Frank
I once worked a few years for a guy was easily in the super-rich category. My limited window into the super-rich world through him and his stories about his peers revealed a decidedly anti-Republican world. Other analysis I've seen reveals that contributions by CEO's of the largest corporations from their personal checkbooks and foundations overwhelmingly favor Democrat causes.
Related to this is the fact that many large corporations and the cadre of people who run them welcome regulation and taxes. It creates a barrier against potential new competitors who might wish to enter the market. Their size makes it relatively easier for them to absorb costs compared to smaller corporations and businesses. The large corporations are willing to trade the higher cost of operations in exchange for reduced competition.
Ironically, in all the class warfare and anti-corporation populism being promoted it is not the super-rich who are going to get the brunt of the retribution. Many large corporations, for the reasons just stated, will welcome increased taxes and regulation. People in the bottom half of the population will welcome the income being redistributed to them. Meanwhile, small business will get a double whammy. Resources will be diverted from their business through higher taxes and regulation will leave them at a relative disadvantage to larger competitors. Small businesses are the major engine in creating new jobs and in innovation.
In short, present populist proposals floating about run the risk of doing the precise opposite of what their proponents intend, making large corporations and the super-rich more powerful.
and also from Carpe Diem: US Dollar (v. Major Currencies) Hits 18-Month High
Quotations Page: Ellen Goodman
Renaissance to Enlightenment
Most of Europe was a collection of feudal agrarian societies before the Renaissance. Serfs paid rent to a lord for the use of land. That lord paid rent to a higher lord who in turn paid rent to a King. Lack of clear title for land ownership made exchanges in real estate very difficult. Consequently, tenants were unlikely to make more than minimal improvements to property because their hold on property was so tenuous. It was enough just to survive.
This “rent seeking” practice was ingrained in most of the monarchies of continental Europe. As the economies grew, rent seeking expanded into every aspect of life. Permission was needed from the government to engage in most economic activities. Permission was granted upon payment of fees to government officials. The King’s nobles, exempt from taxes themselves (along with clergy), were the ones who collected the fees. By paying a large fee to the King, one could purchase a position of nobility. In return, the King would grant the noble a monopoly on collecting certain fees in certain areas. These nobles might in turn sell rent collecting positions to others under them.
The result of this behavior was to create a highly corrupt government system that was utterly indifferent to economic productivity. It created an economy where prosperity was achieved by securing government favor and living a life of leisure off of the revenue exacted from productive workers. In France, this rent-seeking system eventually forced farmers to sell their lands and become indentured servants to the nobility. It also brought on the French Revolution at the end of the eighteenth century.
However, not all of Europe was dominated by despotic monarchies. The city states of Northern Italy were an important exception; Venice in particular. Venice’s inhabitants were the descendants of wealthy refugees who fled from the mainland of Italy when the Lombards attacked in the years following the collapse of the Roman Empire. Its geography made it an excellent defensive position as well as an ideal location for shipping traffic. Initially Venice aligned itself with the Byzantine Empire and its leading residents were considered nobility. However, they were nobles without landed estates and they were located at the far edge of the empire. From the start, their economy was tied to trade between the East and Europe.
The absence of dominant feudal systems and the focus on trade made cities like Venice, Florence, Pisa, Genoa and Milan the most economically innovative centers in Europe. By the thirteenth century these cities produced banking families that had outlets as far away as present day Germany, England and Portugal. They used and perfected the letters of credit method used by the Templar Knights and the monasteries. (In fact, the Knights may have learned their financing techniques from the city states.) The abacus, Arabic numerals and the concept of zero were made widely accessible in Europe in 1202. Schools sprang up to teach these skills and concepts in Northern Italy. Double entry bookkeeping was invented. By the fourteenth century these firms had created corporations complete with by-laws, corporate seals, charts of accounts and in some cases the concept of share ownership in the corporation. Family companies like Riccardi, Medici and Peruzzi dominated lending and finance all across Europe by the fifteenth century. (5)
It is important to note that these were indeed family businesses. During the Roman Empire, business failure and loan defaults could result in the complete confiscation of property and servitude for the defaulting party. This tradition carried over into Europe including the Italian city states. For this reason, all branches across Europe were run by family members partly because no family member would exact such draconian penalties on other family members. It was also for this reason that almost all commerce conducted up to this time, and for a few more centuries beyond, used debt financing. Partnership or share ownership with others meant that if the business went under, everyone connected stood to loose everything they had including their freedom. Lending meant only the capital lent was at risk.
The Northern Italian model of city state commerce quickly spread north to cities that had escaped dominance by the rising nation-states of continental Europe. Other cities and regions managed to gain some autonomy but the rural areas of continental Europe remained trapped in feudalistic relationships. The Northern Italian cities quickly declined as Spain expanded its despotic control over the area in the early decades of the sixteenth century. The center of commerce shifted to the great cities of present day Netherlands and England.
The story of Dutch commerce is of great importance to economic history. It played out primarily in the sixteenth through eighteenth century when France brought about its demise. For our purposes here, we will simply note that the Dutch, along with Spain, France and England began the world colonization process that eventually created the global economy (although initially with a highly destructive mercantilist mentality.) This expansion of trade and commerce led to continual refinements in market practices both at home and internationally. The Dutch were leaders in the development of joint-stock companies, the forerunner of the modern corporation but the next major leap forward in capital markets would come from England and from the United Sates during the Eighteenth Century to the present.
Industrial Revolution to Present
It is over the last two centuries that we have seen an exponential growth in capital markets and capital formation. The key to this growth has been the creation of mechanisms that allow for the aggregation of enormous sums of capital for large enterprises. Other than an owner’s personal equity, nearly all business financing was secured in the form of debt up until the nineteenth century. What changed?
The European discovery of America in 1492 set off a global expansion of trade. For at least the next two centuries mercantilism held sway as the dominant economic way of thinking. According to mercantile thought, there is a fixed sum of wealth in the world. The way to power and wealth was to amass capital and keep it within the nation. Domination and extraction of resources were the operative policies of all European nations when it came to international commerce although it was especially pronounced with Spain and Portugal.
As trade expanded, the need to finance ever more complex and risky ventures began to develop. In response, the Dutch led the way with the joint-stock company. A company, like the Dutch East India Company (formed in 1601) would be given a monopoly for trade in a certain region. Individual investors could buy dividend paying shares. The British and others soon followed but the Dutch, with their highly developed financial markets, had a distinct advantage. (6)
Most of the seventeenth century was a time of great turmoil in England while Holland was under constant threat from France. The turning point was the Glorious Revolution in 1688 when Willem III of Holland was invited to assume the British throne as William of Orange. With him came a number of Holland’s best financial minds. Part of the Agreement was that Parliament would have supremacy in law and in exchange the monarchy would receive regular funding. The combination of Dutch financial expertise and British rule of law, especially with regard to property rights, spelled the demise of the Dutch and the rise of the British as the financial center of the world.
The British had yet another advantage in their rise to financial power. Before the Renaissance, Britain was viewed much like a giant sheep ranch, supplying wool for markets in Italy and Holland. By the end of the fourteenth century, the British developed water wheel-powered fulling mills. They were making their own high quality cloth for export. These mills needed streams and rivers to operate, making it a highly decentralized industry and out of the reach of urban guilds. With the absence of feudalism that dominated rural continental Europe and the lower cost of rural living, the British had a distinct economic advantage. (7)
Also of significance during the same time period was the transition to coal fuel. Wood was becoming scare in the fourteenth century and England made the transition to coal. Some industries began to locate near coal mines. Elaborate systems of horse drawn railways were created for transporting coal to distribution points in England. The net effect of the water and coal power was to create a broader and more widely dispersed middle class. (8)
Thus, Britain entered the eighteenth century with secure property rights, a broadening middle class, and the best financial minds of the age. By mid-century theorists like Adam Smith were articulating for the first time a full-blown theory of market economics that grasped the idea that wealth creation is not a zero sum game. By each person concentrating on what they do best and exchanging with others doing likewise, both parties win and wealth is created. The sum total of wealth grows and everyone can participate in that wealth creation. Smith and others provided the intellectual foundation for modern economic thinking. However, the major catalyst for change in capital markets was technological.
The eighteenth century marked the beginning of the industrial revolution. A steam mechanism had been developed for pumping water out of mines in England in 1705. Sixty years later James Watt would make improvements to this technology that would make it a viable power source for a variety of applications including factories and trains. (9) We will visit the impact of technological innovation shortly but the central focus here is that the technology quickly gave birth to enterprises requiring massive amounts of capital investment to create and operate. So much capital was needed that no small group of investors could finance it out of their own wealth and debt financing would be cost prohibitive because of the massive amount needed. An effective means of raising equity capital was needed.
As result, the modern corporation was born. By the 1830s in the United States, and shortly thereafter in Britain, investors in corporations were held liable only for the sum of money they invested. No longer was an investor putting their entire fortune and personal liberty at risk by buying shares in a company. This enabled company ownership to be divided up into thousands of tiny pieces thus enabling thousands of investors to contribute to the capital formation of a corporation. Later in the nineteenth century, bankruptcy laws were written in England, the United States and Western Europe that forbade the imprisonment for debt default. This was a tremendous boon to risk taking entrepreneurship.
Information technologies also played a role in the development of capital markets. With the invention of the telegraph in the 1840s, information could for the first time move faster than a human being on a horse or train. The growing integration of the capital markets through communication technology increased the rate at which capital could flow; a process that is in effect to this day. The story of the twentieth century to present has largely been about the expansion of and refinements of capital markets including the formation of institutions and regulations that limit their abuse and provide a measure of stability. And as we have seen in recent days, this work will continue to occupy us for the foreseeable future.
(5) Rodney Stark, The Victory of Reason: How Christianity Led to Freedom, Capitalism, and Western Success, (New York: Random House, 2005), 105-126.
(6) Many forget that the Pilgrims were living in Holland prior to their departure for America and they organized as a British joint-stock company. In fact, an issue that plagued them for years was that they had made landfall and settled north of the area they had been given a patent for, placing their territorial claims and economic improvements in jeopardy.
(7) Stark, 151-153.
(8) Stark, 155-158.
(9) William J. Bernstein, The Birth of Plenty: How the Prosperity of the Modern World was Created, (New York: McGraw-Hill, 2004), 169-173.
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