The text has several parts called Books. This is a draft of Book 4 dated 2009-05-10. It is is open for vetting and comments by email to the author. The file is updated from time to time. You can ensure that you have the most recent version by checking "Current project" at www.zetterberg.org.
How to cite this web page prior to its publication as a book in print
The Norms of Business
Figure 20.1 Different Norms in Economy and Polity
Attributes of an Economy
Figure 20.2. Economy in Society
Firms and Markets
Functionaries in the Economy
The Cardinal Value of Riches
Figure 20.3. Semiotics of Riches
Free and Planned Economies
Market Economy and Profit Seeking
Welfare Economy and Rent Seeking
Rent Seeking in Glamorous Social Life
Stratification and Rewards in the Economy
Providing Precious Money
Providing Paper and Fiat Money
Producing Riches by Manufacturing
Technological Change and a Wage Model
Producing Wealth by Finance
Cycles, Bubbles, and Panics
The Stock Market
Providing Economic Education in Schools
Procuring Services from Other Societal Realms to the Economy
Education and the Growth of Wealth
Providing Flows of Money from the Economy to Other Parts of Society
Toward a Hegemony of the Economy
Toward a Cancerous Economy
Money and Social Relations
The Money-Centeredness, the generic life style of the economy, is focused on wealth. The Money-Centered persons are concentrated on making money, saving money, investing money, and, not to be forgotten, to spend money. Quick to spot their own needs or the needs of others, they scan the horizon for value for money, be it in traditional goods and services or in novelty, in quality, or in outright bargains. They may be quality consumers, or bargain consumers, pioneering consumers, or consumers of the tried and true. Producing or consuming, they know prices, and they can tell what is profitable or not. They usually spend more time on the advertisements and business news in their media than on politics and culture.
In Book 1 of The Republic Plato and a circle of people discuss what is "right," in some translations called "justice," that is, the legal and moral commandments that concern different roles and parts of society. Socrates asked Cephalus, a businessman of the third generation, who had created a larger fortune than the one he had inherited, what was the greatest blessing that his money had brought him. Cephalus, an aged man, looks back on his life in business, and says he has not had any reason "to lie to or cheat others, whether inadvertently or deliberately." These are the thoughts of a man who suggests that throughout his life he has entered business deals based on honesty and voluntariness, that he has always kept his part of agreements and has repaid all debts. He can therefore meet death with peace of mind.
Socrates thought that this was well put, but was still not satisfied with the answer. Not because he doubts Cephalus or suspects that he is just a cheap crook, but because answers from the business community cannot be generalized to hold for all of society. He gives an example which shows that good business ethics do not always apply.
“Justice, what is it? — to speak the truth and to pay your debts — no more than this? And even to this are there not exceptions? Suppose that a friend when in his right mind has deposited arms with me and he asks for them when he is not in his right mind, ought I to give them back to him? No one would say that I ought or that I should be right in doing so, any more than they would say that I ought always to speak the truth to one who is in his condition“.
Faced with this difficulty, Cephalus thought it best to leave the conversation. But the gathering agreed that "a friend should always do good to his friend and never do him harm." Plato had thus revealed that moral dictates in the economy are not only different from those in the socially small world of friends, but that some of those dictates can conflict with those based on friendship. We can generalize this in modern terms to mean that the discovery of the basic social norms of the business world differ from and in some cases conflict with those of the civil society. (Here I use the term "civil society" in its present meaning to connote family life, neighborhood circles, associations, religious and cultural life. In antiquity, "civil society" meant something quite different that was more in line with the realm of body politic.)
The dictates of the guards also differ from others. Socrates asks: "Is then the best (man) to watch the camp the one who can sneak into the enemy's camp?" The gathering responds, "Of course:" For a guardian, stealing the enemy's plans is honorable.
Plato's norms for statecraft and business have been effectively updated by Jane Jacobs (1992). Like her antique model, Jacobs uses the form of a dialog. She regards the problem of whether or not to return the deposited weapon as a gulf between the commercial moral syndrome and that of the guardians: not to return the weapon is seen “as a form of policing” (p.30). Jacobs is forced to this conclusion inasmuch as she does not acknowledge that civil society has its own moral syndrome, which differs from the syndromes of both the guardians and businessmen. A slightly modified version of Jacobs that includes also some norms from Moses is given in Figure 20.1. Under the heading "Civil Society" we list three universal candidates from the Decalogue.
Reach voluntary agreements
that are advantageous
Never use force
Be open to all information
Cooperate with foreigners
Take initiative and be enterprising
Look for innovations and inventions
Invest in effective production and trade
Do not lie
Do not steal
Do not kill
Use force effectively
Respect the power hierarchy
Be loyal, promote the loyalty of others
Do not enter into business deals
Use information selectively
Be generous in order to attain goals
Enjoy pomp and circumstance
Stand up for your rights and honor
The oppositions between the norms of the state and business are usually not apparent, but they are obvious to an inquiring Socrates. In the civil society we may assume that compassion is to rule, not the dictate of business to compete. In the civil society one shall not lie, steal or kill, but in the name of the state the soldier is commanded to deceive, steal from, and kill his enemy. Such conflicts, as familiar as they are irreconcilable, have always plagued sensitive young people in differentiated societies.
It is significant that the three norms in the civil society that we have listed from the Decalogue are fully compatible with the norms of business but not of the polity at the time of war.
For at least a couple of centuries the economies of the great civilizations have exhibited all the attributes of full-fledged societal realms. These attributes, dressed in modern words, are shown in Figure 20.2. The headings in this table are the same as we used in presenting science and art. But the illustrations are different for we are now dealing with the economy.
the cardinal value of wealth
Invest-ment advisors to other realms
Persons and organi- zations outlook to other realms for some-thing beneficial for the economy e.g. free-trade legis-lation, contract law, patent rights, low taxes
Budgeters and buyers in other realms
Class (purchase clout)
Type of Freedom:
The letters marking the rows are those found in a summary of the various language-products in society called Table of Societal Realms in Chapter 9. The letters after "I" continue as columns to make space in the center for some illustrative examples.
Each cell in this table deserves a thesis of its own describing how it contributes to wealth. Here we must be selective and will only look at a few cells in the columns J through P.
Wealth can be created in many ways, from gathering, hunting, fishing, cultivating the earth, mining, collecting war booty, or cutting the hair of your fellowmen for a fee. An agriculture that produced more than was needed for the sustenance of the farming household, so that the surplus could be traded, was the main base of wealth in early times.
Apart from agriculture and trade there are three dominant modern ways to produce wealth: manufacturing, services, and finance. The first deals with material goods such as kitchen utensils and cars and other forms of "materiality" produced in factories. They are assigned monetary value when bought or sold, when the materiality changes hands.
The second way, organized or personal services, are not produced in factories but in households, shops and offices. Services can be traded for money and have markets just like goods from factories. Unlike goods, services can usually not be stored in inventories; a haircut is consumed at the same time it is delivered. So is a transport of people or goods. A service may, however, be a standing entitlement. Then it is available when you draw on it. For example, a health insurance gives you the services of a doctor and a hospital when you need it. The service economy in a mature capitalist system actually employs more people than manufacturing.
The third modern road to wealth is finance, a very special service that must be treated separately from other forms of service. It makes money with money. Monetary instruments, papers with texts and numbers, so-called "immaterial" values are created, bought and sold. Many of the symbols communicated in finance are what we called Saussarian, i.e., refer to other symbols to get their meaning. A string of them may easily loose contact with anything expressed in down-to-earth Meadian symbols. Some financial interactions thus take on qualities of what we know as hyperreality.
Like any other societal realm the economy has an anatomy of organizations and networks. Among the organizations found in an economy are households and firms. The main actors in an economy are firms involved in agriculture, trade, manufacturing, services, and finance. Note that these major economic actors are organizations, not individuals. They enter and interact in the networks we call markets, and these interactions are what is called trade. Of course, individuals also trade. One person who strikes an economic transaction with another person is actually the most common illustration in the elementary textbook of economics and also in much abstract economic theory. But in real life in a modern society, the market of "individual-to-individual" is not as big as "firms-to-individuals." There is also a huge market for "organization to organizations" — it includes "firms-to-firms," and the huge subclasses "firms-to-households" and "firms-to-governments."
7:7. "The Netorg System of Realm Expansion"
A cardinal value and its societal
realm extends its reach
A firm usually has many more customers than employees. This is typical of a modern economy as a societal realm: its networks are bigger than its organizations, i.e. the markets are bigger than the firms. This has not prevented some multinational companies to grow very large and rich; some have more employees than have small states, and several are richer than the poorest states. Contrary to much libertarian thinking and particularly contrary to Ayn Rand’s doctrines, it is not individualist systems of pure market transactions that create most wealth. According to our Proposition about The Netorg System of Realm Expansion, “networking organizations”, i.e. corporations working in markets, are the most successful.
This Proposition also makes clear that firms stagnate and become defensive rather than expansive when they grew into monopolies or near-monopolies that become more or less immune to market forces and crowd out the market from the economy.
Corporations are run by a leadership that includes a Chief Executive and a Corporate Board. A modern board has members who represent shareholders as well as members from the outside society.
An ideal corporate board should have creative and constructive members who are totally committed to look out for their corporation and not for themselves, members who make an effort to know the situation of their corporation and its branch. The ideal board may include someone knowledgeable in business history who can see when old stupidities are revived. Corporate boards may also have use for some skeptic from “the school of hard knocks,” (or from science or journalism) who can reveal argumentation which is more persuasive than sound. Also, a board needs members who are totally unimpressed by well-known persons from firms that have made much money on upticks when they think that they are competent to handle any downturn or off-beat situation. Consider also in recruitments to a board what a difference ethically responsible people can make to the quality of board decisions, be these persons morally gifted by nature, or persons who have struggled enough with issues of honor to become moral virtuosos. But such a member should not be put there for his or her PR-value. Lehman Brothers had apparently little moral help from a board member who was a former head of The Red Cross.
Recent events tell that corporate boards ought to have a member or two who understand politics to the extent that they can grasp the consequences of misguided bipartisan efforts to promote home ownership. One can also imagine what difference it would have made during the build-up to the 2008 financial crisis to have had a board with a member with enough mathematical skill to analyze a derivative equation and put reports and promises by salesmen of derivative bonds to task.
When all is said and done, there is no substitute for a board member’s good judgment. The good board member is not bound by prestige: If you do not know, you can ask. Any board member of a financial institution in Switzerland or elsewhere could have asked about the risks of American derivative housing bonds when the proposal of acquisition of such securities reached their board for final approval. When told that the risk had been calculated both by the issuer and the rating agencies by David X. Li's “Gaussian copula function,” the good board member could have asked about this formula. The answer would be that this formula in one and the same number summarizes all risks for the security. Yes, the same number for risks in both upturns and downturns. Yes, the same number for the risk assessment of these bonds is valid both when the prices in various local markets are different and when they rise or decline in the entire USA. The inquiring board member should then have had little difficulty in concluding that his institution was dealing with a charlatan.
Such a board member did not exist in reality. Much good recruitments are blocked by a special criterion for new members of a typical board. It is considered essential that the candidates are reliable and trusted by the other board members. The candidates are simply not chosen if they question the extraordinary compensation packages that prevail for the leadership in modern corporations.
Entrepreneurs are the Makers of new wealth, a creative breed of people. Without them most of us would be poor.
The foremost Keepers or custodians of wealth have traditionally been bankers. Banking is a keystone in the economy, both in centrally planned ones and market economies. Bankers are popularly known as people who lend umbrellas in sunshine, and ask for them back when it rains. Thus they make the cycles of fortune for entrepreneurs, traders, and consumers easy in good times but harder in bad times. They are not always a major cause of business cycles, but as a rule they make them worse. The bankers are balanced by their cousins among the Keepers, the insurers, who collect premiums in good times and pay out when disasters happen. These conventional images of bankers and insurers have become less valid. Shortly we shall show how their own entrepreneurship and inventiveness have changed the roles of bankers and insurers.
The Brokers, wholesale or retail, are responsible for making the economic world go round. Trade, not raw materials, farms, or factories, is the fundament of a market economy. If and when trade is in place, the extraction of raw material, farming, and manufacturing can flourish.
Many carry an image that the manufacturing factory is the basis of capitalism. However, organization of factories for production of goods is a mark of industrialization, not capitalism. Capitalism depends on trade and markets, not only on factories, which are found also in pre-capitalist and socialist economies.
The realm of the economy in a society rests on exchanging sentences that include executive evaluations such as prices and costs. The economic realm is dedicated to creating, preserving, and using wealth. There are different paths to wealth, and competition is the stuff of business. Today business practice includes record keeping of all transactions, for example goods and services that have been bought or sold, as well as standardized measurements of profits, capital, and cash flow. In this sphere one seeks freedom of trade, the right to establish one's business where one wants, to do business with all kinds of products and services and over all boundaries.
To learn more about wealth let us place it in a semiotic square along with its opposite, poverty, and its degeneration into swindling and miserliness (Figure 20.3). Let us first consider wealth and its measure in the form of money.
Wealth and poverty are opposed. Both can be expressed in absolute or relative terms. To have exactly a million dollar in 2006 (the time of this writing) makes you just so rich in absolute terms. In relative terms you are then one of 8.3 million dollar millionaires in the United States. In this case there are 2.8 percent of the inhabitants of the United States who are richer than you. If the number of millionaires decreases or increases your relative wealth becomes greater or smaller, but your absolute wealth stays the same. Likewise, if you move to a poor country with your million dollars, you become a much richer person in that country than in your American home country. A person or a group of persons may become richer in absolute terms but poorer in relative terms. Or poorer in absolute terms but richer in relative terms. The failure to specify which kind of wealth and poverty we are talking about has caused confusion and needless acrimony.
Most people see riches as the number of rooms you have in a house, the size and make of your car, the content of your jewelry box, and the elaboration of you dinner menu, the quality of the services you enjoy, and other visible matters. But technically speaking, wealth is not things or services but the evaluation of them. In any advanced society wealth is evaluated in money, and money is measured by a currency scale.
A currency scale has equal and interchangeable units; a dollar is a dollar at the low end of the scale and at the high end of the scale. And there is a fixed zero-point; it shows that someone has no dollar to his name or that a firm has no cash and assets of its own left, i.e. is bankrupt. No scale of honor is so precise.
No other realm in today's society has scales of its cardinal values with zero-points and equal and interchangeable values. In the body politic there are approximate quantitative measures of power according to the number of votes for a politician and his party in elections. In science there are the count of the number citations received by a professor and his laboratory in scientific journals. However, political power and scientific competence also have other sources than popular votes and citations; here ratings must be supplemented by "good judgments" of those in the know. In the economy, by contrast, you can establish the net worth of an individual or organization and express it in a currency; you need no other information. In the case of firms, quarterly and annual balance sheets, certified by accountants, do the job. This is an obvious advantage for the economy in the ever present competition between societal realms.
The currency scales of evaluation employed in the economy are different and more sophisticated than scales of honor and achievement used in other societal realms. The former draw on the language brain like the others, but it also uses the mathematical brain. Economic evaluations are expressed in symbols that can be treated in arithmetic operations by producers, tradesmen, and consumers, and also by more advanced mathematics in finance. This fact has lent a special aura to the economic realm in society that is not necessarily commensurate with its relative contribution to society.
Money has long has been a universal unit of exchange in everyday life for individuals, households and organizations also in the realms of polity, science, art, religion, and welfare. People active in science, the body politic, art, religion, and welfare are rewarded both by honor and by money. In business there are few honorific rewards, and the reward system is in effect based on money and money alone. Government officials, scientists, artists, priests, and welfare executives have total rewards that consist much less than 100 percent of sheer money; the balance is honor. When rewards in the economy being practically 100 percent money are compared to rewards in the non-economic realms, a sense of resentment is close at hand. We can, for example, expect much public anger directed at extensive “compensation packages” for top management in those modern societies in which politicians and labor unions have destroyed the honorific reward systems in the name of equality.
Poverty as we have come to perceive it, say, in large parts of Africa and on the Indian subcontinent of Asia, has been the normal state of mankind throughout its entire history. Wealth have been very spotty and found along some fertile river valleys, trading cities, royal courts, and aristocratic mansions. The eradication of poverty on a larger scale has a history of only some 200 or 300 years.
As part of its millennium goals for mankind the United Nations expressed that the number of poor be reduced by half by the year 2015. All member countries and all the world’s leading development institutions agreed on this goal. Living under one dollar a day was used to define poverty. This is an absolute measure, but ambiguous; the dollar fluctuates in purchasing power, and the definition of the poverty level must in principle be adjusted every year.
Poverty, like wealth, is expressed either in absolute or relative terms. Paucity may be reduced from one year to another in absolute terms, but increased in relative terms. Relative poverty depends on the rest of the income distribution. To measure poverty in relative terms you may ask for the percentage of total wealth that is possessed by the lowest ten (or some other low number) percentiles of the population. The United Nations did not declare any goal for the reduction of relative poverty in the world.
The world average of absolute poverty is being reduced at a rapid rate, not because any UN directive, but because institutions of private property, rule of law, and freedom of trade has allowed entrepreneurs grow in number, hire many, and pay wages high enough to raise entire households over the poverty level. At the time of this writing, it is primarily due to China's rapid development that the world figure on reduced poverty shines.
Looking to the right side of the semiotic square of wealth (Figure 20.3) we meet economic swindlers who engage in deceptions for personal gain. The oldest form is the use of counterfeit money. In a typical modern con game the swindler is not as rich as he (or she) pretends, and the presumed wealth is used to draw those who are richer into schemes that transfer their money to the swindler. F. Scott Fitzgerald novels The Great Gatsby and This Side of Paradise revealed swindling and questionable identities on more than a petty scale.
Max Weber rules out personal greed as useful in the definition of capitalism:
‘Acquisitiveness’, ‘striving for profit’ — for profit in terms of money, for the largest possible pecuniary gain — have, as such, nothing at all to do with capitalism. This endeavour has existed and exists in waiters, doctors, coachmen, artists, prostitutes, corrupt officials, soldiers, brigands, crusaders, gamblers, beggars, indeed one might say in all sorts and conditions of men, during all periods in all countries of the world in which the objective opportunity to do so has been or is in some way available. It is part of the ABC of cultural history that one should, once and for all, refrain from this naive definition of concepts. Unfettered acquisitiveness is in no way tantamount to capitalism, and even less with its ‘spirit’. Capitalism may quite simply be synonymous with the subjugating or at least the rational tempering of this irrational instinct. But capitalism is indeed tantamount to the quest for profit — in continuous, rational capitalist business operations; for constantly renewed profit; for remunerativeness — since this must be so. Within a capitalist order that embraces the whole economy, an individual capitalist company would be doomed to failure if it did not orient itself according to the chances of achieving remunerativeness. (Weber 1922b/1986, p. 31)
Personal greed may not be the motor of capitalism, but it is the sure source of corruption in capitalism, as it is in other systems. The long version of the tenth commandment reads: "You shall not covet your neighbor’s house; you shall not covet your neighbor’s wife, or male or female slave, or ox, or donkey, or anything that belongs to your neighbor." If it had been written in capitalist times it would have included another clause: "You shall not covet the cash flow of your employer, or his suppliers, or his customers." Top management of other people's factories, offices, wealth, and assets are the new robber barons. In the first half of the twentieth century they began to replace owners as day-to-day leaders of firms (Berle & Means 1933). In the second half of the century they formed the majority of most corporate boards. This made for professional governance by graduates of business schools. It also paved the way to the practice of non-owners to give fanciful "compensation packages" to each other. To covet the cash flow of one's employer is an ever present temptation to enrich oneself, for all employees to be sure, but particularly for modern management.
A swindling process that became highly visible in the United States about a half century ago has spread to other capitalist countries. Though a process of institutionalized evasion of norms it has become widely acceptable. The boards of the larger corporations and their chief executives is a network, as described in Chapter 6, that is formed around a common identity of participants. This particular network has developed into an informal Fortune Creating Circle that anoints (i.e. installs and blesses) their members with fortunes. These fortunes are built by regular honoraria and salaries, perks of many kinds, year-end bonuses, stock options, huge pensions, and/or anything else that may fit compensation packages. In recruitment processes to the top, the issue is always raised: “Can we trust him (her)?” This query may be a code for several things; it always includes, explicitly or implicitly, the candidate’s loyalty to the general level of compensation and its annual rises are current within the Fortune Creating Circle. In early capitalism you had to be the owner-entrepreneur to reach high fortunes. In the mature capitalism it is enough to be top management and/or board-member.
Critics call the Fortune Creating Circle “a culture of greed.” *Government officials who are set to run socialized enterprises are rapidly drawn into its reward system. The same seems to be true when official from labor unions join the boards and participate in the setting up of compensation packages for executives and fellow board members
With the advent of money documented only in computerized accounts, economic swindling of big corporations and government institutions has become easier for the technically proficient. The possibility to have inappropriate transactions outside of balance sheets without mentioning them in footnotes — sometimes in collusion with accountants — provides a golden opportunity for high-level corporate swindlers.
The borderline between sophisticated banking and swindles became blurred when firms on Wall Street invented a combination of "derivatives," "securitization," and "off-balance-sheet accounting with special purpose entities". *They were innovative financial products that unexpectedly crippled the world's banks in 2008.
Anything that has reasonably regular payments — installment debts on credit cards, mortgages, car loans, aircraft leases, toll payments at super-highways, music royalties — has long been used as collateral for a an advance in the form of a loan. An innovation is to make such transactions by securitization. A trust is set up by a bank to receive the money from such collections. The trust issues bonds and pays bondholders interest, and at the appointed time, the principal. So far so good. Combinations of mortgages from different districts and from home owners with different credit ratings can be combined and packed as a "derivative" and also sold as a bond. Obfuscation is close at hand with securitization of derivatives. Here starts much trouble. The risk and value of such bonds is in principle calculable, but in practice difficult to calculate. A swindle begins with an assertion to the buyer that there always will be a market and a fair price for such securities.
The trust, or what remains of it after initial sales of any bonds, may get off the books of the bank by including it in a so-called special-purpose entity, preferably incorporated in a low-tax place such as the Bermudas or Cayman Islands. With this innovation in off-balance sheet accounting, the bank no longer eats into its capital requirement for further lending. The bank merely books profits from such lending transactions. It does not have the normal costs for increasing its base of own capital when lending more, nor the risks of defaults in the stream of payments from credit cards, mortgages, or whatever was included in the trust.
Is securitization of derivatives combined with off-balance sheet accounting a swindle or just financial inventiveness? Joseph Stiglitz, professor of economics at Columbia University, had his view formulated at the beginning of the bank crash of 2008 when on October 21 he told a congressional committee, that this "securitization was based on the premise that a fool was born every minute. Globalization meant that there was a global landscape on which they could search for those fools — and they found them everywhere."
Most of these fools born every minute have birth certificates in the form of MBA-degrees from business schools. After the turn of the century there has emerged an unfortunate conformity in curriculum and attitudes of the business schools and their student bodies. Business school graduates the world over were given unrealistic birth rights to expect excessive compensation packages. But the main problem with these schools is wider.
In a Many-Splendored Society an MBA-degree should be considered de-meriting until the business schools learn, not only to better separate swindling from wealth creation, but learn to better see business and economy as a part of a total society in which other societal realms are their equals. To get rich is not anything superior to the holding of political office, have scholarly competence, deliver artistic beauty, or to carry sacredness or virtue to your community in the course of every-day living.
Looking to the left side of the semiotic square of wealth (Figure 20.3) we meet misers. The typical miser hoards gold and other symbols of rich and does not spend money on investments or charities. Misers are stingy also when it comes to buying comfort for themselves. They do not want to reveal that they are wealthy.
It is not illegal to be a miser. Morality rather than law is invoked to cope with miserliness. But the moral message is mixed. Many moral doctrines actually say that it is better to save money than to spend it. But are hoarders of money actually nobler than spendthrifts? On a personal level they may or may not be. But on the societal level they are not superior according to the rationality of economics. A nation of misers is not conducive to economic growth; too many trades that add to wealth are simply left undone. People do not notice businesses that do not start so we never know the damage done by misers.
Moral doctrines that affect misers hold that you must share your wealth with the poor. Dickens' master miser, Ebenezer Scrooge, is rewarded with happiness when he finally does so. However, there are also moral arguments to the effect that providing workfare is better than providing welfare in the form of the dole. A job gives a person new social encounters at the workplace. It gives discipline to the individual. It gives taxes to the body politic, something appreciated by politicians. Public welfare carries big costs for the body politic. But welfare legislation gives its promoters among democratically elected politicians many votes.
Philanthropy is not the same as charity. Charity is giving to people who are without food, clothing, shelter and the other necessities of life. Philanthropy is giving donations to projects and institutions within the areas of culture, science, religions, health, and others that lack sufficient sources of revenue from taxes or sales. Philanthropists can be private citizens, non-profit organizations, companies, or foundations. Individuals may donate their time as well as money. Their names may appear on bronze plaques in buildings, on a page in a theater or concert programs, in the title of a professor’s chair, in the Foreword to a technical book, next to an exhibition in a museum. Foundations are the most sophisticated forms of modern philanthropy.
Tax legislation is decisive to philanthropy. In the United States at the time of this writing, a philanthropic foundation must give five percent of its total resources (capital, interest, dividends, and capital gains) annually according to its charter, or, send this money to the tax authorities. Interviews carried out among the many private individuals in New York who are philanthropists (Ostrower 1995) included a question as to whether the deduction for contributions should be eliminated and let the state use the additional tax revenues for the philanthropic projects. One of the respondents answered “If I wanted this I would move to Sweden." Any country sensitive to the detailed needs of its population should have legislation that encourages and facilitates philanthropy. Ministers for culture, research, health, and education may assume omnipotence and promote the idea that they, themselves, can meet all needs of their society through political channels. Surely they can do much, but we can extend a well-known thesis thesis – Hayek (1954) – and say that they don’t have information about all that has to be done. There is always room for private philanthropy.
The economy is a continuous exchange or distribution of belongings, or rather their representations in the form of property rights. The most common exchanges are between money, on one side, and titles to goods or of services, economic or personal, on the other side.
We know from our discussion of Hohfeld (1913) that any right is defined by four conditions: claim, liberty, power, and immunity. The ‘claim’ is an explicit expectation that others should accept my actions. The ‘liberty’ is the expectation that I have other options and am not forced to do everything I have a right to do. The ‘power’ is that I am allowed to do it as long as it does not violate the rights of others. The ‘immunity’ is the expectation that others will respect these rights of mine. These four expectations in exchanging goods and services are formalized in the right-hand column of the dialog below. We recognize them as one of the most important impelling vocabularies of contemporary living. We discussed them in Chapter 11 and exemplified with the right to learn English.
In the left-hand column below we record everyday words in a dialogue that takes place when we buy a car from a car dealer In the right column we enter the needed analytic concepts. We use X=buy/sell a car.
In the right column we have Hohfeld's distinctions supplemented in three ways. First, by separating the goods involved in a transaction from the title to the goods. This is a more recent development in economic theory than Hohfeld's days: we now talk about economics as the exchange of titles to property, rather than as the mere exchange of actual belongings. Second, by separating transactions that involve barter, money, and credit. The growth in the credit economy has been enormous since Hohfeld wrote his analysis. Third, by including guarantees. Consumer protection has also greatly advanced in the modern economy.
Driver: Please, sell me a car.
Dealer: Yes, I am a car dealer.
Ego: I have a claim that Alter does X.
Alter: I have a duty to do X.
Driver: I can choose you or someone else to sell me a car.
Dealer: Yes, you don't have to buy a car from me.
Ego: I am at liberty do or not to do X.
Alter: I have no claim that Ego does X.
Dealer: If you do buy it from me it will cost you Y dollars.
Driver: I want to leave my old car to you as part of the deal. And I will pay you in installments. and give you Z dollars in down payment.
Ego: I want the title to X for Z money, the barter B, and the credit C.
Alter: The title to X is yours in exchange for Z money, the barter B, and the credit C
Driver: I can use the car that you sell me any way I want except recklessly against any other vehicle or person on the road since that would violate the latter's claim to be safe from such attacks. I may drive the car, let someone else drive it. When the credit is paid off I can rent it out for money, sell it, give it away, destroy it.
Dealer: I do not care how you use the car that I sell to you.
Ego: I have the power to dispose of X when the credit is paid off, and as long as I don't violate any rights of others.
Alter: I surrender my claims about any disposition of X.
Driver: What help will you give me if this car does not work as expected?
Dealer: We pay for any fabrication faults in the car for three years or 10'000 miles, whichever comes first.
Ego: I have after-the-purchase claims regarding X.
Alter: I give the guarantees G.
Driver: I don't want to allow you or anyone else to change these conditions.
Dealer: I shall have no possibility to change the ways you use the car that I sell to you.
Ego: I am immune from any attempt by any Alter to change my powers over X.
Alter: I have no power to change Ego's conditions for disposing of X.
The above illustrates the hidden background of norms for transferring a conventional property in a correct way. A market in a modern economy is a continuous exchange of properties until they end up with the person or organization that is willing to pay the most. As you see, it is a very intricate process, and there is nothing self-evident in an exchange in a market economy. It is a complex human achievement. Please note that what you actually pay for is the title to the car. With a title come the listed powers to dispose of the property and the mentioned guarantees and immunities.
Property rights are held by collectives or individuals. Properties may be peacefully transferred in other ways than trade: by inheritance, by gifts, and by taxation.
Note that "property right" is not a unitary concept. The power to dispose in a property right includes a series of separate functions, i.e. to personally use or consume the property, lend it to others for pay or for free, use it as a collateral for a loan, give it away to anyone, sell it, or destroy it. A seller on a market may restrict the buyer's use of these functions until the property is fully paid.
In any transaction in a modern market economy it is the money that is central, not the goods. A change in the car dealer's wealth is correctly measured in the accounting system by the money he makes on transactions; it is at best only proximate by the change in his inventory of unsold cars. Speaking strictly, as many economists nowadays do, a market economy is a continuous exchange of titles to goods and entitlements to services until they end up in the power of the highest payer. Price controls by governments, churches, cartels, or mafias do not belong in a market economy.
The fact that property rights refer to a series of separate functions means that governments can enter restrictions on private property by other means than by expropriating it. For example, it can control the housing market in a city by a series of measures such as rent control, rationing available apartments, taxes on sales of apartments and buildings, requirements to let a welfare agency select residents to prevent discriminations, subsidizing public housing so that construction of apartments by private investors becomes unprofitable. Thus the economy may be politically planned.
The free exchange and enjoyment of property rights is a landmark of capitalism, a free economy. The draining of property rights is commonly promoted in the European movement of social democracy (Adler-Karlsson 1969). It lets the owner keep his name on the title of his property but takes over or restricts some property functions. (In the United States and Canada this political program, strangely enough, is called "liberalism.") It is a pattern separate in degree, not in kind, from communism, which lets the state take over all aspects of property and prohibits all private exercise of the different property functions. Here the economy is totally politically planned.
There are some scientifically established limits to planning which we formalized in the proposition on "The Limit of Knowledge about Others."
If Dunbar's number is
surpassed in encounters and the members' relations to one another have a low
degree of familiarity, then
The price system in a market can collect information in large and complex systems more efficiently than a centralized bureaucracy can do. This has been the insight and message of Friedrich Hayek and his students.
Needless to say, capitalism, social democracy, and communism are not only different economic systems. They are also political systems that differ fundamentally in their views on the freedom of citizens, the distribution of individual and household resources, and the use of revolutionary violence to transform society.
The rational pursuit of wealth can follow many paths including systematic robbery and organized extortion. Two more peaceful and rational avenues are the procedures of profit seeking and rent seeking. Rational profit seeking is the pursuit of long-term gains through continuous economic exchanges (Weber 1923). Rational rent seeking is the pursuit of work-free income guaranteed for long periods (Tullock 1989). The former abounds in the market economy and the latter in the welfare economy.
A nascent social and economic order in Scotland and England based on profit seeking was codified by Adam Smith in his work The Wealth of Nations 1776. "The desire to improve our conditions, a desire that comes to us in the womb and never leaves us until we go to the grave" was what Smith saw as the source of economic progress. It gets a chance where "natural freedom" prevails, i.e. where every individual has the right and capacity — without fear of punishment from officials, priests, criminals, or Besserwissers – to do what seems best to him or her in the current situation. Individual interests are realized in a division of labor where anyone can establish his shop without restrictions and enjoy free competition with others.
When everyone thus pursues self-interest, overall wealth and welfare are also promoted. Thus, society need not be held together by commands and threats from the government, as had been thought from Plato to Hobbes. In Smith's view, it can cohere through mutual self-interest. "It is not from the benevolence from the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest" is a much quoted insight in The Wealth of Nations. (We have also already quoted it.) In our terminology we would say that Smith sees the the economy, not as an organization, but as a network. It is not a state or a monopoly that runs – or necessarily grants permissions to others to run – industry and trade. It is a market of free agents and free exchanges.
The core of the market economy is profit seeking by means of a continuous exchange of titles to properties, an exchange that comes to a halt, usually temporary ones, when no one wants to pay more than the current bid for the right to the goods or services offered. This point of balance between demand and supply sets a market price.
Adam Smith's recipe for economic growth is an all-inclusive competitive market with increased division of labor. It leads to an increased specialization of firms, making them large and efficient. Here he made the biggest discovery so far in the social sciences: the division of labor on a market is the cornucopia of mankind. In a society with division of labor and free trade between different practitioners all parties benefit. In the end, even the weaker party in an exchange benefits! This seems so unbelievable that politicians in most societies have set up structures to stop or control the tapping of this horn of plenty.
TECH Later Joseph Schumpeter added technological and organizational innovations leading to the destruction, transformation and renewal of products and services, and to mobility and flexibility of the staffs of firms. The Smith model may best fit the mature industries producing established commodities, and the Schumpeter model may best fit new emerging product fields.
In the decades up to the last millennium, the Schumpeterian growth by "creative destruction" has been somewhat more used in the United States than in Japan and Europe. In twentieth-century Japan, the corporations were exceptionally reluctant to destroy or to renew by bankruptcy. They rather borrowed money from the banks to avoid it, and the banks became stuck with volumes of "non-performing" business loans. In Europe — particularly in France with its heritage of mercantilism and in Germany with its heritage of corporative hegemony — it has been common to counter creative destruction in the economy with various public systems of subsidies or other protections to industries and agriculture in decline. There are, for example, unemployment benefits that do not require the recipient to abandon his or her more or less obsolete occupation for a career in a new field or a new place.
Weber’s twentieth-century version of the market economy is "rational capitalism" (Weber 1923). It consists of firms (i.e. organizations) that operate as units in markets with many buyers and sellers, and themselves are traded on a stock market. Capitalism, he says, exists when most, not just some, everyday needs of the population are covered by products and services from such firms. The factors of production (land, buildings, machinery, technologies, input goods, inventions, financial capital, raw materials, labor and finished products) are controlled by entrepreneurs in rational capitalism. The art of entrepreneurship lies in utilizing one's access to such factors of production, not to satisfy the personal lust for power, avarice, or private desires, but to gain a lasting rise in value of the firm.
Rational capitalism presupposes that all business events are entered in an accounting system in which data are registered, processed, calculated, and reported to facilitate business decisions. This enables firms to systematically work to retain or improve profits (according to the operating statement) for every business period, and to attain assets that exceed their liabilities (according to the balance sheet) at the end of each accounting period. Rational capitalism, in short, is the pursuit of good accounts for a firm.
To pursue good accounts efficiently, the capitalist management should be free to hire and fire workers, to divide the work between them, and alone command them in the work place. To see workers in such machine-like ways obviously creates conflicts with their lifecycles, and cannot be sustained (see Chapter 30). In his days Weber dismissed this rather lightly as a conflict between formal and substantive rationality. Actually, it is a further illustration of Weber's discovery of the severe conflicts in our everyday life and our institutions that are caused by Western rationalism.
Profit seeking may be rational from the point of the total economy but not necessarily from the point of the individual. To be sure, the market economy produces great wealth. But it is a “wealth of nations,” not necessarily the wealth of any individual. It carries no guarantee against a relative individual poverty or misfortune.
The guarantees against poverty and any drop in riches are found in rent seeking. The workings of this phenomenon were observed and analyzed by the liberal economist Knut Wicksell in the early decades of the twentieth century. He called the Swedish pension reform of 1913, “rent hysteria,” a choice of words indicating that he was opposed to the reform. This very original version of Social Security payments for old age was delivered in roughly equal amounts by the state to all elderly Swedes regardless of their needs, whether they had been employed or not, and regardless of how much they had paid in taxes.
The reform was originally conceived as a copy of Bismarck's German welfare program for the first big generation of industrial workers, a generation with a rural background who no longer had a farm to retire to in old age. The industrial employers of the period had a routine for paying wages but no routines for paying pensions. They argued that the state ought to run a pension scheme for industrial workers as it did for civil servants. The farmers then wanted the same cash pensions as the factory workers. The universal features of public welfare in Sweden were thus born by the consensus of joint rent seeking of workers, employers, and farmers (Zetterberg & Ljungberg, 1997, Chapter 5).
Rent seeking is a modus vivendi of households. We deal further with this in Chapter 25.
Rent seeking, like Weber’s case of profit seeking, has individual expressions that have little to do with the rationality of the total economy. Peggy Hopkins Joyce (1893-1957) was a gregarious Virginia blond without education and money, married for the first of many times as a teenager. She acquired an insatiable taste for fine clothes, diamonds and a glamorous social life. As a hostess or guest she made most every party a success, and she was a joy in bed. She helped many millionaires separate from their money. She was the model for Gentlemen Prefer Blondes and the hit song Diamonds are a Girl’s Best Friend. The gossip columns of the popular press of the 1920s tabbed her ”gold digger.”
Rational economic welfare has nothing to do with such individual rent seeking.
The economy, more than other realms, can reward its participants with its own product. Those who make money for a firm are rewarded by money, not medals, statues, or publicity.
The Makers of riches, the entrepreneurs, depart from the simple rule that in the economy you are simply rewarded by money. This has made them mysterious to most politicians and academics, even to academic economists. A first key to the understanding of entrepreneurs is the fact that the economic reward system in most countries allows an entrepreneur to attach his name to his enterprise. Local streets display stores and workshops with names of the owners in highly visible signs. And in the streets of the economic capitals you can see corporate headquarters with the family names of the founders, e.g., the Rothschild Bank, the Ford Motor Company, the Krupp Works, E. I. du Pont de Nemours and Company. In the use of such nomenclature, the rewards in the economy are similar to those in art and science where your name or signature also may be attached to your achievement. Their sense of achievement and its visible aspects are important to them. For many, good yearly accounts for their firms means as much (or more) as the amount in their personal bank accounts.
Although numerical scores are available for the economic stratification of riches, the economic reward system contains other units, more visible ones to the public than the bank accounts. The signs of economic position and success that are honored by the larger community in a capitalist economy are based on slacker scales. As Veblen (1899) had elaborated, they may consist of conspicuous goods and services, number of residences (rated as to size and location), number of servants and/or labor-saving devices in the household, annual charity contributions, and so on. Generally speaking, a person's wealth was proven to outsiders by his or her conspicuous consumption.
The reward pattern in the economy is solidified by a series of auxiliary social prescriptions; for example, if a rich man does not show a normal amount of the display of wealth and its obligations he may be denounced as a miser. If a visitor to the successful does not choose to notice or appreciate displayed goods and services in the rich man's home, he may be seen as ungrateful.
In many instances there is a certain self-generation — success by virtue of success — in the reward system of the economic realm, the so called Matthew effect. For example, the economically successful individual may become a creditor and investor, receiving additional income in the form of interest or dividends and perhaps homage from those who may want to borrow money from him.
Also with monetary rewards added, the non-economic realms retain their systems of honor and respect. At the turn of the century, members of the non-economic elites are usually addressed with their title as Doctor, Judge, Warden, MP, Reverend, et cetera. In business you are simply Mr. or Ms. and your formal reward is money and money alone.
Tokens to stabilize economic evaluations were invented to facilitate an exchange of properties. Coins from about 6000 BC, stamped with a lion, have been found in Lydia, the present western Turkey. Coins are standardized pieces of a precious metal that trade at the value of that metal. When in olden times, household were no longer self-sufficient, they first traded for their wants in kind: exchanging cattle for cooking utensils, brides, or whatever that could be used in barters. There was an obvious advantage to using coins in such exchanges, and coins became essential to households.
With coinage, most everything — tools, produce, cattle, and slaves — could begin to receive generally known prices. Augustus put his picture, retouched to be a symbol of benevolent power, on Roman coins. This practice was how a sovereign power guaranteed to the users the weight and purity of coins. However, subsequent Roman emperors replaced increasing parts of the base metal in the coins with cheaper metals, thus "debasing" the currency, causing a general increase in prices, i.e. inflation in which too many tokens chased available products and services.
Inflation also occurred when the supply of gold increased. There was a scarcity of money in much of 14th and early 15th century Europe, driven by a decline in gold and silver production and a chronic deficit in European trade with the Levant. The Spaniards of the era who conquered and colonized South America had one overriding mission: to bring home gold. The scarcity reversed into its opposite. Gold and gold coins flooded Spain and Europe. This was a largely illusory wealth due to the resulting inflation. In hindsight, this could probably have been avoided if the golden capital had been invested in productive pursuits in agriculture and manufacturing instead of in glamorous lifestyles as favored by the Spaniards. But the idea of productive investments was beyond the horizon of the economists of the day. They advised the kings that gold should be hoarded in state coffers. This mercantilism is not the only false theory that economists have brought to the world.
In the Middle Ages, Venice came to function as the principal bullion market for all Europe and the Mediterranean. Zecca, the mint of Venice, produced in successive periods the Penny, the Grosso, the Ducat, and the Soldino.
Paper instruments as tokens for coins of precious metals first developed in Venice and Genoa to finance loans to the state. Eventually foreign states, not just royal personalities and households, could become borrowers. Loans to states could be guaranteed by promising the lender a share of some tax. Special banks emerged to provide these loans and other banks came into being to manage these public debts; the latter we now call central banks.
For merchants, temporary tokens of coins in the from of financial instruments on paper also developed in Genoa and Venice. It could begin with something as simple as the arrival of German merchants to the Venice bullion market with unminted gold from their mines. They got negotiable receipts — we would call them bills or checks — from the Zecca. While waiting for the coins to be delivered they could, if necessary, use these receipts for their expenses and purchases in the city. In 1528, the mint in Venice broadened its assistance to private individuals and firms and began to pay market rates of interest on specie deposits, the so-called depositi in Zecca, a service to manage private capital.
Venice and Genoa succumbed in political strife and wars. The rest of the development of modern finance is located in Amsterdam, London, Philadelphia, and New York. For governments, raising money via bond markets became a form of deferred taxation to finance wars and infrastructures. For example, the young state of Pennsylvania raised money on the Amsterdam bourse to build canals. States need money most when they go to war. Wars have accelerated the buildup of the system for handling national debts.
In February 1797 war loomed between England and France. A frigate from the French fleet off Ireland landed a small number of soldiers at Fishguard in Pembrokeshire. The incident is often called "the last invasion of Britain." The alarming news travelled throughout the country. People wanted the safety of silver and gold coins hands-on, and not only as a promise on paper bank notes that, on demand, they could be exchanged for coins. An impulsive run on the country's banks occurred.
The reserves in the country banks and of the Bank of England quickly run down. Bank of England asked and got permission to suspend cash payments with coins. After February 26, the Bank would exchange only paper for paper. Paper notes of less than £5 in value, which previously had been prohibited was now printed en masse. The promise to pay in coins was replaced by a promise, or rather an unproven assertion, that the new notes were worth £1 and £2 and could be used as tender just as the old coins. This kind of monetary instrument is nowadays called "fiat money" in technical vocabulary.
To the surprise of the British bankers, the new money was accepted by the public and by merchants without any serious protests. Paper money in small denominations, not backed by real precious metals, functioned in the markets! Not until 1821 was the exchange to silver and gold coins reintroduced. However, the habit of suspending gold standards at times of war continued. A suspension was also a common prerequisite for other big expenses such as taxing the economies of the Twentieth Century for the creation of state-run welfare, rather than using communitarian or market-based welfare measures. On balance, however, the gold standard meant that national economic realms were immune from large-scale political manipulations of the money supply, an essential requirement of a many-splendored society whose societal realms cherish their independence.
The growth of wealth in the 19th and 20th centuries is the greatest story never told in full to the rank and file of mankind. They hear more about relative poverty than about absolute wealth. The expansion of wealth was not matched by an expansion of the production of gold. An increased role for paper money was inevitable. Country after country left the gold standard. The United States kept the gold standard into the 1970s. With the US still on the gold standard it became self-evident for governments to have US dollars in their treasuries. The triggering event for Washington to leave the gold standard was a debt of about 3 billion dollars to France that had helped the financing of the Vietnam War. In August 1971 the US government received a request that this loan be repaid in gold. Afraid that other nations would follow the French example, The Treasury did not see fit to dispense with so much gold from Fort Knox at that point in time. President Nixon immediately took the country off the gold standard.
The United States remained, however, the biggest and most stable economy in the world. Its market for Treasury bills was larger and more liquid than the markets of other government securities, including Bunds in Frankfurt and Guilds in London. The United States Treasury continued to serve as the world's mattress in troubled times. With this in flow of borrowed money, the country could develop a dependency on imported oil, conduct limited but expensive wars, and develop affordable houses to less moneyed households, all without raising taxes. In the first decade of the twenty-first century, the latter involved a selling of toxic derivative securities by government chartered mortgage corporations to banks and money managers not only in the United States but in Europe and Asia and to other takers. This swindle contributed to a world-wide economic depression. It added a very concrete grievance to the anti-Americanism in the world that otherwise was mostly sour grapes and defensive bilge.
TECH The fiat money took new shapes in credit cards ("plastic money,") and in electronically controlled accounts ("digital money"). The central banks learned to add (or subtract) to the total money supply by pressing the keys of a computer connected to the banking system; no need to start printing presses. In increasing numbers ordinary consumers also learned to press their computer keys, link up with their bank accounts via Internet, and do their transactions electronically.
With fiat money there is no limit to the money supply. But there is nevertheless a firm limit to the amount in circulation that has the value of money, money that keeps its value over time and space.
All modern nations have developed a "square of power," to use a wording from Ferguson (2001). First, there is a tax-gathering bureaucracy, i.e. organized procurers with legal backing who claim money for use by the body politic. If necessary they use force to collect the taxes and they fine or imprison those who balk. (We will deal in more detail with taxation in Chapter 22 on the body politic.) Second, nations have parliamentary institutions, in the beginning not necessary based on universal franchise, that authorize taxation and also specify the state's use of the money. Consent of the governed, as represented by members of parliament, is a prerequisite for smooth tax collection. Third, there is a system of national debt, that is, in effect a system for delayed taxation. It has been essential to develop and maintain trust that these debts will be repaid. The state of Venice honored all its debts, but delayed payments did occur. Fourth, a central bank is needed to manage this debt. This bank is an agency of the state or of the parliament as in Sweden which has the world's oldest central bank.
Nowadays the advanced central banks have charters that stress their independence. They are not obliged to take all instructions from the governments of the day. The latter often face the temptation to debase the currency, to "print money" as the saying goes, to get funds for their political programs. Incumbent governments in democracies usually wish low interest rates in election years to please the electorate and thus get enough votes for reelection. Such practices are made more difficult by charters of independence, provided the central bankers know that their job is to be unpopular.
A somewhat covert version of "printing money" in volume is to issue government bonds that have no other buyer than the country's own central bank. When the venerable Bank of England increased the money supply this way in March 2009 they did not call it printing money but "quantitative easing," words with a Saussarian meaning as good as any.
History shows many ways of building and handling wealth. We will review only two common ways that differ the most: producing riches by manufacturing and producing riches by finance.
The production of goods is intimately connected with technology.
An industrial revolution is a large-scale combination of a new technology with new social arrangements. Starting in the late eighteenth century and culminating in the nineteenth one, Europe’s first industrial revolution used the technology of the steam engine and the social organization of the factory. It gave us transport by rail and steamers.
A second industrial revolution began at the end of the nineteenth century and culminating in the twentieth one when combustion engines and electric engines reshaped the factories. The combustion and jet engines later opened for transportation by trucks and cars and eventually airplanes. With electric start motors automobiles could readily be used without a chauffeur's cranking the motor to a start. A mass market opened that included both men and women. Electric devices reshaped not only factory work but also offices and households and everyday living.
After World War II it was thought that the next technological revolution would be called "the atomic age." It was heralded by a big monument in Brussels. One kilogram coal produces energy amounting to 3kWh while one kilo uranium gives 50 000 kWh, that is 16 700 times as much. But the technology to harness this huge energy did not integrate well with existing technologies. Atomic energy did not lead to a new industrial revolution, at least not in its first 60 years.
Instead, the third micro-electronic industrial revolution began at the end of the twentieth century with the digitalization of all kinds of communication, print, music, pictures. Products and packages receive identities in bar codes and animals receive digital identities in chips; anything living can get a record of its unique variation from the DNA of the species. Most importantly, this revolution, unlike the previous two, gets at the core of civilized living, the use of communication by symbols.
The shifts in technologies in the three industrial revolutions have produced much wealth. This cannot be summarized in any smooth macro-economic law of equilibrium. In the spirit of Joseph Schumpeter (1942) we must rather focus on the role of entrepreneurs who take hold of the new and destroy the old. The entry of entrepreneurs with new technology is the force that has sustained long-term economic growth. In the first version of his theory, the creative roles of personal efforts by entrepreneurs were seen as critical. Later Schumpeter gave more credit to departments of research and development in big companies and to their innovative marketing departments.
The "creative destruction" that entrepreneurs may cause can be quite dramatic, particularly when the old technology has been in the hands of efficient companies that have acquired a degree of monopoly in the market. Labor unions usually favor the old technology since transformations includes closing factories and unemployment. Strikes, at times with violence, easily became the order of many days during a change-over. The more sophisticated labor economists in Sweden, Rudolf Meidner and Gösta Rehn, took an opposite view and proposed more civilized measures. To achieve as high wages for workers as possible the labor movement should not accommodate to the factories of old technologies but rather maintain a high wage pressure there. This so-called "Swedish wage model" is worth a moment of consideration.
In 1951 a book by the German-born economist Rudolf Meidner entitled Fackföreningsrörelsen och den fulla sysselsättningen ("The Labor Movement and Full Employment") was presented to a Swedish labor congress. Its core principle is that all jobs, regardless of their line of work, that are the same shall have the same pay in all firms at all places of work throughout the country. This departure from market wages Meidner called "a wage policy of solidarity." Thus differences in wages would minimize between large and small, rich and poor employers, between city and country, between young and old employees, and, what was later emphasized much more than in 1951, between men and women. The less profitable firms would pay the same wages as more profitable ones. This would force out of business firms with old technologies along with those operating in declining markets, as well as firms with inappropriate organization, and/or weak leadership. Workers would then be free, particularly in good times, to move to the more profitable enterprises with new technology and modern organization and leadership of production and capacity to pay high wages.
This policy would maintain a high level of wages in a country, a central union goal. It required generous unemployment compensations between jobs and an active public policy of helping and training people to take new jobs, subsidizing if need be their moves to other towns where they could get jobs in new or expanding firms able to pay good wages. Around these ideas economists from the blue-collar and white-collar unions and the central patronage association could unite. The complaints from firms with marginal profit levels were not heeded. Complaints arose also among some unions (e.g. the miners) that the very rich firms did not have to pay higher wages than others. They were loud at times and often underlined by communists, but on balance the system was accepted. Sweden could embark on long-term big structural and technological changes without as much labor strife as in most other European countries.
A by-product of the model was that the government of Sweden, unlike its colleagues on the European continent, could stay out of wage negotiation in the private sector, a feat cheered by us who believe in a the aspect of the many-splendored society to keep societal realms out one another' hair. This was a silver lining in a society that otherwise suffers from a severe hegemony by the body politic over all other societal realms. Over time technologies and industrial organization became more complex, and the Swedes found it more difficult to tell which jobs were "the same" and thus deserving the same wage. Some locally set individual variations in wages became accepted, but the rules on seniority, working hours, vacations, pensions, and working environment could remain common throughout the entire county.
The silver lining was removed by a prime minister named Olof Palme. In a period with poor standing in the electorate for his social democratic government and a tight budget that did not allow the usual additional welfare measures, he decided to throw the power of the state behind the unions. They received more favorable rules about hiring and firing and about industrial conflicts, rules that they could not have achieved by negotiations with the employers. This legislation cost the government nothing in the budget. It damaged, beyond repair for decades, a memorable, splendored feature of Swedish society, a fair and rational labor market without government dictates.
A new major technology such as the steam, combustion, or electrical engines in the past or microprocessors in the present does not automatically produce high economic growth. Nor is competition enough to move it into dominance, as classical economics would have it. A new technology wins its economic successes by combining, not competing, with complementary technologies into a growing manufacturing cluster. In order to take off, the auto industry needed not only combustion technology but steel mills and its complementary technique of buckling metal sheets. To develop a comfortable product it had to use rubber and the know-how of blowing air into tires. To make the process of starting a car easier for the consumer a start engine had to be added from electric technology and a battery from chemical technology. The new technology of covering roads by asphalt rather than stones or gravel came in handy. Thus, for the automobile, entrepreneurs could piece together "a development block" (a term coined by Erik Dahmén 1950) that included also services from investors. Such blocks often form a geographic concentration such as the first auto industry block in Michigan/Ohio.
The typical forms of social organization in a development block is that of what we have called "netorgs." Competition and cooperation take place in networks of organizations. The success of development blocks is thus predictable from our Proposition in Chapter 7 on The Netorg System of Realm Expansion.
7:7. "The Netorg System of Realm Expansion"
cardinal value grows and its societal realm extends its reach
When a major new technology such as the microchips is born there is much excitement. At the end of the Twentieth century there was no end to the great aspirations that came with the arrival of the network technology of the Internet. (See John Perry Barlow's declaration cited in Chapter 5.) Silicon Valley, the foremost development block around the new technology, attracted overinvestment. But the potential of a new technology cannot be put to full use until the complementary contributions from established technologies have been developed. An IT boom and bust occurred at the turn of the century before the new technology had found its huge number of applications though complementary technologies ranging from sorting both packages and bank transactions to recording and distributing both music and mail. It is in this later and more mature phase the new technology makes its biggest contribution to economic growth. For historians and theorists of business cycles it may be more useful to pay more attention to the cycle of development blocks than to the first breakthrough of a new technology.
In a market economy, new technologies do not come about by political decisions. No parliament decides to introduce automobiles or the personal computer in a country. But politicians may oppose new technologies. After the nuclear catastrophe in Chernobyl, the Swedish Social Democratic government introduced a law prohibiting, not only planning for new nuclear energy, but any research into the application of nuclear energy. This was an infringement on the autonomy of science. The universities reduced or closed their nuclear laboratories and training programs. The country's nuclear industry, one of the few in Europe, was sold to Westinghouse in the United States. The nuclear energy plants, however, were to run their technological life, perhaps some 40 years. To recruit top engineers under these conditions was difficult. Far from promoting safety, there are reasons to believe that safety standards and maintenance deteriorated due to the clumsy political meddling with the autonomy of the realm of science. More often than not democratic politicians restrain rather than prohibit technologies. It is telling that at the millennium more of the new production details in a car were due to government regulations than to new technology. In the opinion climate at the time of this writing it is particularly common among politicians to restrain technology in the name of reducing global warming. The latter is perceived as a doomsday threat and a good opportunity to do what politicians are good at: to tax and to regulate.
The track record of big government to pick new technologies for public investments suffers from the unfamiliarity of politicians with both entrepreneurs and development blocks. To prevent misplacements of investment capital, politicians with business ambitions must realize that the economy is a different world from politics and administration and has rules and conditions of its own. Politicians must rely on middlemen, Providers and Procurers, who can see these rules and conditions without partisan spectacles or realm biases. This is a hard task for politicians who have been used to recommending lucrative consulting jobs or assignments to cronies.
The significance of development blocks is often omitted in the study of economics. This may explain why non-economists such as investors in new technology compete well with professional economists. The mixed track record of big banks in choosing investments in new technologies is also due to a nearly universal lack of understanding by Keepers (bankers) of the importance of Creators (entrepreneurs). The small European entrepreneurs with new technologies have often a better chance of borrowing money from one another than from banks. The United States has a better system for the supply of venture capital.
In several advanced countries manufacturing and the sale of manufactured goods is no longer the main highway to wealth. Purely financial transactions dominate the international flow of money; payments for imported manufactured goods and commodities come in a poor second.
Finance as a source of riches is the process of making money by means of money. It includes traditional organizations such as banks and insurance companies. A modern bank is much more than an institution that takes in, i.e. borrows, savings from the public at low rates of interest an lends it to others at higher rates. Transactions other than this "interest gap" usually account for the lion's share of modern bank profits. Using the labels in Figure 20.2 we may say that bankers are no longer mere Keepers of money and risk-averse advisors. They act as Brokers for numerous financial services and are hard-hitting, risk-seeking traders. Likewise, a modern insurance company is more than an insurer of households, factories, and ships. Most anything can be insured, including your health, bank account, and the bonds that depend on mortgage payments. International networks of reinsurers spread the risks. The new financiers are true Makers, i.e., creators, innovators, and entrepreneurs in wealth, making money by money. They not only trade for their institution's account on financial markets. They have invented new types of monetary assets, not all of them sound ones.
In the first decade of the new millennium in the United States, financial services grew to represent more than 20 percent of the gross domestic product, compared with 13 percent for manufacturing. Before the crash in 2008, bundles of consumer loans and home mortgages packaged as securities were the biggest U.S. export business. Between 2001 and 2007 a total of $27 trillion of these securities were exported, i.e. sold to financial institutions in Europe, Asia, Australia, and Africa. Practically all were stamped "investment grade" by rating agencies, and the salesmen probably hinted that this meant that they were "good as gold." To buy them back would have required all of the gross national product of the United States during two years. (Virtually all early issues were redeemed in good order.) When the cash value of these securities became uncertain, the many banks and other financial institutions on all continents that had bought them suddenly became suspected of approaching insolvency; each one knew their own situation and suspected that neighboring ones had the same or worse problem.
In the new ballpark of finance, bankers and insurers are a minority. In the majority are the managers of pension funds, private investment funds, endowments, and charities. Here are also special companies that handle mortgages that borrow money at low rate of interest, provide mortgages for households and firms at higher rates of interest, package these mortgages as bonds for resale, and use the proceeds for further mortgages. Here are stock exchanges, currency traders, and bond dealers. Here are the credit card companies. Hedge funds can deal in anything expressed in money, and so does the whole world of finance. The successes of these financial services has lead to the customary circle of capitalism: over-establishment in good times followed by bankruptcies in bad times.
The new world of finance has also celebrated a bridgehead to conquer the old world of manufacturing goods and producing services. It is called "private equity." With its risk prone capital private equity buys industries, restructures them, improves their efficiency so that they can be sold off within ten or so years. This process may involve paying out parts of the working capital of the acquired firms (that admittedly have often been sleepy) to the new owners. It is replaced with loans from the market. This gives private equity more working capital for new forays of acquisitions. The management of the acquired company gets a new but acceptable pressure to perform better, so that that the interests on its now borrowed capital can be paid.
Any combination of economic values, for example mortgages, can be combined and packed as a "derivative" and sold as a bond. There is nothing intrinsically sinister in this; it is a rational device to spread risks, particularly in areas where some mortgages have been issued to persons with poor credit rating. The initial package may travel as collateral and/or sales object between different financial firms to end up in an investment bank. The investment bank raises its money for this purchase by selling certificates of derivatives to ordinary banks with offices on Main Street in any country in the world. They can offer these at various rate of interest depending of the level of risk. For banks to accept them as part of their capital base, the certificates must be stamped, not like Roman coins by the image of an Emperor, but by a rating agency such as Moody's or Standard and Poor as "investment grade," popularly interpreted as "good as gold." An insurance company may furthermore insure the bonds against default. Now the risks have really been spread on many hands. Many hands have also a claim on a part of the income from the original mortgage.
But the transparency of the first generation of these financial assets has been much reduced when it changed hands to new generations of owners. The risk of defaults at the first stage of this chain was poorly understood. When salesmen from American investment banks turned up to place a certificate in a regional or foreign bank, neither they nor the buyer seem fully aware of all the intricacies in the history and buildup of the investment product that is to be added to the capital of the buying bank. Needless to say the salesmen, like everyone else in this chain, were rewarded by high bonuses. Some packing and certifying actions of the first generation of derivatives may well belong in the right hand part of the semiotic square of wealth, that is, among swindles.
The market in the United States for derivatives, particularly those involving mortgages, grew significantly in the new century. The commitments involved in the loan transaction of all in-between instances in these chains also grew in numbers. The title documents of these financial assets abound with Saussarian symbols, garlands of words referring to one another rather than to something concrete. Moreover, derivatives transactions were struck privately. The market was unregulated, with no central exchange where prices and volumes were disclosed. This chaotic situation with financial instruments of poor transparency was one of the hall marks of the worldwide financial crisis of 2008. More on this crisis later.
Creative financial processes can be used, not only to capitalist ends but also to socialist ends. Social Democracy has learned to use a high taxation of what belongs to the owners on the balance sheets of firms, and give borrowed capital in firms breaks, for example in the form of a full tax deduction of interests. It may add the use high individual or household wealth taxes to further reduce private capital, making firms dependent on sovereign funds (run by states) or wage-earner funds (run by labor unions). When such measures are combined with mandatory representation by governments and unions on corporate boards, "capitalism without capitalists" is close at hand — without having to resort to much old-style nationalization. At the pinnacle of their power, Sweden's Social Democrats tried to accomplish this. They were met with local resistance and an opinion climate influenced by Margaret Thatcher and Ronald Reagan. In a Europeanized and globalized environment their policies for the economy were not strikingly forward-looking. Much private capital and a couple of the most successful big firms escaped the socialist designs by moving abroad.
Many exchanges in a market involve delays between production and delivery. This causes booms and busts. A classic example is the so called "hog cycle." Farmers who produce pork must make production decisions before they know what price they will get on the market. About 10 months elapses between breeding a sow and the slaughter of her offspring. Since a hog breeder may not know the decisions made by other producers, cumulative overreactions to very good times as well as very bad times have resulted in a cyclical pattern of production and prices. Agricultural economists show that the full cycle of the pork market takes four years:
· First year: In this good year prices are above production costs and the farmers increase production. Keeping more gilts on the farm for breeding brings less pork to the market. Prices go even higher.
· Second year: The increased pork brought to the market from the now larger herd of sows brings prices to a fall.
· Third year: Oversupply in the market is now apparent; prices fall below all costs of production. Many producers decide to reduce their herds. Fewer gilts are retained and more sows are sold, which causes an increased amount of pork to go to the market for even lower prices.
· Fourth year: Production declines and prices increase to the break-even point or better. A new cycle can start.
This kind of boom and bust for agricultural products is used as justification for the price control that is practiced in some farming countries. We find similar cycles in the markets for all kinds of fashionable goods and for all economic asset classes. Typical booms and busts mark the housing market. Again a root problem is that the builder of a housing project has his costs long before he knows the selling prices of the finished buildings. Also the customers in the housing market easily get trapped in the idea the prices of today are not the prices of tomorrow.
The fact that firms operating on markets also put themselves on a market is an ultimate crown of the market economy. The stock market takes funds from owners of capital who do not immediately have use for the money and puts it into firms that lack the cash to realize their production ideas. The business plans, conditions and market prospects carry different levels of risks for different firms. By spreading the stocks between firms listed on the stock markets the investor tries to achieve the risk he is willing to bear. In all, allocation of capital available for investments comes into the hands of those the firms believed to have the best chances of success.
By means of the stock market, capital is allotted by decisions inside the societal realm of the economy, and no decisions by tribal chiefs, priests, moralists, politicians, or military strongmen are needed. Without a stock market the realm of the economy would not be independent of other societal realms. A politically planned economy would be the nearest available alternative. A stock market is thus one of the several cornerstones of a liberal and many-splendored society.
At the same time, stock markets expose all listed firms to the booms and busts that are inherited in markets. A bust affects not only investors but employees, distributors, and customers of these firms and, in severe cases, the effects may spread to the general public.
A first scientific understanding of the nature of the flow of communication on a stock market was provided by Vilfredo Pareto, a brilliant Italian social scientist who had started out as a political economist and who contributed a great deal to economic theory. He found economics to be too limited a field to help in understanding certain “irrational” problems, among them, those that appeared in politics. In order to be rational about the irrational, he turned to sociology. He used sociology to construct typologies and theories about the spirit of the times. He used them also in interpreting movements of the stock market. In a paper from 1901 he wrote about the importance of the climate of opinion on the Stock Exchange.
Whereas during the upward trend every argument advanced in order to demonstrate that an enterprise will produce money is received with favor, the same arguments will be absolutely rejected during the downward trend... A man who during the downward trend refuses to buy certain stocks believes himself to be guided exclusively by reason and does not know that, unconsciously, he yields to the thousand of small impressions which he receives to some degree from the daily economic news. When, later, during the upward trend, he will buy those same stocks, or similar shares offering no reasonably better chance of success, he will again think that he is allowing only the dictates of reason, and will remain unaware of the fact that his transition from distrust to trust depends on sentiments generated by the atmosphere around him (Pareto 1901/19??, pp. 93-94).
What people (such as our farmers) talk about during upturns and downturns of a market is governed by a Proposition on Socially Rewarded Convergence.
(a) Persons have an inclination to express
communications that harmonize with customary and/or habitual communications
found in their encounters; and
As Pareto had noticed, a consensus on the trend emerges rather quickly. Let us begin our study at a point when this happens during an upward trend. We will pursue the likely course of events by drawing upon our knowledge from the reasoning on the edifice of symbols (Book 2) and about motivations fuelled by symbols (Book 3) to understand a full cycle of stock market swings. Let’s pursue this in some detail; it will tell the extent to which social science can explain the course of stock market swings. Probably the same processes will account for bubbles also in other markets.
In any social
encounters, the participants
In meeting face-to-face associates and in absorbing the mass media we know from the Proposition on Selective Scanning that people do not observe everything, but tend to focus, among other things, on the evaluative language in use. In an encounter involving a market this would usually be the price.
Furthermore, the Rules of Emotive and Rational Choice tells us that emotively charged symbols are observed first; in this case it may well be the number that reveals how rich you are, i.e. the current market value of your assets.
(a) In scanning a symbolic environment or part thereof man
first reacts to the symbols, if any, that have emotive charges and then to
the executive symbols.
The rest of the available information is more or less ignored. A period of continuous upward pricing of an asset sets the focus on the daily scanned price at the expense of other information about the asset.
The combined effect of the two cited propositions is that the traders begin to ignore shifts in the underlying realties and follow only the rising price. This is now unrestrained and is bid higher and higher. The volume of trade in the asset increases. Preoccupation in a rising market with the rising price at the expense of anything else is a defining mark of a so called "bubble."
a) People have a tendency to develop "looking-glass
selves," i.e. self-images that are synonymous or consonant with public
views about them in their social encounters, particularly their encounters
with significant others.
Continuous increases in the value of an asset boast the evaluation and rank of the owner in his social encounters. This adds to his self-evaluation. His personality begins to change. He “re-edits himself” to something grander according to the Proposition on Development of Selves.
For little effort and a small initial commitment of money the investor reaps big rewards. The Proposition on Emotive Sense of Justice gives the investor a sense of exuberance. At this point asset owners tend to spend more on personal and family consumption.
14:1."The Emotive Sense of Justice"
If the evaluations a person receives for a set of actions in encounters become (a) disproportionately smaller than his commitment to these action, then he tends to show negative emotive reactions, while (b) if they become disproportionately larger than the extent of his commitment to these actions, he trends to show positive emotive reactions.
The process in the Proposition on Rank Equilibration in Status-sets begins to work to equalize their ranks of investor and consumer, making the level of consumption more commensurate with the level of the brokerage account. Thus we get extravagance in spending during the rise of the bubble. If we deal with a large bubble this increase in consumption shows up in the statistics for the total economy and spills over into a period of “good times,” celebrated by most everybody.
Persons with a status-set of different ranks tend to act to equalize them (a) so that they match their previously achieved customary evaluation, or, (b) if they live under conditions of achievement motivation (i.e. ever higher anchorage points and/or more inflated units of evaluation), to raise their lower ranks to the level of their highest rank.
Here begins a critical phase of the boom and bust process that everyone – bread earners, businessmen, preachers, social workers, and journalists – should worry about. Politicians in particular ought to worry. But this is the time when they, like everyone else, are apt to think that markets take care of themselves. They share in the exuberance, as suggested by the Socially Rewarded Convergence mentioned above. Everybody’s laments and worries, surely real enough, come when the bubble has burst.
When prices of the bubbling asset reflect evermore the expectation of future gains in prices the equilibrium component in Gary Becker's often cited definition of economics — “the combined assumptions of maximizing behavior, market equilibrium, and stable preferences, used relentlessly and unflinchingly, form the heart of the economic approach” — breaks down. Prices in financial markets no longer reflect the supply and demand in the way they were supposed to do.
Bubbles come and go. As a bubble grows, many investors are apt to say “it is different this time.” A good rule of thumb is to be skeptical of any such talk. During the IT-bubble in the 1990s the financial world was full of talk about "a new economy." It had new indices of success, for example "burn rate," the estimated number of month before new capitalization is needed. To the IT-enthusiasts in the stock market, burn rate became more of a buy signal for a company stock than profit.
The longer a continuous string of the very same stimulations occurs in an encounter, the less effective the latter become, and vice versa, the longer a string of continuously novel stimulations, the more the effective they are.
The Proposition on Satiation indicates that swings that reverse opinion during a trend are an ever present possibility. They become a certainty when the talk of a trend no longer continues the string of positive novelties. Then someone with knowledge pays attention and discovers that market has taken the wrong way.
Only a trained participant in the market may notice the early shift in the flow of information. “This is the first ripple on the waves in many years that shows that the wind with good news from the Exchange is changing course.” This was Bernard Baruch’s comment on an annual report that mentioned a slight downturn from the otherwise high profit level maintained by a technological darling of those days, the Radio Corporation of America. (Cited from Galbraith 1964, p. ??). It was the new year of 1929, a splendid time for Wall Street where Baruch worked. He sold his shares, and thereby secured a permanent fortune of 10 million dollars. Thereafter, he became a legendary participant in discussions on New York’s park benches and an advisor to several presidents. The crash in 1929 of the overpriced Exchange on Wall Street came when even other news began to be viewed with pessimism. “Such thoughts roused first dozens, then hundreds, and finally thousands of breasts… and at last stopped the upward trend,” says Galbraith.
During a rising bubble people increasingly borrow money to invest in the uptick. After a period of such increasingly leveraged speculation in a widespread bubble, bank credits tend to become tighter. The shortage of new credits affects also branches other than the bubbling ones. When a big bubble in this way has infected the financial system, a general decline, an economic recession, is close at hand.
The bursting of a market bubble leads to a downtrend in prices that is usually steeper than the uptrend that built the bubble. At least in part, the increased steepness is due to the fact that we pay more attention to negative news than positive news according to the above cited Rules of Emotive and Rational Choice. Yet there still are days of upticks in the decline: Wall Street rose about one day in three or four during the worst months of the Great Depression of the 1930s, raising hopes of the die-
14:2. "Threats of Anomie"
A sudden relocation of people to anomic ranges of their scales of evaluation slows or stops the functioning of compelling vocabularies in the society.
A rapid decline in from an accustomed high level of assets opens the door to the Threats of Anomie. The price offered to a seller of the assets pushes some of them into the lower anomic range (Figure 14.3 repeated here) and they lose their bearings. In this range, the participants in a market can no longer distinguish reasonable levels of bids.
In a pioneering controlled bargaining experiment, only few subjects entered this stage of "panic or demoralized behavior" and "rapid and complete concession" (Siegel and Fouraker 1960, p. 82). One can arrange follow-up experiments when these few sellers start Circular Reactions on a visible scale.
When participants in a face-to-face encounter converge their emotive communications (according to Proposition 15:3a), they enter into a spiraling process of circular, emotive, converging reactions.
This would correspond to an economic bust in real life that ends in a "capitulation" on the exchange when a large crowd throw in their towels and sell at bottom prices. Only strong and experienced traders can stay aloof when this happens — and they pick up the bargains.
A high volume of capitulation trades is usually a mark of the bottom of a cycle. The process of boom and bust can now start all over. The end result of a cycle is that money has moved from "the weak to the strong," a common highway in a free market of assets.
The market economy, as we often have noted, gives unprecedented wealth to mankind. But the price is the ever recurrent booms and busts, not easy to cope with for earthlings who have a bias for the status quo when they use evaluative language, including the language of money. Political movements that are critical of the market economy therefore become endemic in all market economies.
4:6. "Evaluative Motives"
Humans are (a) inclined to act to preserve the customary evaluations they receive in their symbolic environment, be they high or low, and (b) they are inclined to act so that they avoid receiving more unfavorable evaluations than these.
With downturns come calls for more regulations of the markets from all corners. Needless to say, democratically elected politicians will respond to this public opinion with vigor. The public does not understand that market needs more and different regulations at the top of a boom and less and different regulations at the bottom of the cycle, nor do most politicians. The late awakenings in bust and booms of both the public and their politicians and their misguided responses in the different phases of the cycle may make you question whether democracies with the current level of economic education should be trusted with the blessings of a market economy.
Booms and busts of wealth are thus recurrent phenomena in any economic market. We have arrived at this conclusion by drawing on general propositions that we have presented and quoted from previous parts of the presentation of The Many-Splendored Society. None of these propositions is specific to the cardinal value of wealth. We might therefore assume that the processes we have discussed and reprinted in this section have parallels in the non-economic societal realms, i.e. in academe, art, religion, body politic, and in morality. A very inclusive assumption is the following Proposition on Swings in Cardinal Values.
"Swings in Cardinal Values"
The cardinal values (knowledge, beauty, wealth, sacredness, order, and morality) are driven to oscillate in networks of individuals and in networks of organizations.
Needless to say, this deduction remains hypothetical and should be read as a general orientation for future research, not as anything established.
In the peasant society one learned farming by growing up on a family farm or in a farming area. When the peasant society changed into an industrial society the first jobs available in industry were so simple that they could be learned after a few weeks or months of practice in the factories. As the demands for occupational skills grew, manufacturers began to establish trade schools. In Germany trade schools and their accompanying job apprenticeships became well-trodden routes to education that have persisted to this day.
In the 1970s and 1980s many European industries closed down schools they had operated to secure skilled workers. One reason was a changing labor market that undermined the implicit guarantee that those who went through these schools would get a life-time job in the industry that run the school. Public school obtained a near-monopoly on training for industrial jobs. In some places, schools that once were called trade schools were upgraded and called gymnasiums or lycées, the more prestigious old names names for youth schools. The demands for business and industry schools offering a number of practical subjects is thus met with tax money at no explicit costs for firms in need of trained employees. In some instances formal contracts between industries and local schools regulate their relations.
A general rule in a many-splendored society is that each societal realm is responsible for its slice of the school curriculum.
Business and industry add on the job training for their employees. Many also arrange formal hours of training with outside teachers that often call themselves "consultants." The expenses for their fees are tax-deductible for the firms.
It is remarkably difficult for school children to understand market economy. An English child's first meeting with the market may be the day he or she buys a first chocolate bar at the candy counter. The cocoa comes from Africa and has traveled hundreds of miles; the sugar comes from Central America, the wrapping paper from Scandinavia. The freighters were built in the Far East, the trucks in Europe, but running on diesel from the North Sea and on tires from France. There is no central planning agency that sees to it that the children get their candy bar without ordering it in advance. They have encountered a great power shaping modern times, the world markets, coordinated a bit by the invisible hand of Adam Smith.
The cashier in the store does not share the candy freely as do the parents, brothers and sisters of the same family. She wants to be paid, and so do those who have produced the chocolate, the sugar, the wrapping paper and the transports. And hardest of all for the children to understand is that the big market works and delivers without any parent, boss or politician who decides everything.
It is also remarkably difficult for school teachers to understand economics. Most teachers lack professional training in economics, as do most journalists, priests, bureaucrats, and politicians. They believe states must act in economic matters in the same way as households do. But in reality and in economic theory it ain't necessarily so.
If capitalism ever is removed from the surface of this earth it is not because of the intellectual superiority of socialism, but because it neglected to train new generations in its workings. Economic ignoramuses or outright enemies of the market economy train the great majorities of new generations in the capitalist world. The business realm has surrendered the teaching of the young to graduates of state teachers colleges whose political superiors are in control of the curriculum. These politicians know how to tax, spend, and regulate, in short, how politics and legislation works. Civics becomes a priority for the teachers in any state school, not how a market economy works.
The economy is a great procurer from other societal realms. It looks to the body politic for legislation about property rights and contracts. It looks to art for assistance in advertising. It looks to science and particularly to engineering for product development. It depends heavily on education.
A high level of education in the working population — which economists usually call “human capital” — promotes economic growth (Barro 1997) and productivity (Bishop 1991). However, not all kinds of education have the same effect on the accumulated wealth of a nation. It has often been asserted that educations in technology or natural science are more beneficial to a growth in GNP than education in other subjects. But if this were the whole truth, the Soviet Union with its many engineers would have had one of the world’s highest GNPs. Markets that function well probably are more important than the educational level for a nation’s accumulated wealth. A nation’s educational level also correlates with the development of its productivity. One might even suggest that there is a connection between the number of hours spent in doing homework in the school systems of different countries and measurements of the countries’ growth in productivity.
The educational level of an individual also has a positive correlation with his future income level. The rule of thumb is, of course, that the more education one acquires, the higher the income level. This connection is usually called the "educational bonus." In developing countries young people are often anxious to get a higher education to enjoy a bonus in living standard. This works provided their country has reached a certain level of development and has introduced a meritocracy that can override promotions by kinship criteria. If these are not in place the educated easily become revolutionaries rather than loyal and satisfied citizens.
In well developed countries the educational bonus is noticeable but not necessarily great. The 1970s the annual yield after taxes for high education was c. 12 percent in Sweden. It dropped to 1-3 percent in the early 1980s, then climbed to c. 5 percent in the 1990s. It seems as if factors other than school education must account for the large variations in the educational bonus (Lindbäck 1998, pp.47-49, 57-59). In addition to the educational bonus, the extent of piecework wages, progressive taxation, and the compression of wage differences through collective bargaining are important explanations to the wage levels.
Tax money from the economy to the body politic is the largest single transfer in any modern society. It should raise questions that one societal realm gives up between one quarter and one half of its cardinal value to another realm. If freedom shall be more than a philosophical exercise, taxes must be reasonably low — say, no more than a tenth to a fifth of any income in a household or profit in a firm — so that everyone can keep enough economic resources to practice freedom. Taxation has also another side that clashes with freedom; it is enforced by state violence. Maximum consent of the governed is required in matters of taxation to keep this violence at a minimum.
Taxation is best explained by political rather than economic processes, and we will deal with it in that context (Chapter 22).
Money is, of course, a necessity in all households that no longer by themselves produce food, clothing, and shelter. Georg Simmel, in a century-old but surviving book, Philosophie des Geldes (1907), shows how use of money influences relations between persons, their way of thinking, their view of their past, their contemporary life, and their future. Simmel's lasting message is that money is more than an economic concept; it is a concept for the study of freedom, lifestyles, and philosophies of life.
What in Simmel's days were emerging tendencies have in later generations become a decisive fact: the use of economic rewards for non-economic achievements. Successes in everything from sports to war bring economic rewards. More or less regular monetary payments supplement the honorific rewards and positions that go with achievements in science, art, religion, politics, and humanitarian work. In this way the cardinal value of the economy seeps, not only into households, but into all non-economic realms and corners of society.
This is not an altogether happy development for the societal realm of the economy. People in the other realms feel that the monetary part of their rewards for scientific, artistic, religious, political, and civic accomplishments should be put in line with rewards for business achievements. When this is not possible, they attack level of salaries, bonuses, pensions, and other parts of the compensation packages that are normal in business.
Nor is it a happy state for the non-economic realms. In a planned economy this means that a very detailed political power rules over all societal realms by means of price control, political investment decisions, et cetera. In the market economy it means that market considerations rule also in science, art, polity, religion and morality. In both cases we have said good bye to a many-splendored society.
By the end of Twentieth Century the hegemony of money in some countries resulted in a 'cancerous economy' that culminated in the financial crisis 2007-2010. The fact that the societal realm of the economy seeps into a near-dominance of other realms is a straight illustration of what we call realm hegemony. We call the hegemony cancerous only when a second element enters: an overwhelming number of all economic transactions become leveraged, i.e. based on loans, and become so in an ever higher degree. This happened most drastically in the United States, but also to a notable extent in Britain and France and some other rich countries, but much less so in Germany and Japan.
At the time of the height of banking crisis in 2007-09 U.S. consumer debt — mostly credit card loans and payday loans — stood at about $2.58 trillion, a threefold increase in a decade. This reveals that a typical US household did not pay ordinary living expenses from its current cash but by adding to loans that are paid back in later installments. It also means that firms, ranging from serious banks to predatory lenders that are engaged in household finance get a small cut from most every household purchase in the form of interests and fees. These firms securitize the money they lend to consumers just as mortgage lenders do. Any slowdown (or freeze as in 2008) in the market for these securities imperil the day-to-day cash flow of run-of-the-mill consumers.
The effects of leverage can be discussed by illustrations from the housing market:
Assume that there are two buyers to a property, one bids $100 000 of his own money, the other bids $110 000 of money he has borrowed. The latter, being the highest bidder, gets the property. There is likelihood in this community, say one or two in a hundred in good times and five to ten in bad times, that the latter's loan will default. Normally the ones holding the bag in this case would be the savers among the public (including the losing bidder who had saved $100 000). They are charged for the default through the interest gap between savings and borrowings. In severe cases, the bank's bond and share holders have to take the responsibility, and in extreme economic crises, government bailouts may be used to restore the lenders.
Question: Is it reasonable to let the bidder with borrowed money get the property, (a) from the point of view of the total economy, and (b) is it moral from the point of view of the total society?
In periods of very low interest rates, "borrowed money" has the capacity to win over "own money" in any trade. When transactions in fiat money are routinely and increasingly leveraged (loan-based) year after year, all may seem good since economic growth is seen as good. But this kind of growth is cancerous. It cannot be defended as good economy, or good morality.
With a cancer of excessive leverage, an economy has come a long way from a Gemeinschaft-type society where all money debts except the smallest ones were next to immoral. It is also a considerable distance from the original Gesellschafts in which frugality, diligence, and industry were dominant economic virtues. German Chancellor Angela Merkel represented the latter when she warned the United States in November 2008 that its efforts to cope with the banking crisis by keeping money cheap and further encouraging people's borrowing could plant “the seeds of a similar crisis in five years’ time”.
Money thus enters all sorts of transactions and makes them open to calculation. Simmel (1907) elaborated the Marxian idea that being able to calculate everything with money inevitably depersonalizes human life and culture. It is true that the market economy opens for calculation in social intercourse. But this does not necessarily mean that social relations become weak and distorted by money. Tyler Cowen (2008), who is a professor of economics at George Mason University, a citadel of market economy, has shown that using money as incentives is unproductive in some social relations. For example, it is unnecessary to pay your daughter to do the dishes. In many other relations using money as incentive is done ineffectively. Cowen wants to help us do it in smarter ways and gives his book the title Discover your Inner Economist. This may be an insidious way to promote hegemony of the economic realm over everything else, an anathema to a many-splendored society.
Viviana Zelizer (1997) has showed something more interesting: people incorporate money into ordinary social relations without destroying the traditional meaning of these relations. This is done by keeping separate, mentally or physically, different kinds of money. Cowen does not cite her findings.
In the first place, says Zeilizer, people separate their sources of income. Big windfall incomes from a lottery or inheritance are kept separate from money in the form of regular salaries or wages or pensions. Zeilizer cites a study of Oslo prostitutes, many of whom think differently about the money they receive from health benefits or welfare subsidies, which they very carefully count and budget. By contrast, they would quite easily blow their prostitution earnings on drugs, alcohol, and clothes. In the same vane, we may see the several studies showing that the lion's share of the sizable child allowances in cash that France and Sweden regularly give families with children are not dedicated to amusements, wine, and beauty parlors. In the main, they are used to create the kind of household and living quarters that a family with children needs.
In the second place, Zelizer notes that people's uses of money in different social relations separates into different kinds. It is not only that money for small daily expenditures are separated from money for big-ticket items. Money for gifts to friends may be identified as different from money for the children. A loan to a daughter differs from a tip to a waitress or a payment to a prostitute. Needless to say a husband does not tip his wife, nor does the wife give tips to her husband.
Zeitler puts Simmel on his feet after having stood on his head: people transform money rather than being transformed by it. She does not change the fact that the flow of life in any modern society is helped by a continuous supply and flow of money and credits, but she establishes social relations rather than monetary relations as primary. This fact must be a starting point for the societal control of fiat money.
Orwell's irony applies again. Among six societal realms born free and equal — science, art, economy, religion, polity, morality — the economy has in the early Twenty-first Century made itself more equal than others. And Ferguson's "square of power" has proven inadequate to cope with control of its fiat money.
Please send your comments after reading this chapter by email to the author.
A Language-Based Core of Religion
From Selves to Souls
Separating the Domains of the Dead from the Domains of the Living
Sanctification of the Dead
Sanctification of the Living
Death as Deviance
The Emergence of Gods
A Note on Contentious Atheism
Sacredness and Profanity
Figure 21.2. Semiotics of Sacredness
On the Early Replacement of Christianity with Islam
Spontaneous Order in Religion
Impact on Religions from Changes in the Pristine Order
Debunking Magic in Religion
Providing Education about Religion in Schools
Attempts at Hegemony by the Societal Realm of Religion
Respect for Religions
Impacts of Religion on Secular Society
A Coda on Economy and Religion
This chapter has not been edited
The practitioners of the common lifestyles that we call The Believers want to walk through life in touch with a virtual reality of heavenly lights and messages. They have a lifestyle concerned with sacred words and rituals. With an eye on the sacred, they develop their courage to face ultimate issues such as the existence of suffering and death, and the final evaluation of a person’s life. They usually have cults to cope with the memories of the dead. They are found not only around traditional centers of worship, but also among the followers of new belief systems that have gained ground in secularized parts of the world. They are attracted to the realm of religion.
Religion is important to the student of society. Contemporary Sinic (Chinese), and Japanese civilizations may perhaps be defined without reference to their religions -- but not without reference to morality. Otherwise, religions seem necessary when we define existing civilizations. We have Hindu, Islamic and Buddhist civilizations. Within Christianity, the largest religion in the world, we distinguish between Slavic Orthodox, Latin Catholic, and Anglo-Protestant civilizations.
The developed religions rest on the same basic structure as other societal realms, but the content of the realm of religion differs from that of the economy, polity, science, and art. Religions have organizations (churches), networks (sects), and media (scriptures and pulpits). They have Makers, i.e., prophets who create the faiths; Keepers, i.e., high priests who preserve the faith; Brokers, i.e., preachers who bring it to the masses; and Takers, believers who identify with the faith. Religions, like other societal realms, also have Providers, i.g., missionaries and teachers of the faith to outsiders and youngsters, and they have Procurers who get privileges, money, etc to aid religious pursuits. (See Figure 21.1). Religion as a societal realm is different from morality (Figure 23.1), a difficult fact for many to grasp.
the cardinal value of sacredness
Con- grega- tions
Brother-hoods of faiths
Authors of divine will
Persons and organi- zations on the outlook to other realms for some-thing bene-ficial e.g. donations and priviliges.
Type of Freedom:
The letters marking the rows are those found in a summary of the various language-products in society called Table of Societal Realms in Chapter 9. The letters after "I" continue as columns to make space in the center for some illustrative examples.
The English anthropologist Edward Evans-Pritchard has this to say about the scientific study of religion as a social phenomenon:
I do not deny that peoples have reasons for their beliefs — that they are rational; I do not deny that religious rites may be accompanied by emotional experiences, that feeling may even be an important element in their performance; and I certainly do not deny that religious ideas and practices are directly associated with social groups – that religion, whatever else it may be, is a social phenomenon. What I do deny is that it is explained by any of these facts, or all of them together, and I hold that it is not sound scientific method to seek for origins, especially when they cannot be found. Science deals with relations, not with origins and essences. (1965 p. ??)
The main part of this statement is unproblematic. Religious life, as mentioned, is a part of social life and fits all the categories and regularities of our scheme for analyzing societal realms (Figure 21.1). If we go beyond the primitive religions that were Evans-Pritchard's topic, we find the structures of organizations, media, and networks. We find the same roles of Makers, Keepers, Purveyors, and Takers that occupy other parts of social life. And the rational pursuit of the sacred can be studied as readily as the rational pursuit of any cardinal value, be it wealth, power, knowledge, beauty, or virtue. Nor is it impossible to study such pursuits with the methods and theories of social science.
The last sentence in the credo of Evans-Pritchard, however, is unwarranted. It certainly belongs to science to study origins and in some sense also essences. The origin of religion is found in the language instinct. Religion grows out of what we found to be one of the six fundamental components of language, to be exact, the one we have called emotive evaluations. Among other things, a religion evaluates the miserable fact that death is inevitable and that there are moments of suffering as well as moments of joy on the road to death. The core of many religions consists of words that help us, not only to live, but to die.
A well-known definition of religion by American anthropologist Clifford Greetz states:
Without further ado, then, a religion is: (1) a system of symbols which acts to (2) establish powerful, pervasive, and long-lasting moods and motivations in men by (3) formulating conceptions of a general order of existence and (4) clothing these conceptions with such an aura of factuality that (5) the moods and motivations seem uniquely realistic (Greetz 1973, p. 90).
Let us reformulate this in our terminology. Religion is a system of emotive evaluative symbols about human existence. This system establishes powerful, pervasive, and long-lasting motivations in men to follow a particular prescriptive order that is clothed in descriptions with an aura of factuality that make the motivations uniquely effective.
Religions are not something that always has been there. They do not appear until beings have developed a language brain. Only language makes it possible to talk about death, that of others and your own, to handle our identity (soul) after our death, and develop collective insights about death. Religion is a language-product that can express the ultimate evaluation of a life, i.e. what people often call the meaning of life. It goes without saying that such an evaluation gets an emotive charge, often a strong one. Not all emotive evaluations are religious, but some very noticeable once are.
We note that Greetz's definition depicts religion in a stage of "realm hegemony," i.e. a religion that expropriates the societal realm of morality and part of the realm of knowledge. This particular variety of religious hegemony stands in the way for a many-splendored society, and it impedes the development of science and morality. This religious hegemony may be an empirical fact during many periods of human history, but we have no reason to let such hegemony define religion as Greetz does. We might even do religion a lasting service by sticking to its core as a societal realm of its own.
The existence of religions and their forces is less of a mystery than most people think. Organized society inhabited by individuals is a language product. Personal and collective identities are language products. Religion is a special language product that comes into being because all language-using beings are mortal. Religion as a special language product that bridges generations, not only the gap between birth and death, but more uniquely, the gap between death and birth.
A considerable understanding of religion can be obtained by basing our reasoning on the review of Vocabularies of Identities (Chapter 13 in Book 3). If you have not done so, please read that chapter before proceeding with this one.
A self is grounded in the language of identity and expressed in "I am"- and "we are"-sentences. The Theorem of the Looking-glass Self and The Theorem of the Authentic Self dealt with this. Other persons sharing our symbolic environment have little difficulty in recognizing and remembering the sentences that define us, "our selves." Such sentences are remembered also when a person has died. A self, as it is remembered by survivors, is the linguistic base of what is called the 'soul' (or spirit) of the deceased. In this sense, soul is an acceptable concept in social science.
The soul is set apart from the self of ordinary living; this is the beginning of a separation between the sacred and the profane. At this point in the development of religion, the sacred may be considered either beneficial or detrimental or neutral to the earthlings.
The dominions of the living identities (selves) and deceased identities (souls) are separate in all religions. However, the belief is common that they may interact more or less actively. The pathway between the two could be a deep cave that the believers decorate with painted images. Or, it could be a road into the high mountains, a trip starting down the Nile, ascension to a heaven beyond the clouds. In ancient Greek religions the separation was the river Acheron — not Styx as Virgil mistakenly had it — to the realm of the god Hades, king of the dead. The dead had to pay the ferryman Chardon to get quickly over the river; some Greeks arranged to be buried with a coin between their lips for the passage so they did not have to wait wandering along the Acheron. In the Greek view, the crossing to the underworld was final; there were no return trips. However, about Orpheus and a few others we are told that they visited Hades while alive and returned living.An image of the beliefs about body and soul and about life and death in medieval Europe is given by El Greco to the largely illiterate population of Toledo. El Greco, born on Crete, trained as a painter in Venice, made Spanish Toledo his home town in 1570. There he learned about a great benefactor to the city, a Count of Orgaz, who had lived 200 years earlier. The Count's memory and good deeds were kept and embroidered by the citizens of the city. El Greco joined his new compatriots in honoring Orgaz by a magnificent painting in Santa Tomé Church. It shows the funeral of the benefactor.
El Greco was a man of the renaissance. This painting is set 200 years earlier and captures a virtual reality common in the High Middle ages. The row of awe-stricken burgers in the painting divides heaven from earth. The Count’s body is lowered into a dark grave. Even the officiating priests are awed and astonished when two saints in golden robes, St. Augustine and St. Stephan, appear to carry the deceased to a bright heaven. There he is met by Saint Peter with his keys and by other saints who had gone before him. In this part of Paradise his soul would on Last Day join his resurrected body.
Christianity triumphed over Hellenic and Germanic religions for many reasons; one was its conviction that there is a coming resurrection of the dead. More on this in a moment.
The big drum beats and the loud firecrackers at the Chinese New Year are echoes of old ways of driving evil spirits away. Shamanistic religions accept that some dead are resentful, and thus their souls should be treated as evil. This archaic tradition remains in many parts of the world and is particularly strong in Siberia and on the Korean peninsula. In modern South Korea this religious tradition is probably stronger than both Confucianism and Christianity. A priest with magical abilities is called mudang by the Koreans. They are mostly women. They are believed to have contacts with the world of spirits. They can solve problems of health and fertility. We know from part (c) of "Socially Induced Compliance" (Proposition 15:7) that socially induced compliance implies that deviants are downgraded.
(a) The more favorable evaluations a person receives in an
encounter, the more he his
likely to conform to the prescriptions in the encounter.
Some souls — with an earthly biography that includes incidences of deviance categorized as "evil" — may not have realized or acknowledged that they are dead, and they remain in this world. This means that they may bring ill health and economic disasters to the surviving family members. The mundags are supposed to help the souls of the dead on earth to move to a divine world of souls. They exercise authority over the deviant souls according to clauses (c),(d) and (e) in our Proposition, and they can force them to stop the misdeeds and to deliver compensation to the living for the damage done by errant souls.
The formula "from self to soul" can also be read backwards. When a person dies and his or her vital breath has left the body, some religions remember this identity as a phantom image, perceptible but untouchable. In others it becomes a true soul, separate from the body, but serving as the carrier of a personality. To the latter, a logical step in the transformation of the language of identities, is the belief that also the livings have souls. Freud, however, did not like the religious ring of soul (Seele in his language), and used the Greek term "psyche." Linguistically speaking, souls or psyches are sentences defining identities that are, or once were, living personalities. The believers are free to add some divine attributes that we social scientists ignore. The soul, as we have defined it in our secular linguistic terms, however, is impressive in itself. It may almost have eternal life since it can persist as long as a language persists.
The preservation of the self, we recall, is the key to social motivation. We have concluded in "The Identity Maintenance" (Proposition 15:1) that people do all sorts of things to maintain their individual and collective identities. This motivation also applies to the extended identify after death. Some people have mummified or embalmed the bodies of the deceased, but the main effort of mankind has been to maintain and save souls, a process that requires less technological and more symbolic activities.
TECH It happened in Sweden in 2005 that a man ordered that a "www.hisname.se" should be put on his tomb stone. With the recent advent of digital memories and web sites of enormous capacities, the surviving identities of a common man may meet more than an ordinary grave. They may not retain the richness of detail of his life on earth that was given to a Egyptian pharaoh in his pyramid chambers. Nor would they resemble the grave to end all graves, the mausoleum of Chinese Emperor Qin, who died in 210 BC and was buried with a nearby garrison of life-sized terracotta army soldiers with horses and weapons prepared to serve him in the afterlife.
But the digital memory of the living in our century may rival the memory of a burgher in the necropolis of the city Cyprus, a place so remarkable that old and new visitors mistakenly call it "tombs of kings." Since digitalized memories can be copied without error into the media of future generations, souls can nowadays be given a very long life. I predict that something like a sacral YouTube will be the cemeteries of the future. They may also contain copies of the genome of the deceased. The human genome is the DNA blueprint unique to each individual, a 6-billion-letter code that contains the directions for making all the proteins in the body: blood, brain, muscle, and bone. The code is written in combinations of four chemicals known by the abbreviations A, C, G and T. With that preserved, a dream of resurrection will also be at hand.
All in all, in all times, decedents should be free to celebrate and honor their ancestors according to their traditions or choices, or according to any new practices that virtual technologies may provide. In a many-splendored society, however, they cannot use such celebrations and ceremonies for political purposes, for religion and polity are there separate societal realms. Priestly proficiencies are not the same as the political skills needed to run a body politic, and political abilities are different from the qualities required to lead religious congregations.
Men uphold the social order that upholds them as individuals. Our Proposition on "Maintenance of the Evaluative Order" is highly relevant when extended to souls. It shows how we maintain those social structures that maintain the scales that give us our favorable self-evaluations. One consequence of this is that people will defend and fight for their religion. Inclusion and exclusion mechanisms abound in religious history. Members of a society have an evident motivation to keep their religion intact even when some of them migrate, like Jews driven into Diaspora, or the members of different Christian congregations populating America. Religion, along with some ethnic food, is the last immigrants give up from the old country.
The fact that strong forces are let loose by any religion and put the believers into a defensive position is something that both believers and non-believers must reckon with. Some of these forces give rise to religious wars, but the main effort is the enormous amount of human design that goes into the saving of souls.
When a person has both a self and a soul (in some religion more than one soul) the sacred domain is no longer confined to the dead and their dwellings. Sacredness, the cardinal value of religion, now emerges and becomes a property of the living to hold, develop and defend.
We know from the Proposition on "The Development of Selves," cited above, that selves, the notions of ourselves that we present to others, can be defined by others (the looking glass-self) or edited by the holder (the authentic self). Likewise, souls can be shaped by the living bearer and also edited by his or her survivors. With appreciative editing some souls can in this way become more sacred and turned into saints or 'angels.' Angel, defined this way, is not merely a concept in Sunday School, but in social science, a linguistic product subject to empirical study, like many other religious terms.
A deceased is a deviant from the norms of the living. Upon death a person can no longer perform the usual tasks of being a mother, a father, a brother, a sister, or any other roles, including slave or king.
Deviance has consequences. We know from the Proposition "Socially Induced Compliance" (clause b, cited above) that the relevant norms tend to become articulated whenever deviance is discovered. So also at funerals. For example, at a speech at the funeral of a teacher you may hear that she gave the joy of learning to her pupils, took time to listen to and help them, and that she kept up with the new knowledge in her fields of teaching, etc. All these remembrances are articulations of role expectations that society puts on a teacher. (Cf. Durkheim 1912, chapter 5.)
Another consequence of deviance is that the deviant becomes socially disgraced or humiliated. (This was formalized in the second part of the Proposition on "Socially Induced Compliance," (clause c, second half, cited above ). Any socially induced compliance implies that deviants are downgraded. At death a person can no longer perform normal duties. We know from our study of conformity that a deviant can avoid the sanctions induced by society when deviance is discovered by providing an excuse. Also the dead, and the souls of the dead, need excuses for leaving their positions and social roles. The most common of excuses are, as we noted, appeals to a higher norm. When a senior superior calls, you are excused from ordinary duties. The excuse is a very useful part of the language habits that rule social life.
The superiors who are needed to excuse the dying from their ordinary duties can be elaborated and named. They are the 'gods.' The belief in religious gods is much more than the belief in the souls of shamanism. But the source is the same: a human society in which identity and social control depend on language. We recall the conclusion from our discussion on Etic Conceptions of Impelling Vocabularies in Chapter 17: "the Gods are emic names given to our impelling vocabularies, writ large." The strength attributed to a God is actually the overwhelming impelling vocabularies of a human society, *or of one or more of the societal realms or other life areas in the society.
In a primordial society without differentiation into langue-based societal realms, the gods would be those of pre-language brains, i.e. gods of the hunt, harvest, wine, female fertility, and territorial wars. A god could also be specific to a clan or tribe. A god may have many diverse epithets. For example, the Homeric god of Hermes was the god of shepherds, travelers, athletes, poets, thieves and he settles as a protector of commerce and weights and measures.
The societal realms have different cardinal values. Then, each realm can with some justification let a god specialize in its cardinal value. Although the Roman versions of the Greek gods retained many diverse epithets, we get a Minerva (Pallas Athena) ruling over philosophy and wisdom (science), a Mercury (Hermes) ruling over trade and commerce (economy), a Jupiter (Zeus) ruling over law and order (the body politic), an Apollo (same name in Greek) for music and the four muses (art). The congenial religion in a many-splendored society has several gods.
Monotheism is the natural pattern only in a society in which one realm has acquired hegemony and dominates the others. Constantine replaced the Greek and Roman pantheon of gods with the Christian God. One reason was the actual success of Christianity among his subjects. Another reason was that he saw himself as an omnipotent emperor of all realms in the empire, and as such he found that monotheism streamlined his authority as such an emperor.
The same god may assume several shapes. For example, Dionysus appeared in different shapes until he finally collapsed under an attack by Titans. The Council of Nicaea in 350 AD proclaimed and confirmed a very special situation for the Christian God with three united selves: Father, Son and Holy Ghost. But multiple selves were not for ordinary Christian people. By contrast, notions of multiple selves and multiple souls are widely accepted in Eastern Asia and its religions. The idea that one of them may leave the body and take residence elsewhere is common. A great divide between world religions goes between Judaism, Christendom, and Islam on one hand, and Hinduism, Buddhism and other Asian religions, on the other. Their differences relate, among other things, to the multiplicity, freedom, and mobility of souls.
The gods call the dying to leave this world, and this is a very good excuse not to degrade the dying for poor or nil performance. Instead we thank them and take a solemn goodbye in a funeral ritual. If the impulse to downgrade a dead person still lingers on, it is contradicted by another strong social norm: "Nothing But Good of the Dead!"
In practically all religious thinking, the gods or goddesses are thought to be immortal. As immortals, they never have to concern themselves with loss of identity, nor of any deviances caused by their deaths. Gods are powerful; they may help or harm or ignore mortals. They may be seen as creatures of vanity in the sense that they want to be admired, adored, and worshiped. Above all, as Bo Anderson (2008) suggests in a private communication, gods are set apart, different in kind than us, on the one hand, and more sacred (holier) than us on the other.
In most religions the gods help or harm you in this world, not (or not only) in any coming one. If you build a big temple for gods or goddesses, give them many and big offerings, and assign many holidays to their honor, then, you can expect to get a commensurate amount of service from the gods. The more you pray the better your life on earth will be. If you ignore or curse the gods they may harm you.
The Greek gods of Homer used such straight trade-offs with mortals. They also added some mischief and practical jokes both amongst themselves and in dealing with mortals. In no way did Greek religion ask that you live a virtuous life; morality was something separate from religion, as is the case in any many-splendored society. Ancient Greek and Roman religion did not engage in what we call hegemony of realms. By contrast the Jewish and Christian religions strive to incorporate and integrate morality under their umbrellas. Then God may reward in the next world for good deeds performed in this world.
Jews and Christians have difficulties to understand the purity of ancient Greek religion. They usually call it "Greek mythology," instead of Greek religion.
John Lennon, in a song, asked us to imagine a world without religion. He apparently thought it might be a better world. But not necessarily. A world without religion would be a world that is not dependent on language for its organization and thus has no language to form individual and collective identities — or songs. Alternatively, a world without religion would be a world of immortals who never have to worry about losing identity, organization, and everything else that language has brought them as essential for the survival of a society. The latter world does not exist, at least not at the present stage of evolution.
To stamp out religion, as some atheists want, is a pursuit that bumps its heads against the knowledge of social science, specifically the language-based core of religion that we have reviewed. As a social science theorist, I must conclude that a society cannot exist for long without encountering the processes that develop religions. Such processes may have varying paraphernalia, but they all start with a language of maintaining selves, turning selves into souls at or prior to death, and continue with a religious language and practices to maintain these souls.
Critics of religion would have a more workable and constructive agenda if their mission is redefined as the debunking of magical elements in religion, not religion itself.
Once coping with deaths has given birth to gods, they may become significant others for the living. The significant others, we recall, are the holders of the scales by means of which people are or want to be measured. In the first place we live to please our particular significant others — be they parents, teachers, leaders, or idols from history or philosophy. When gods become mankind's significant others, mankind worships them. Those who select (or are given) Buddha, Jesus, or Muhammad as their significant other can look for guidance at turns in life from the messages left by them. They walk through a life that adds sacredness to individuals and communities.
There can be doubts and cheating in any life guided by significant others. Let us clarify the concept of sacredness by a semiotic square (Figure 21.2) so we can investigate practical problems and deviations of religious life.
The opposite of sacredness is profanity. This opposition has one leg of similarity with the general distinction between mundane and pristine symbols that we have discussed in Chapter 3. Our distinction between profane and sacred is restricted to the realm of religion. Sacredness, the cardinal value in the realm of religion, is not necessarily expressed in pristine symbols. Its symbols, however, set sacredness apart and give it engaging emotive qualities. It feels otherworldly, and is expressed in a symbolism of souls and holy icons. Profanity, by contrast, is expressed in mundane symbols, carnal and materialistic, the symbols of everyday living outside of and perhaps adverse to sanctuaries, temples, rites, contemplations, and prayers.
In Judaism sacredness is achieved by loving God and following the Mosaic Laws. In Christianity sacredness is a gift of God to the believers through the sacrificial death of Jesus. In Islam the steps to sacredness include prayer and the reciting of words by Allah in the Qur'an (Qur'an is Arabic for recitation). In Buddhism the ultimate sacredness, "crossing over", is reached in Nirvana, a blissful, spiritual state of nothingness when you become a Buddha. A variety of different routines in religions may support the expansion of sacredness: fasting, sacrifices, sacraments, alms giving, incense-offerings, icons, pilgrimages, hermitages, et cetera.
The search and accumulation of the cardinal value of religion moves humans and their communities from profanity to sacredness. The basic paradigm is one of progression in achieving sacredness, that is, a process similar to achieving other cardinal values such as knowledge, beauty, wealth, and order. In the Protestant tradition, John Bunyan immensely popular book The Pilgrim's Progress from 1678 follows this paradigm. It is said to be the most widely read book in English except for the Bible; it has never been out of print and has been widely translated.
John Bunyan, however, in a typical Christian way, mixes up the road from profanity to sacredness, with the road from vice to virtue. As a social scientist I want to maintain that the road of sacredness in the realm of religion should be kept analytically separate from the road from vice to virtue in the realm of morality. They consist of different linguistic molecules.
The Christian religion holds that Christ's sufferings on the cross wipe clean the believer's accumulated sins. This is a redemption process. Such a process, as we have seen, is not magic; it is a most remarkable process among our several impelling vocabularies in encounters. Redemption practices are possible as soon as a language-based morality or polity is at hand. In other word, it is a way of dealing with prescriptions and coping with our inability to obey them all. Priests, however, have no monopoly on redemption; such courses of action can be handled by dramatists, editors of modern mass media, constructors of commercial games, producers of TV programs, and by many others. In the theory of the many-splendored society, redemption, strictly speaking, is mostly treated as a part of the societal realm of morality, not religion.
Christianity makes the redemption process profoundly religious and magical in its belief that the victim is the Son of God. Jesus himself preferred to call himself the Son of Man. But when the time came when he saw his victimage as inevitable he answered "It is as you say" in his trial at the Sanhedrin, the council of the Jewish priesthood, on a direct question whether he was the son of God (according to Matthew 26:63-64).
Religious Pretense is apparent when symbols of sacredness are used insincerely or faked altogether. Here we end up on the right side of the semiotic square of sacredness among those who pretend to seek it. Judaism and Christianity take religious hypocrisy very seriously; their God reads hearts. In Greek and Roman religion there are instances when men can cheat also their gods with pretense. In general, it is helpful to distinguish situations in which religious pretenders cheat their fellowmen and situations in which they cheat their gods.
Religious language may be colored by honest bouts of doubts. The church father's confession: "I believe. Help my unbelief” is a case in point. We are on the left side of the semiotic square, marked as Religious Doubts. Buddhism and Christianity accept doubt as a normal and recurrent state of the religious mind. Thomas remains Christ's disciple also in his doubting period. Islam has a more rigid view; the doubter is treated as a traitor and infidel, perhaps worse than the infidels who never had a chance to know new better.
The idea of a paradise, a Garden of Eden, at the beginning of time is a powerful image in the opening chapters of the Hebrew Bible. The early Christians thought that the end of the world comes in a very near future. The dead would then be resurrected, and the faithful among them go on to live in a new Paradise.
What was Paradise like to the early Christians? Saint Mor Ephrem, the Syrian (ca. 303-373), wrote a famous hymn cycle "On Paradise." Unlike other Fathers of the Christian Church he did not know Greek or Latin, and he wrote in his native tongue, Syriac. His work has stayed alive in the Syrian Orthodox Church. Early translations into Greek gave him the posthumous honor of being a doctor of the Church. In 1990 a very accessible English edition of "On Paradise" appeared in a commented translation by Sebastian Brock. Apparently the Syriac language cannot as easily as Greek develop pristine concepts suitable for religious dogmas; it is more based on what we have called Median symbols than Saussurian ones. Ephrem's vision of Paradise is full of poetic everyday images, approaching the divine as something hinted at by ordinary neighbors looking into a garden from various angles rather than as a fossilized theological concept.
Ephrem's Paradise (like the original Jewish one and the later Dante's) is a mountain. It is bounded and has three circuits, one where resurrected bodies wait to be united with their souls, who in turn wait in the second circuit, and then taken to live forever in God's top circuit. The paraphernalia are the Fence guarded by the Sword, and Robes of Glory — no nakedness here! A Tree of Knowledge stands at the first entrance and a Tree of Life at the second entrance.
In Paradise bodies become rejuvenated and lovely. Ephrem is wonderfully concrete: they do not have to eat; the old ways are gone in which "all we eat the body eventually expels / in a form that disgusts us" (Hymn 9:23). Instead food comes as a delicious breeze that is inhaled; wonderfully concrete imagery.
Most important, in Paradise people live in harmony:
No blemish is in them,
for they are without wickedness;
no anger is in them,
for they have no fiery temper;
no mocking scorn is in them,
for they are without guile.
They do not race to do harm —
and so themselves be harmed;
they show no hatred there,
for there they are without envy;
they pronounce no judgment there,
for there no oppression exists.
A vision of harmony of this kind recurs in many modern utopias. It has simply wandered from the realm of religion to the realm of politics, from heaven to earth, from the afterlife to this life.
Ephrem's songs were translated also into Aramic Syriac, and became known to Muhammad. It is instructive to compare the Arabic edition of Paradise found in the Qur'an with Ephrem's song cycle. The geography may be roughly the same, the resulting harmony is the same. The Muslims, however, are taught that Paradise opened to the faithful, not at a future end of the world, but immediately after a person's death. Ephrem is specific about a bodily function in Paradise such as hunger. The Qur'an is specific about sex.
Without further ado a Muslim man in Paradise could meet its virgins, the houri. They are dark-eyed maidens with round and upturned breasts and appreciative vaginas. On earth they might have been good Muslim wives who knew the practice of love. In the luxurious hereafter, Allah had made them young virgins again, ready to meet dead devout Muslim men. These men could be their earthly husbands, or more often men who had served in battles for the faith.
The legend of the houri has been reviewed, often in a mocking tone, in the West in the wake of Islamic suicide bombers. Few, if any, of the recent commentators on these sexual fantasies and their motivational force in men seem to know that they are an addition to a version of Paradise by a Christian Doctor of the Church, a fact noted by Andræ (1944), perhaps earlier by other scholars. Their respective paradisiacal versions reveal differences. Ephrem abhors sex and celebrates virgins. The Qur'an imposes a sexual morality that violates the dignity of women, a flagrant violation of women's equality and human dignity, both in this world and the one hereafter. Women are presented as men's sex toys without the right to say No to their husbands in this life. The houris cannot say No to men who arrive in Paradise. Seventy-one of them flock to serve every arriving martyr.
Is this wet dream of the Prophet really authentic? Not necessarily. Some passages in The Qur'an are more easily understood with a Syriac-Aramaic lexicon than with an Arabic one (Luxenberg 2000). The "71 houris" are in Aramic Syriac simply "71 grapes." Mohammad, born in a trading community and first married to a widow of a Mecca tradesman, had probably himself dealt with tradesmen who spoke Aramaic Syriac, a lingua franca of the region.
During its first centuries in our chronology there was a vast expansion of Christianity. Many circumstances contributed to the numerous conversions to the new religion (Brown 19??). Its idea of a bodily resurrection in a Paradise at the end of time attained a vast appeal in the Hellenic world. Life as a path to Paradise was much more appealing than life as a path to the shadows of Hades. Christianity spread rapidly through the Middle East, North Africa, and Europe, replacing other religions. Its vision of Paradise created the "long-lasting moods and motivations in men" that Greetz sees as a defining element in a religion. And its adoption by the Roman empires as a state religion added to its success.
Soon, however, the Muslim version of Paradise became even more appealing than the Christian one, at least to males. It promised not only the pleasures of a new wardrobe, a delicious virtual cuisine, and a resting bed in the clouds touching the slopes of Paradise, but also the immediate pleasures of sex. The Muslim warriors defeated the Christians in the Greater Middle East and North Africa. In Europe they made inroads into Spain and the Balkans. They also reached India. We may note in passing that after some centuries there, the princess and princesses of Arab decent began to understand and copy the artistic and sensual life of their Indian counterparts, as described in Kamasutra. For a period, a truly sensate and sexual culture was part and parcel of a Muslim elite in India, proving that the sexual teachings of mainstream Islam is not alone and invincible. In the later colonial phase of the Indian subcontinent, evangelists from England tried to bring both Hindu and Muslim camps into a puritanical fold, not only by conversions to Christianity, but perhaps mainly by persuading the colonial power to support sexually puritan streaks endemic in both Hindu and Muslim religions.
Behind Muslim successes in replacing Christianity in the Greater Middle East and North Africa there were several secular factors, some local and temporal, but the pornographic version and vision of the Qur'an's Paradise provided the Muslim side with the world's most effective religious reward system. It actually took a long while for European Christian powers to realize that they were not confronted by some barbarian tribes from southeast but by a rival world religion and civilization.
In the main, however, I would credit the different organization of the societal realm of religion by Christianity and Islam as the main explanation to the success of the latter. Recall our Proposition 7:7 "The Rule of Realm Expansion" that points at consequences of different balances between the volumes of organizations and volumes of networks in societal realms. A cardinal value and its societal realm extend its reach primarily when its networks dominate over organizations, and it consolidates and defends its reach when organizations dominate over its networks. Consider the difference between the Christian and Muslim world at the time of the great Muslim victories in the eighth of the Christian centuries.
Christian world religion was modeled on the Roman Empire, a centralized organization in the true meaning of that word. As the empire split into a Western and an Eastern part so did Christianity, one part headed by a Pope in Rome and the other by a Patriarch in Constantinople, each with a hierarchy of bishops and priests spread over its territories. By contrast, Muslim world religion was modeled on local caliphates. Local imams with their mosques and congregations did not report to any central religious authority. They formed a network with common focus on Mecca and the Qur'an. Like in Christianity with its split between Roman Catholics and Greek Orthodox branches there was an early split between Sunni and Shi'a Muslims. The latter split had little or nothing to do with religion. The Prophet who also was the political leader and military commander had left no son. A conflict erupted about political succession between Mohammed's in-laws (Shi'as) and rival Arab clans (Sunnis). Sunnis took Bagdad and its empire from the Christians, Shi'as took the Christian North Africa including the important Egypt and its possessions.
Bureaucratic infightings and the long chains of command within both the Roman Catholic and the East Orthodox Churches as well as in the kingdoms supporting them made the Christian side slow to respond. It actually took centuries before the Christians organized counteroffensives in the form of the Crusades. In the meantime Christianity had been the victim of the long array of local — and to the Christian leadership mostly unpredictable — military actions by decentralized Muslim units. Eventually most of the conquered territories were put under the sway of Saladin, a Sunni hero, who was Sultan of Egypt and Syria. He also led the opposition to the Third Crusade, and recaptured Jerusalem from the major Christian counter offensive. Sunni was hence the mainstream of the Prophet's religion. And all the lands between India and Spain were no longer ruled by Christians.
As we have noted, spontaneous orders grow in networks, but they may be institutionalized in organizations and their contents then enjoy a long life. The Virgin Mary provided a spontaneous order in the Middle Ages. In A Distant Mirror, Barbara Tuchman vividly describes the universal access that Mary provided in the fourteenth century for anyone in any circumstance. In daily life the Church was comforter, protector, and physician. You could join in its cults and services and pray to God with the words of you priest. But there was also a channel accessible for all outside all rules of the books:
The Virgin and patron saints gave succor in trouble and protection against the evils and enemies that lurked along every man’s path….Above all, the Virgin was the ever-merciful, ever-dependable source of comfort, full of compassion for human frailty, caring nothing for laws and judges, ready to respond to anyone in trouble; amid all the inequities, injuries, and senseless harms, the one never-failing figure. She frees the prisoner from his dungeon, revives the starving with milk from her own breasts….A hardened murderer has no less access. No matter what crime a person has committed, though every man’s hand be against him, he is still not cut off from the Virgin. (Tuchman 1978, p. ??)
Outside the hierarchies of the church, prayers to the Virgin or to your patron saint form an order of petitions, thanksgivings and worship, open to every Catholic. A prayer such as “Délivre-nous de la rage des Normans” (For the rage of the Northmen save us, O Lord) probably developed as spontaneous appeals by scared individuals in the wake of invasions of French territories by brutes from the north; later they became ritualized in church services.
Some separation between the mundane and the pristine, as introduced in Chapter 3, has taken place in all known civilizations. Pristine orders could emphasize various visions. The wisdom of philosopher-kings, cosmic harmony, the regular order of sun and moon, the golden rule, the struggle of the Gods in a Valhalla or a Pantheon, the will of an Almighty God are some examples.
The symbols in religion have emotive qualities and they may also have more or less of a pristine flavor. But they are not always sufficiently pristine for intellectuals. Plato scorned the Athenian gods of his time for their deceptive habits; occasionally they actually behaved like drunkards, hooligans, and rapists. They were not pristine enough to serve as ideals or significant others.
Generally speaking, religiosity in the Western tradition is based on a theme clearly expressed by the Israeli prophets of acting in the world without being of the world. Thus religiosity required man to work diligently also in mundane pursuits, and sometimes even to rework and reform the everyday world.
In the East, not only the Buddhism, but both the older Zoroastrian dualism and the traditional Indian doctrine of karma, allowed the religious intellectual to flee from everyday, mundane pursuit into a life of contemplation. Here the religious intellectual did not have to reform the world. Nor was he bound to perform magical rites for his fellowman, although some of them apparently did. His main relation to the mundane world was to make sure that he got material support.
On the societal level, the tension between the pristine and mundane may be resolved by isolating the pristine into sects, monasteries, temples and similar institutions. Or, it may be let loose in the society at large as fundamentalist movements with utopian and sometimes revolutionary ideologies.
Buddhism started as a sect within the world of Hinduisms. Hinduisms have a pristine vision of hierarchical castes and of rituals for their members to achieve purification in successive transmigrations. This edifice was rejected and reformulated by the teachings of Gautama Buddha. His pristine vision expressed man's union with all life, including its sufferings, as a single whole. And, as we know, Buddhism grew into a world religion. By the year 1100 AD practically all Sanskrit texts on Buddhism were translated into Chinese. In China, Buddhism became an antidote to the strict pristine and hierarchal order of Confucianism, thus repeating the humanizing and equalizing mission it had first performed on the Indian subcontinent.
Christianity originated as a sect within Judaism, the Congregation in Jerusalem whose faith survived the execution of Jesus. The Congregation celebrated their memory of Jesus' teachings, and elaborated on what they believed were his miracles and his Resurrection. Saint Paul, in his early career as upholder of the laws of Judaism, had belonged to a group who persecuted the Jerusalem Congregation as well as other deviants from Judaism, for example, Hellenized Jews. After his conversion he rejected the Mosaic dietary laws and circumcision practice, relying on God's grace for his salvation rather than on any personal sacrifices or rituals.
Paul apparently did not mind if Jewish-born Christians continued to follow Mosaic instructions, but he was adamant that the many other converts should not be trapped by them. He embraced both Jesus, whom he called Christ, the Greek word for "Messiah" — both words mean "the anointed" — and also all the people of the Hellenized world, Jews and Gentiles alike. Perhaps he never could establish particularly good terms with the original Congregation in Jerusalem. But he reformulated their vision of the sacrificial death and resurrection of Christ as the salvation for all people, and became a father of the Christian world religion. In assessing his importance it is well to keep in mind that his epistles in the New Testament are placed after the gospels of the evangelists, but that they were written decades before them. Paul's texts thus have a special value as sources for the study of ideas in early Christianity.
Most religions are tempted by what we called the fourth principle of magic: all happenings and creations are willed by some being. Religions may hold that at least some features of the natural and social world were created intentionally by some being. In olden days this was a common tenant of most thinking about both nature and social institutions. You can debunk it by saying, as we do, that religion is a product of human language. It does not detract anything from religion to date its beginning at the time of the beginning of the word. It should be said loud and clear that the idea of "intelligent design" owes its popularity to the fourth principle of magic, not to convincing scientific reasoning.
The religious belief in scriptures or other kinds of testimony as having been divinely produced or inspired is another expression of the fourth principle of magic. There seem to be a general tendency in popular religion to expand such testimony. This is part of the growth of sacredness. The present expansion of Roman Catholic beautifications initiated by Pope is another case in point.
It is interesting to note the religious scholarship has often tried to rein in such expansions. The many Christian gospels during the first three centuries after the death of Jesus of Nazareth — including those of James, Judas, Peter, Thomas — were after much controversy harnessed at the time of Pope Innocent 1(401-417) into four canonical ones, Matthew, Mark, Luke, and John, all written in Greek during the first century BC. In our days Muslim theological scholars are reducing the many hadiths attributed to Muhammad. The Qur'an itself, however, resists such efforts. At least two older and somewhat different version of this scripture are known to exist. (I do not cite where they are located since it may encourage Jehadists to destroy them and murder the scholars working with them.)
A very informative encounter between two teachers of religion, one a Pharisee, that is a certified scholar of religious law, and one a self-taught scholar, both debunkers of magic, is retold in Mark 12:28-33. The autodidact is Jesus, the name of the other man remains unknown and he is simply called religious teacher. The two men are very different: one is a conservative scholar and the other is a dropout — with a somewhat revolutionary bent — from the carpentry trade. Both lived in a region that, for three centuries, had been under the sway of a mental empire, the Hellenistic culture — perhaps the same kind of experience as many people today have in the mental empire of an Americanized world. Geologists have found remnants of Greek urns (the Coca-Cola and ketchup bottles of those days) and mosaic and marble images (the Hollywood icons of those days) in nearby communities where the two teachers had grown up and eventually met each other. Moreover, the country in which the two men had their conversation had for a hundred years been under the influence of Roman culture, and had lately been formally occupied by the Romans. Both men wanted to resist alien influences by reinforcing their biblical tradition.
One of the teachers of the law came and heard them [Jesus and his students] debating. Noticing that Jesus had given them a good answer, he asked him, "Of all the commandments, which is the most important?"
The most important one," answered Jesus, "is this: 'Hear, O Israel, the Lord our God, the Lord is one. Love the Lord your God with all your heart and with all your soul and with all your mind and with all your strength' [Deut. 6:4,5]. The second is this: 'Love your neighbor as yourself' [Lev. 19:18]. There is no commandment greater than these."
"Well said, teacher," the man replied. "You are right in saying that God is one and there is no other but him. To love him with all your heart, with all your understanding and with all your strength [cf. 1 Sam. 15: 22], and to love your neighbor as yourself is more important than all burnt offerings and sacrifices [cf. Hosea 6: 6]." (Italics and references added here.)
Both men in this dialogue are steeped in the world of the Hebrew Scriptures. And both men are in agreement about its core message: it is your mindset of love of God and love of your fellowman that counts, not any magic rites such as sacrifices on an altar. And they also agreed that their God is unique.
Thus Jesus did not appreciate the magical elements of sacrifices at altars in the Jewish Bible. In spite of this, magic came to abound in the Christian Gospel about the life and teaching of Jesus. He is depicted as a magician performing miracles. The evangelists of the New Testament, who decided to record their beloved and impressive story of Jesus for others, apparently found it natural to impress the audience with a string of magical episodes, congenial to the symbolic environment of the time. They gave in their way Jesus homage by includ. "All of this were done," they unabashed admitted, "that it might be fulfilled what was spoken by the prophet ..." (Matthew 21:4 and several other places.)
The audiences of those days found such episodes natural. A modern reader can be more moved by the Sermon on the Mount, one of the most powerful moral messages in human history, without the attached magic of Jesus' feeding a multitude with two fishes and five pieces of bread. When Jesus sees his victimage inevitable, he gathers his nearest followers to a last supper together with bread and wine. Later the Church Fathers added more magic to the stock of the evangelists. The communion with bread and wine became the magical highway of the Church to salvation and eternal life.
Immanuel Kant tried to promote a rational religion without magic and mystery — actually mostly a God-given morality — also stressing neighborly love and mutual duty. Max Weber (1920) in his whole collection of studies of world religions, found only three traditional religions that had thrived without magic. These three are the Indian doctrine of karma, Zoroastrian dualism, and the Calvinist doctrine of predestination.
Religious freedom is something very different from respect for religions. In the Jewish tradition coercion is not used to bring non-Jewish people to the faith. In the history of Christianity, coercion has at times been used in spreading the faith, although violence in missionary work was not condoned by the Bible in missionary work. In both Judaism and Christianity, the thesis is that God endows his believers with a freedom to accept and reject his messages.
In the discussion we reviewed between the two religious teachers in Mark 12:28-33 there was also full agreement on the unique character of their God. A modern interpretation reads:
The God of Abraham, Isaac, Jacob and Jesus is unlike any other God known to the ancient religions of Greece, Rome or the Middle East.... Uniquely, this God wishes to be worshiped in spirit and truth, in whatsoever manner conscience directs, without coercion of any sort. This God reads hearts, and is satisfied only with purity of conscience and conviction. Those who belong to any other religion or tradition, or who count themselves among agnostics or atheists, are thereby given by this God equal freedom. They, too, must follow their individual consciences. This God wishes to be worshiped by men and women who are free, not under duress (Novak 2002).
The freedom to accept or reject divine communications is much less clear in Islam than in Judaism and Christianity. Where this vision exists it makes believers resistant to being overruled by hostile antagonists among the people, or by the actions of the state in any of its branches. It also opens the road to a more secular philosophy of life, a religion without magic.
The fall of the Roman Empire in western Europe weakened the power of the state, but left the Roman Catholic Church strong. During the Middle Ages the Church had far more influence on education than it had had under the Romans.
The Reformation did not put a stop to this. It rather made the literacy of the masses ever more urgent an issue. Education was usually conducted in private schools. The Swedish ecclesiastical law of 1686 ordered ministers of the Lutheran State Church to hold regular, systematic examination on the catechism in households; these interrogations were documented, as was the literacy of the members of the household. Most private schools that taught reading were subsequently made redundant by the establishment of a state monopoly: in 1842 the Swedish Riksdag voted for a six-year compulsory elementary school. In 1888 the clergy no longer had to conduct examinations in homes or record literacy.
This weakening of the churches' influence on schools was typical for all Europe. Morning prayers in schools were the last vestige of the power the church had once had. After the end of World War II, they were gradually phased out in all of western Europe. As the victor in the Spanish civil war in the 1930s, Franco returned the power over education to the Catholic Church, but after his death in 1975 and the defeat of Spanish fascism, education once again fell under the aegis of democratically elected politicians.
Freedom of religion guarantees that different religious persuasions can coexist. The schools can therefore change from teaching a religion to teaching about religions. For publicly financed obligatory schools this has been a much used opening. Anyone who desires to learn more about his own religion has to turn to instructions by churches, synagogues, temples, or mosques. In contrast to the teaching of other activities in other societal realms such as exercises in democracy, carrying out simple business transactions, practicing or performing in art, religious practices such as mass or prayers have been expelled in publicly financed schools in most Western countries. In France and the United States this policy is over two hundred years old.
Parochial schools provide general education in addition to religious instruction in the own faith. Whether the study includes world religions varies. It is difficult to teach history or geography or social science without mentioning them.
In science we reject any reasoning using our fourth magic principle — that all happenings and creations are willed by some being — to subordinate science to religion. The participants at the annual meeting of the American Society for the Advancement of Science in San Francisco 2001 heard Pervez Hoodbhoy, professor of nuclear and high-energy physics at Quaid-e-Azam University in Islamabad, cite a guide to teaching chemistry in the Islamic way, decrying the usual way in which the formation of water from hydrogen and oxygen is taught. "No, says the book, the teacher must say that when hydrogen and oxygen combine then, by the Will of Allah, they turn into water." Such a formulae, of course, has no place in natural science; it adds nothing of scientific value. It is simply an unwarranted claim of hegemony in society on the part of the realm of religion. Such claims have no place in a many-splendored society.
All world religions except Islam are reasonably compatible with a many-splendored society. A religion with a founder who says "My Kingdom is not of this world" (John 18:36) can easily live with and in a many-splendored society of this world. However, when Christianity is corrupted into political, economic, or cultural fundamentalism it becomes unfit for a many-splendored society.
The case is more difficult for the religion that said "Allah is great and Mohammed is his Prophet." Again and again the Prophet’s words in the Qur'an remind the reader that the Prophet's followers will go to Paradise and the infidels in all walks of life will go to Hell. Even good people outside the Muslim faith have no hope of a future. (As a Hamas leader who had taken a liking to a visiting Westerner journalist said in the 21st century: "Too bad you will go to Hell.")
In Muslim faith another sharper tenet is never far away. "Allah is the greatest and Mohammed is his final Prophet." If Mohammed is the last prophet there is no possibility for new prophecy to improve on his messages. Thus the Muslim world is stuck with the messages in the Qur'an, all of which are said to be dictated by Allah through the Archangel Michel. All progress made elsewhere, before and after the Prophet's teachings in Mecca and Medina in the Middle Ages, is irrelevant to the faithful, who may even regard it as sinful.
Other great religions accept progress. For example, the Jewish religion documents progress with the notion of Jove's journey (Deuteronomy 5:2-3, Judges 5:4-5). He traveled from the mountain of Sinai where he had been the thunderous God of Moses' nomadic tribes to the land of Canaan, where he became the temple God in a city-based dominion conquered by King David.
Muslim religion, alone among the great religions, does not allow for development and change, only for tradition. The aggrandizement of the Prophet to have the last and final word, is, of course, a restraint for the human spirit. Specifically, Dawa, the Muslim missionary preaching and its effort to establish religious sovereignty over all realms in society, creates a spiritual straightjacket covering politics, science, art, and, not the least, family life.
The Muslims ruled Southern Spain for over 800 years, but the period of civilized tolerance lasted just over a hundred years. It succumbed, not primarily to the conquests by Christian warriors from the North, but by repeated influxes from traditional Mohammedans from the south (Menocal 2002). Musa ibn Maymun (Maimonides), the Jewish medical scholar and philosopher, did most of his life's accomplishments in the Caliphate of Cordoba. But in the end he had to flee to Egypt. He said about Cordoba's Arab rulers: "Never did a nation molest, degrade, debase, and hate us as much as they" (cited from Thornton 2007, p. 92). His equally famous contemporary in Cordoba, Ibn Rushd (Averroes) who had taught Aristotle to Europe also died in exile. He had fled from Cordoba to Marrakech. He was an Arab and Muslim, but that did not help him from the Jihad forces of violence and intolerance. Cordoba can be cited, not only as "the ornament of the world," but also as a definitive proof that a built-in hegemonic dogmatism in Islam kills achievements of high civilization with the score 700 years against 100 years.
The Muslim Dawa preaches a straightforward case of what we have called realm hegemony. Over time, its message has resulted in a backward striving among the Prophet's orthodox followers. (In Iran at the time of this writing, Dawa is also the name taken by a Shiite ruling reactionary party.) The only area of progress that seems at all times have been fully accepted within radical Islam is progress in weaponry.
The Muslim Brotherhood that started in Egypt at the dissolution of the Ottoman Empire after World War I has been a model for many other Islamic radical movements of the Twentieth century. The ideal society of the Brotherhood and its counterparts in other countries is the one depicted in the Qur'an and its concern in present days is the dignity of Muslim communities and states and the unfailing wellbeing of their populations.
It is, however, a sure ticket to an inferiority complex for anybody in the modern world to have as one’s ideal for a society the once war-prone clans of Medina, a temple and bazaar city in a desert setting in the Middle Ages, ruled with Mohammed’s personal (sultanate) authority. It may in effect become a quite painful dissonance for those who believe that their Allah is the greatest. It causes a massive defensive bilge to observe a world outside Muslim confines and yet to have to deny its advances, pleasures and opportunities which have become so visible and close through modern mass media. Predictably, a resentment of Western wealth and personal freedom (particularly for women) is close at hand in contemporary Islamic public opinion. It causes a reckless indignation that is fuelling a current jihad against the Western ways of life that is proclaimed by a minority but important imams. A similar resentment seems also to be emerging against the good life around the skyscrapers in Japan, South Korea, and in the modernized parts of India and China.
As the world entered the 21st century, the response to jihad is not war between civilizations, but a struggle to defend all civilizations and its many-splendored features against assaults on freedoms and on presently popular lifestyles. It is also — not to forget — a struggle between Muslims of different persuasions, the currently violent jihadists, the traditionalists, and the reformed. All Muslims worth their name, however, are fundamentalists in the sense that they believe the Qur'an is literally inspired by Allah.
Large and influential numbers of contemporary Muslims realize (or will soon realize) that terror and violence of the Al Queda type is a counter-productive Dawa. Their brotherhoods instead look for a takeover in Western democracies by means of mass communication, street demonstrations, fellow travelers, and effective use of election ballots. They will demand legislation requiring "respect" for Islam, for the Prophet and his messages. Unfortunately, also any democratically enacted Dawa means religious sovereignty over all realms in society. Any Dawa version of “respect” is a good-by to the prospect of a many-splendored society with societal realms of autonomy. That is why this author, for one, is unwilling to grant blanket respect to the Islamists. Respect for religions requires another test.
Needless to say, people are sensitive to anything that relates to the ultimate evaluation of their lives. To attack a religion that guarantees the self-respect of its adherents is risky business. The response of those who are wounded in their religious beliefs can be very aggressive. No wonder that religious groups demand "respect" for their religion. This respect can be given by the social scientists to the core evaluative parts of their religious views without surrendering the values of science and scholarship. Thus we shall not mock some people's conviction that God loves them or that they are chosen for eternal life in His Paradise, provided the paradise is religious and not a vision of any other realm such as economy, science, politics, art, or morality.
Curtsey to religious convictions applies only to central religious elements of religious emotive evaluations. It does not have to apply to their executive evaluations such as market prices. The taking of rent, the price of money (a typical executive evaluation), became a favorite topic in medieval religious discourse (Nelson 1949). This topic belongs in the realm of economy, and the religious views about it were and are usually inconsistent, irrelevant, and misguided.
Nor does the respect for religion have to apply to its embedded descriptions. Descriptive matters – everything from cosmology to conceptions of diseases – belong in the realm of knowledge and here the rules and findings of natural science apply. As scientists we have both the right and obligation to discard many traditional religious views about factual matters as mistaken and superstitious, and sometimes dangerous to health.
In a many-splendored society, most basic prescriptions belong in the realms of morality and jurisprudence. Morality is a realm with rationalities of its own, and its ethic may be secular and not religious. In civilized morality both men and women are treated with dignity, and discrimination on the basis of sex is unacceptable. Legal prescriptions are enacted in a political process with procedures of its own, not religious rules. A social scientist's "respect" for a person's religion thus need not apply to everything this person happens to call "my religion." The respect we accord the believers can be restricted to the core emotive evaluations of their faith, the ones that deal with the joy and sorrow of living and the agony of dying, and the selves turning into souls.
Since religion includes statements about the ultimate evaluation of a person, it has proven open to powerful trade-offs between the mundane and the pristine world. A common message from priests follows this clever paradigm: "Do this in the mundane world and you will be rewarded in the pristine heavenly world!" Such deals — for a deal it always is — may have great consequences. It may promote civilized actions or uncivilized actions, Mother Theresa's actions for the poor and sick, or those of a suicide bomber against innocent civilians.
It is easy to find instances when the tradeoff between worldly actions and otherworldly rewards have uncivilized consequences. Richard Dawkins is a physical scientist who does not understand that the existence of religion is as predictable from social science as a falling apple is predictable from physical science. In his pro-atheism book God he does not distinguish between religion and superstition. Nevertheless his catalogue of the ills of religion is relevant:
Imagine, with John Lennon, a world with no religion. Imagine no suicide bombers, no 9/11, no 7/7, no Crusades, no witch-hunts, no Gunpowder Plot, no Indian partition, no Israeli/Palestinian wars, no Serb/Croat/Muslim massacres, no persecution of Jews as 'Christ-killers', no Northern Ireland 'troubles', no 'honour killings', no shiny-suited bouffant-haired televangelists fleecing gullible people of their money ('God wants you to give till it hurts'). Imagine no Taliban to blow up ancient statues, no public beheadings of blasphemers, no flogging of female skin for the crime of showing an inch of it. (Dawkins 2006, pp. 1-2.)
Not all of these repugnancies are due to a hegemony claimed by the religious realm. Some are strictly inside the religious realm and nevertheless disgusting. Needless to say, religion can claim neither respect nor tolerance when cruel and uncivilized events like the ones listed by Dawkins occur. This is not to say that atheists are less prone to cruelties than believers. Remember Hitler and Stalin!
The hope of a paradise continues its bloody trail into modern history both in its Muslim version of Jihad and in versions of secularized Christianity in which paradise no longer is an eschatological destination but utopias to be realized in our time in this world, for example, the paradises promised by Communism or Nazism. “The history of the past century is not a tale of secular advance, as bien-pensants of Right and Left like to think. The Bolshevik and Nazi seizures of power were faith-based upheavals just as much as the Ayatollah Khomeini’s theocratic insurrection in Iran. The very idea of revolution as a transforming event in history is owed to religion. Modern revolutionary movements are a continuation of religion by other means.” (Grey 2007, p 2.)
Religion as a societal realm has thus had enormous consequences for another realm, the body politic. What originates as religious actions may continue in history as secular ones. Far from all of these impacts belong in the dark pages of history. Here are three examples as a small counterbalance to Richard Dawkins' list.
There are only tenuous intellectual bridges between democracy in classical times and modern times. More or less knowledgeable references to Athens were made by the promoters of democracy in Europe and America as a solution to the political conflicts of the Eighteenth Century. But, as we have noted, there is no historical continuity between Athenian democracy and contemporary democracy; in particular, our democracy is a novel organization rather than a new ideal.
Some radical Protestant sects on the British Isles had an important role in inventing our democracy. They were not in the mainstream of Episcopacy, nor of Presbyterianism. They were radical even for the pious Cromwell who held their political heirs, the Levelers and the Diggers, imprisoned in the Tower of London. These sects developed man's relationship with God as a strict person-to-person relationship, neither requiring the intervention of any priest, nor needing any different ranks among members. Anyone in their congregation could convey divine messages, and everyone's word was of equal value. Herbert Tingsten in his text on democracy (1965, pp 20-23) has summarized the historical research on this topic. "Perhaps the most typical," he says, "were the Quakers, who believed in an 'inner light' which directed each individual and was capable of creating a synthesis of the various opinions which were expressed in discussion. This they called 'the sense of the meeting' (p 21)." This practice in religious assemblies was transferred to political assemblies, a gift from the societal realm of religion to the societal realm of the body politic in a country that already had a division between the monarchy and the legislature. For centuries, however, the conservatives in Parliament resisted the additional demand of radical Puritans to broaden the franchise. The latter argued that the aim of government was to protect property-owners, and that only people with property ought to have the vote.
The abolition of Western slavery is a second case in point. Again the Quakers in Britain of the seventeenth century are the pioneers. They believed that every human harbored something of God. That divine part could not be owned by any other than God. Thus they prohibited slavery among their members. Thomas Clarkson was a political radical who became convinced that the success of British imperial trade did not depend on slaves. He was a key figure in shaping the interdenominational abolition committee in London in 1787 and spent years as a traveling organizer of local committees with members of various church groups. William Wilberforce, a conservative evangelical Christian, became the ardent spokesman in Parliament for this movement against slave trade and slavery. From 1791 and again and again in following parliaments he introduced bills proposing abolition legislation. In 1807 he prevailed with a good majority. Abolition then became part of British diplomacy, and gained rapidly in public opinion in the world. In 1863 in the United States Abram Lincoln issued the Emancipation Proclamation that led his troops in the Civil War to free most of the nation's four million slaves. The Thirteenth Amendment, a political document ratified in 1865, guaranteed that slavery would never again exist in the United States. What had started as a religious idea became secular law.
A third example of religious provisions for the body politic is the welfare states of modern Europe. They are religiously supported arrangement that has become largely seen as secular. They are, do not think otherwise, products of political struggles over the distribution of economic, educational, and medical resources. But one may well assume that the outcome of such struggles would have been different without a Christian tradition of mercy for the chanceless laid off, sick or handicapped, and the inherently stupid or the sufferers from incurable severe brain damages, and others truly unfortunate. The European Continent has had centuries of religious preaching of heavenly rewards for brotherly love and mercy practiced in this life. This sets an initial thrust toward welfare as a consistent policy for those who are too young to take care of themselves, or too old, too sick, and too down-and-out to fend for themselves. This thrust overcame also an internal opposition to "socialist" measures by conservatives, including conservative members of the clergy. The welfare policy could then be maintained in a secular environment by the processes we have discussed in Chapter 15 in the section Vocabularies Supporting Order. It appears, from the European evidence we have so far, that an extensive welfare policy for the weakest members of society can be kept going in a long run even when any original religious background is forgotten.
The societal realms of economy and religion both center on the linguistic category of evaluations, albeit of different qualities. Economy depends mostly on executive symbols of evaluation, while religion depends mostly on emotive ones. Since evaluative motives in both executive and emotive modes have motivational force, it is not surprising that mankind senses a struggle between Mammon and God.
We know from "The Rules of Emotive and Rational Choice" (Proposition 4:4) that emotive choice is the first and default mechanism for mankind. This would argue that religion obtains dominance in the beginning of a human life cycle. It is indeed a common saying that "childlike faith" is strong. That the exigencies of living that meet us beyond the period of parental protection and that they require executive skills is given. So it stands to reason that Mammon dominates in this phase of the life cycle. Another part of folk wisdom says that "when the devil gets old he becomes pious." Death is intensely emotive and it is not surprising that an emotive realm of society becomes relevant in old age.
The motivational force of the economy is strong and so is the force of religion. God and Mammon are both strong opposition to one another. But imagine what would happen if they joined forces! It took the genius of Max Weber to even raise the question.
The religious virtuosos of all religions either rework the everyday world or flee from it into contemplation. Generally speaking, the relationship of virtuoso religiosity to everyday life became different in the West and the East. The Western tradition based on the Israeli prophets was one of acting in the world without being of the world. Weber describes the relationship thus:
When the religious virtuoso stood out in the world as a kind of divine `instrument', cut off from all magic means of salvation, with the demand that he should `prove himself' to be called to salvation before God — which in effect meant before oneself — by the ethical quality of his behaviour and, then the `world' could never so much be devalued and rejected from a religious viewpoint as something created (animal-like) and as a kind of weak vessel of sin: thus, it came to be affirmed psychologically even more as the scene of service pleasing to God in the worldly `vocation'. This asceticism within the world was indeed world-denying, in the sense that it scorned such values as dignity and beauty, ecstatic intoxication and glorious dreams, purely worldly power and purely worldly heroism, rejecting them as competitors to the Kingdom of God. But for that very reason, it did not flee like contemplation from the world, but wanted to rationalise the world ethically in accordance with God's commandments, thus remaining world-oriented in a specifically more profound sense than the intact human being's naive `affirmation of the world', for example in ancient times or in lay Catholicism. In everyday life, in particular, it was to prove that the person advanced in religion was selected, a recipient of grace — not, it is true, in everyday life as it was, but in methodically rationalised everyday behaviour in God's service. When everyday behaviour was rationally elevated into a calling, it became a confirmation of salvation. The sects of religious virtuosos created ferment in the West for a methodical rationalisation of one's way of life, including economic behaviour, and not — like the Asiatic associations of contemplative, orgiastic or apathetic ecstatics — outlets for the longing to escape from the meaninglessness of acting within the world (Weber 1920, pp ??).
Here is the foundation of Weber's thesis that sects and churches with Protestant ethics have been a starting-point for the systematic quest for profitability that is part of the spirit of capitalism. Methodical religious rationalization of everyday life underlies the methodical thinking on profitability that is the value cornerstone of capitalism.
Weber's theses on the origin of capitalism have been greatly debated and also questioned. His reasoning is complex, and not all his critics have been able to follow it. One must realize that both the structural and the value-related factors must be present in order for rational capitalism to arise. This has been the case only in the modern Western world.
In the cities of India, Weber can point to highly advantageous structural conditions: here was a legal system at least as useful for capitalism as that of mediaeval Europe; here was rational science; here was a mathematics that should have made profitability calculations as easy to accomplish as in Europe; here were organized firms for handicrafts and a division of labor. But the requisite achievement values were lacking and India developed no domestic form of capitalism.
In China too, there were outstandingly favorable conditions for capitalist development. Much that inhibited capitalism in Europe, such as feudalism and the guilds, did not exist in China. The economic double standard of morality was defeated by a pragmatic, worldly religious tradition. Here, there was a cultivated and literate bureaucracy. But in China the spark that could have kindled capitalism, namely the motivation that ensues from values concerning obligatory methodical profitability, was largely lacking.
Only in Europe did the unique combination exist — but not in the whole of Europe, either. Only where ascetic Protestantism had put down firm roots were conditions good, for example among the Calvinists in The Netherlands, the Huguenots in France, the Methodists in England, the Pietists in Germany and the Evangelical revivalist movements in the Nordic countries. The Protestant sects in the United States were clearly a capitalist hothouse. Nevertheless, there are exceptions difficult to explain: For example, Catholic northern Italy had only the structural preconditions for capitalism, but its elites in Venice and Genoa nevertheless rose to the occasion and developed a flourishing capitalism.
Please send your comments on this draft chapter by email to the author.