Tag Archives: Economics

November 7, 1545

John Calvin, by Hans Holbein

Want someone to blame for your credit card bills?

On this date, the banker Claude de Sachinus wrote to John Calvin, whom he described as a brother (frère) in the faith, and asked him for his opinion on levying interest. Contemporaries, he said, were of the view that levying interest, in so far as it was honest, fair (“une sorte d’usure honnête”), and in moderation (the right “proportion”), could also be advocated as Christian. But for him, indebted as he was to the Reformation, Holy Scripture alone was the criterion, even if it ran counter to his own business interests.

Calvin for his part, in great intellectual honesty, wanted to do justice to the biblical text which in the Old Testament pronounces a prohibition on usury and sought to interpret it for his time. He did this in a long letter, now known as De Usuris Responsum, which in all probability was addressed to the banker (although not published until 1575). In his letter:

  • After a short introduction, he began his argument with “‘First, there is no scriptural passage that totally bans all usury”.
  • He then makes the claim, “For Christ’s statement, which is commonly esteemed to manifest this [the total ban on all usury], but which has to do with lending, has been falsely applied to usury”, reminding the reader of the simple but often neglected fact that just because Christians have (perhaps for centuries) related a saying of Scripture to discussion of a particular moral issue does not infallibly prove that such a text is being correctly interpreted or that it is right to appeal to it in their moral argument.
  • Calvin paid close attention to the plain sense of the text in its original languages and in the original context of that text.  Calvin’s argument against a blanket prohibition on usury is therefore in part a careful study of key Hebrew terms showing that because the Hebrew word tok can generally mean “defraud”, ‘it can be translated otherwise than “usury” and that other terms refer to usury which “eats away at its victims”‘.
  • Calvin was quite frank about the strength of biblical opposition to usury, speaking in his letter of “the Holy Spirit’s anger against usurers” displayed in the prophets and psalms and even acknowledging that “the Holy Spirit … advises all holy men, who praise and fear God, to abstain from usury”. His commentary on Ps 15.5 admitted that David seems to condemn all kinds of usury in general, and without exception. Nevertheless, despite statements such as these his letter still maintained that “we need not conclude that all usury is forbidden”.
  • Calvin then turned to the rationale offered in Lev 25:35-36 to argue that “the end for which the law was framed was that men should not cruelly oppress the poor”. This then qualifies Ezekiel who “seems to condemn the taking of any interest whatever upon money lent; but he doubtless has an eye to the unjust and crafty art of gaining, by which the rich devoured the poor people”.  In effect, Calvin was arguing that the purpose (or justification) behind a biblical moral rule carries greater weight than the rule itself.
  • Calvin argued that “we ought not to judge usury according to a few passages of scripture, but in accordance with the principle of equity”.   In stating his limits on usury, he insisted that “everything should be examined in the light of Christ’s precept: Do unto others as you would have them do unto you. This precept is applicable every time” and argues that what is lawful in regard to usury is to be based on “a principle derived from the Word of God”.
  • The crucial paragraph in Calvin’s letter followed his discussion of Ezekiel which concluded that “the prophets only condemned usury as severely as they did because it was expressly prohibited for Jews to do”. It reads as follows:

    Today, a similar objection against usury is raised by some who argue that since the Jews were prohibited from practicing it, we too, on the basis of our fraternal union, ought not to practice it. To that I respond that a political union is different. The situation in which God brought the Jews together, combined with other circumstances, made commerce without usury apt among them. Our situation is quite different. For that reason, I am unwilling to condemn it, so long as it is practiced with equity and charity.

  • In his rejection of the tradition’s appeal to Lk 6.35 as referring to usury, Calvin highlighted Christ’s command “to lend to those from whom no hope of repayment is possible” and called on Christians “to help the poor” as “Christ’s words far more emphasize our remembering the poor than our remembering the rich”. He insisted that nobody should take interest from the poor and those lending must not neglect their duties or disdain their poor brothers.

It is important to recognize what a radical change Calvin’s work represented. In the words of John T Noonan:

Once upon a time, certainly from at least 1150 to 1550, seeking, receiving, or hoping for anything beyond one’s principal – in other words, looking for profit – on a loan constituted the mortal sin of usury. The doctrine was enunciated by popes, expressed by three ecumenical councils, proclaimed by bishops, and taught unanimously by theologians. The doctrine was not some obscure, hole-in-the-corner affection, but stood astride the European credit markets, at least as much as the parallel Islamic ban of usury governs Muslim countries today…The great central moral fact was that usury, understood as profit on a loan, was forbidden as contrary to the natural law, as contrary to the law of the church, and as contrary to the law of the gospel.

In fact, Martin Luther regarded the biblical prohibition of usury as permanently binding. In his 1524 sermon on trade and usury, Luther lashed out at any attempt to charge interest. In his view, Christians “should willingly and gladly lend money without any charge.” The Elizabethan Protestant bishop John Jewel reflected the views of his age when he raged from his pulpit against the iniquities of usury. “It is theft, it is the murdering of our brethren, it is the curse of God and the curse of the people.” This uncompromising opposition to usury was embodied in a statute passed by the English Parliament in 1571, which had the unforeseen and unintended effect of legitimating usury at a fixed rate of 10 percent.

It is generally acknowledged by those who have studied Calvin’s economic and political views that he was the first of the Reformers to give a theological defense of the practice of lending money at interest.

Calvin’s views, which were seen by many as running counter to the clear meaning of the Bible, took some time to become accepted. By the middle of the seventeenth century – more than one hundred years after Calvin’s groundbreaking analysis – usury was fully regarded as acceptable. Protestant jurists such as Hugo Grotius and Samuel Pufendorf supplemented Calvin’s theological analysis with clarifications of economic concepts, especially in relation to price and value, that finally removed any remaining scruples about lending money at interest. The Catholic church did not sanction usury, however, until 1830, apparently in response to the widespread acceptance of the practice within predominantly Protestant western Europe.

References:

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September 13, 1970 (a Sunday)

Margaret Thatcher famously claimed that “there is no such thing as society” and mainstream economics works from exactly the same assumption – for mainstream economists society is simply the aggregation, the adding together, of millions of individual economic actors and actions. All of these actors are assumed to be “rational” – a word which economists also use in a way that reflects their own prejudices – a purely calculating and narrowly self interested mentality focused on short and long run material gratification, whose relationship to other economic actors is intrinsically competitive. Thus “rational economic man” has no emotion, is part of no social psychological processes involving mutual influence, common hopes, beliefs and fears, no mutual support, no group or common class interests. Instead “rational economic man” is a calculating machine, focused on maximizing his satisfactions or “utility”.

— Brian Davey, “Economics is not a social science”

It is clear, therefore, that Buddhist economics must be very different from the economics of modern materialism, since the Buddhist sees the essence of civilization not in a multiplication of wants but in the purification of human character.

— E. F. Schumacher, “Buddhist Economics” (1966)

Zen stones

On this date, The New York Times Magazine published an article by Milton Friedman entitled “The Social Responsibility of Business is to Increase its Profits.”  It has been held up by neoliberals as the foundation of their economic beliefs ever since.

Neoliberals are fierce advocates of so-called free markets, as though they are some magical solution to all of the world’s problems. What Friedman called the “free market” is actually laissez-faire, the elimination of any government influence in the market. The only role for the government in the system would be for the protection of property rights.

The problem, of course, is that laissez-faire fails every time it is tried. The grand laissez-faire experiments during America’s Gilded Age resulted in the most devastating economic collapses, the last of which we now call the Great Depression. Friedman’s “free market” offers no safety and no rules. The unscrupulous exploit any advantage to develop a monopoly, with the result being that the market itself becomes unstable and will eventually self-destruct.

The other problem with the free market is that it makes no accommodation for the commons. The commons is a very old concept, pre-dating even colonial America, existing in English common law as far back as 800 CE. A “commons” is any resource used as though it belongs to all. In other words, when anyone can use a shared resource simply because one wants or needs to use it, then one is using a commons. For example, the radio frequencies that pass in and around and through us all are part of the commons. Nowadays, a government agency, the FCC, prevents any two businesses from broadcasting on the same frequency because otherwise nobody could listen to either of them. However, in laissez-faire, there would be no commons, and things such as the radio spectrum would be unusable in its entirety, due to encroachment by other ventures.

Sometimes it is not a question of taking something out of the commons, but of putting something in — sewage, or chemical, radioactive, and heat wastes into water; noxious and/or dangerous gases (for example, carbon dioxide) into the air; and distracting and unpleasant advertising signs into the line of sight. If a corporation’s share of the cost of the wastes discharged into the commons is less than the cost of purifying those wastes before releasing them, then we are locked into a system of “fouling our own nest,” so long as the government, even though it represents the people, cannot effectively regulate polluting corporations.

Milton Friedman offered no solution to these problems; in fact, his writings exacerbated them. The article he published on this date was ferocious. He said that any business executives who pursued a goal other than making money were “unwitting pup­pets of the intellectual forces that have been undermining the basis of a free society these past decades.” They were guilty of “analytical looseness and lack of rigor” and had even turned themselves into “unelected government officials” who were illegally taxing employers and customers. Ironically, Friedman himself was guilty of “analytical looseness and lack of rigor” by assuming the conclusion of his argument at the beginning of his article.

On 26 June 2013, Forbes published “The Origin of ‘The World’s Dumbest Idea’: Milton Friedman” written by Steve Denning. He points out several flaws and inconsistencies in Friedman’s paper:

“In a free-enterprise, private-property sys­tem,” the article states flatly at the outset as an obvious truth requiring no justification or proof, “a corporate executive is an employee of the owners of the business,” namely the shareholders…

If anyone familiar with even the rudiments of the law were to be asked whether a corporate executive is an employee of the shareholders, the answer would be: clearly not. The executive is an employee of the corporation…

A corporate exec­utive who devotes any money for any general social interest would, the article argues, “be spending someone else’s money… Insofar as his actions in accord with his ‘social responsi­bility’ reduce returns to stockholders, he is spending their money.”

How did the corporation’s money somehow become the shareholder’s money? Simple. That is the article’s starting assumption. By assuming away the existence of the corporation as a mere “legal fiction”, hey presto! the corporation’s money magically becomes the stockholders’ money.

Denning then points out how Friedman later, in a conceptual sleight of hand, recasts the money:

The article goes on: “Insofar as his actions raise the price to customers, he is spending the customers’ money.” One moment ago, the organization’s money was the stockholder’s money. But suddenly… the organization’s money has become the customer’s money…

The article continued: “Insofar as [the executives’] actions lower the wages of some employees, he is spending their money.” Now suddenly, the organization’s money has become, not the stockholder’s money or the customers’ money, but the employees’ money.

According to Denning, Friedman’s entire paper rests on the false assumption “that an organization is a legal fiction which doesn’t exist and that the organization’s money is owned by the stockholders.”

The success of the article was not because the arguments were sound or powerful, but rather because people desperately wanted to believe. [emphasis in original]

As a result of Friedman’s writings, self-interest has reigned supreme. His theories justify the impulse to make money by whatever means are available. As recent scandals have made clear, even breaking the law is acceptable, if the corporation gets off with civil penalties that are small in relation to the illicit gains that are made.

Roger Martin, in his book, Fixing the Game, writes:

It isn’t just about the money for shareholders, or even the dubious CEO behavior that our theories encourage. It’s much bigger than that. Our theories of shareholder value maximization and stock-based compensation have the ability to destroy our economy and rot out the core of American capitalism. These theories underpin regulatory fixes instituted after each market bubble and crash. Because the fixes begin from the wrong premise, they will be ineffectual; until we change the theories, future crashes are inevitable.

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September 8, 1892 (a Thursday)

Southington, Connecticut school children pledge their allegiance to the flag, in May 1942.

Southington, Connecticut school children pledge their allegiance to the flag, in May 1942.

On this date, the Pledge of Allegiance was published in The Youth’s Companion, the leading family magazine and the Reader’s Digest of its day. It was written by Francis Bellamy in 1892 as a critique of the rampant greed, misguided materialism, and hyper-individualism of the Gilded Age. Furthermore, he wrote it in support of President Harrison’s public education programs, which were called socialist in 1892 just as Obama’s health care program is today.

He did not include the phrase “under God” as part of the original Pledge.

Bellamy, who lived from 1855 to 1931, was a Baptist minister and a leading Christian socialist. He was ousted from his Boston church for his sermons depicting Jesus as a socialist and for his work among the poor in the Boston slums.

Bellamy (cousin of Edward Bellamy, author of two best-selling socialist utopian novels, Looking Backward and Equality) believed that unbridled capitalism, materialism and individualism betrayed America’s promise. He hoped the Pledge of Allegiance would promote a different moral vision to counter the rampant greed he thought was undermining the nation.

In 1923, over the objections of the aging Bellamy, the National Flag Conference, led by the American Legion and the Daughters of the American Revolution, changed the opening, “I pledge allegiance to my flag” to “I pledge allegiance to the flag of the United States of America.”  In 1954, at the height of the Cold War — when many political leaders believed that the nation was threatened by godless communism — the Knights of Columbus led a successful campaign to get Congress to add the words “under God.”

The Pledge was now both a patriotic oath and a public prayer. Bellamy’s granddaughter said he also would have resented this second change: He had been pressured into leaving his church in 1891 because of his socialist sermons, and during his retirement in Florida he stopped attending church because he disliked the racial bigotry he found there.

When we recite the Pledge of Allegiance, we should remind ourselves that it was written by a socialist who believed that “liberty and justice for all” meant more equality and a stronger democracy.

June 17, 1911 (a Saturday)

The Republican and Ultra Conservative Roots of the Los Angeles Times

Harrison Gray Otis Statue, MacArthur Park, Los Angeles

To Harrison Gray Otis (1837-1917), Democrats weren’t the opposition but “hags, harlots and pollutants.” Members of organized labor were “skunks, pinheads, gas-pipe ruffians, rowdies, anarchists and deadbeats.” Elections weren’t routine political events in a democracy but apocalyptic choices between the forces of good and evil. He saw his growing list of enemies as more ink for his poison pen, resulting in more readers of his newspaper.

Otis’ first bully pulpit, the Santa Barbara Press, was a financial failure. In 1882, he bought a one-quarter interest in the new Los Angeles Daily Times. In 1883, Otis and entrepreneur H. H. Boyce became co-owners of the Times, now grown to eight pages, and formed the Times Mirror Company. Otis set about transforming the newspaper. As John Weaver writes in Los Angeles: The Enormous Village: “He dropped ‘Daily’ from the Times masthead, ordered up livelier headlines, doubled the telegraphic news coverage, made room for letters to the editor and added a column, ‘Political Points’ which collected editorial barbs aimed at Democrats by other Republican journals.”

“When you worked for the Times in those days,” Louis Sherwin later remembered, “you were not reporting for a newspaper; you were embattled for a Cause.” Otis took pride in his growing reputation as the most aggressive and unyielding foe of organized labor in America. He founded the Merchants and Manufacturers (M&M) Association—a league of local businesses created to keep the unions out. He rallied the M&M membership with his cry: “We say to capital: Here you can invest in safety! Don’t hover between the lines or I will count you as the enemy! Decide!”

As George E. Mowry writes in The California Progressives: “It is possible that no man in all the United States hated organized labor more, and it is certain that few did more to obstruct its advance.” For years, the Page 1 banner of the Times included the phrase, “True Industrial Freedom,” while editorials and news stories reflected Otis’ uncompromising opposition to the union shop. As John Weaver notes, labor leaders called Los Angeles “Otistown” because it was “the country’s most impregnable open shop fortress.” The burgeoning circulation of William Randolph Hearst’s pro-union Los Angeles Examiner reflected the growing anti-Otis constituency and explained in part how Los Angeles could simultaneously be the national headquarters for arch-conservative capitalism and a crucible for socialist politics.

In 1907, the American Federation of Labor levied a penny-a-month assessment on its membership to create a war chest dedicated exclusively to fighting Otis. On the national level, prominent citizens were declaring that Otis was an enemy of democracy and progress. No voice was louder or drew more applause than that of Theodore Roosevelt, when he wrote on 17 June 1911 in The California Outlook magazine:

[Otis is] a consistent enemy of every movement of social and economic betterment – just as he has shown himself the consistent enemy of men in California who have dared resolutely to stand against corruption and in favor of honesty… The attitude of General Otis in his paper affords a curious instance of the anarchy of soul which comes to a man who, in conscienceless fashion, deifies property at the expense of human rights… It may be quite true that the Los Angeles Times has again and again shown itself to be as much an enemy of good citizenship, of honest and decent government, and of every effective effort to secure fair play for working men and women, as any anarchist sheet could show itself to be.

December 11, 1987 (a Friday)

The point i$, ladie$ and gentlemen, that greed, for lack of a better word, i$ good. Greed i$ right, greed work$. Greed clarifie$, cut$ through, and capture$ the e$$ence of the evolutionary $pirit. Greed, in all of it$ form$; greed for life, for money, for love, knowledge ha$ marked the upward $urge of mankind. And greed, you mark my word$, will not only $ave Teldar Paper, but that other malfunctioning corporation called the U$A. Thank you very much.

— “Gordon Gekko” [at the Teldar Paper stockholder’s meeting], Wall Street (1987), Oliver Stone, director; screenplay by Stanley Weiser

Zen stones

Detail from Gaki-Zoshi, the “Scroll of Hungry Ghosts”: Ghosts devouring dead bodies in a graveyard (late 12th century).

Detail from Gaki-Zoshi, the “Scroll of Hungry Ghosts”: Ghosts devouring dead bodies in a graveyard (late 12th century).

On this date, Wall Street, the film directed by Oliver Stone, was released in the United States. It immortalized the unforgettable Ivan Boesky, king of risk arbitrage whose short-lived Reagan-era reign ended in prison, as the barely fictionalized Gordon Gecko, author of that eternal 1980s battle cry of the MBAs, “Greed is good.”

The economic dogma of our time is a belief that business is and must be exclusively based on the supremacy of profit, a belief that a relentless focus on profit above all else is the one and only way of creating sustainable business success. It’s a narrow and crippling bit of economic doctrine that seems now to pervade nearly all quarters of the business world. It is reflected in Milton Friedman’s foundational assumption that shareholder value is a corporation’s only (or at least primary) responsibility. In a 1979 interview with a young Phil Donahue, Friedman said:

Well first of all, tell me: Is there some society you know that doesn’t run on greed? You think Russia doesn’t run on greed? You think China doesn’t run on greed? What is greed? Of course, none of us are greedy, it’s only the other fellow who’s greedy. The world runs on individuals pursuing their separate interests. The great achievements of civilization have not come from government bureaus. Einstein didn’t construct his theory under order from a bureaucrat. Henry Ford didn’t revolutionize the automobile industry that way. In the only cases in which the masses have escaped from the kind of grinding poverty you’re talking about, the only cases in recorded history, are where they have had capitalism and largely free trade. If you want to know where the masses are worse off, worst off, it’s exactly in the kinds of societies that depart from that. So that the record of history is absolutely crystal clear, that there is no alternative way so far discovered of improving the lot of the ordinary people that can hold a candle to the productive activities that are unleashed by the free-enterprise system. [emphasis added]

This American neoliberalism — guileless faith in markets and overweening hatred of government and public expenditure — still dominates the Republican Party today in the perpetual “crises” over debt ceilings, fiscal cliffs, and sequesters.

In an article in The American Prospect, Eric Alterman said that “Friedman mentioned during one of our conversations that he did not believe in public education, at all. I said I thought this was a bit hypocritical, since he had received one, and it had allowed him to grow up to be the most influential public intellectual in the country, if not the world. I forget what he said…He did not care a whit about fairness in the economy or the accumulation of wealth and power by the few over the many. Judging by the nature of his allies in South America, he couldn’t be bothered much about human rights, either.”

There is an implicit assumption by Friedman and mainstream economists that humans are, by nature, selfish and competitive. Psychologist Steve Taylor (and I) refute this:

Many economists and politicians believe that acquisitiveness – the impulse to buy and possess things – is natural to human beings. This seems to make sense in terms of Darwin’s theory of evolution: since natural resources are limited, human beings have to compete over them, and try to claim as large a part of them as possible.

One of the problems with this theory is that there is actually nothing “natural” about the desire to accumulate wealth. In fact, this desire would have been disastrous for earlier human beings. For the vast majority of our time on this planet, human beings have lived as hunter-gatherers – small tribes who would usually move to a different site every few months. As we can see from modern hunter-gatherers, this way of life has to be non-materialistic, because people can’t afford to be weighed down with unnecessary goods. Since they moved every few months, unnecessary goods would simply be a hindrance to them, making it more difficult for them to move.

Another theory is that the restlessness and constant wanting which fuels our materialism is a kind of evolutionary mechanism which keeps us in a state of alertness. (The psychologist Mihalyi Csikszentmihalyi has suggested this, for example.) Dissatisfaction keeps living beings on the look out for ways of improving their chances of survival; if they were satisfied they wouldn’t be alert, and other creatures would take the advantage.

But there is no evidence that other animals live in a state of restless dissatisfaction. On the contrary, many animals seem to lead very slow and static lives, content to remain within their niche and to follow their instinctive patterns of behavior. And if this is what drives our materialism, we would probably expect other animals to be acquisitive too. But again, there is no evidence that – apart from some food-hoarding for the winter months – other animals share our materialistic impulses. If it was necessary for living beings to be restless and constantly wanting then evolution would surely have ground to a halt millions of years ago.

And citing empirical evidence,the Smithsonian National Museum of Natural History reports that:

Sharing food, caring for infants, and building social networks helped our ancestors meet the daily challenges of their environments.

(…)

Beginning 2.6–1.8 million years ago, some groups of early humans began collecting tools and food from a variety of places and bringing them to favored resting and eating spots. Sharing vital resources with other members of the group led to stronger social bonds and enhanced the group’s chances of survival.

(…)

Beginning 800,000 years ago… early humans gathered around campfires that they made and controlled. Why did they come together at these early hearths? Perhaps to socialize, to find comfort and warmth, to share food and information, and to find safety from predators.

(…)

[Sometime] 500,000–160,000 years ago… early humans had evolved much larger brains. Infants were born with small brains, enabling the head to pass through the birth canal. The brain continued to grow throughout a long childhood. During adolescence, youngsters continued to prepare for the challenges of adulthood.

Humans are unique among primates in having long, distinct periods of childhood and adolescence. These stages enable us to learn, play, socialize, and absorb important experiences prior to adulthood.

(…)

[About] 130,000 years ago… humans began interacting with social groups located far from their own… groups who lived 300 km (186 mi) apart were exchanging resources. Social networks continued to expand and become more complex. Today, people from around the globe rely on one another for information and goods.

In fact, humans are a classic example of a social species — as the ancient Greek philosopher Aristotle famously wrote in Politics, “Man is by nature a social animal.” Part of our success as a species is due to the fact that prehistoric societies supported the elderly, sick, and poor among them, emotionally and physically. We ignore this fact of human nature at our peril.

Suggested reading: