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Chapter 16: The Capitalist Creed (Sapiens)

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Credit allowed people who did not have wealth, to make money. It is one of the greatest human inventions, but credit did not have such a glorious past. At one point, it was believed that the total amount of wealth was limited. When someone got richer, it meant that someone else got poorer. The pie could be cut in a million ways, but it could never get bigger.

That’s why many cultures concluded that making bundles of money was sinful. As Jesus said, ‘It is easier for a camel to pass through the eye of a needle than for a rich man to enter into the kingdom of God’ (Matthew 19:24).

But the Scientific Revolution brought with it a new idea: progress. The idea is that if we admit we are ignorant, and invest our resources in research, things could improve for everyone. Technological inventions could lead to new sources of trade and wealth and these would not be at the expense of anything but would only enhance the economy that already exists.

You wouldn’t have one bakery competing with another bakery, you would have many small specialty bakeries competing – all adding more options to the consumer, who is now better off.

The idea of progress has made people trust the future more. And the result is real economic growth, but this did not happen overnight.

The idea that ‘The profits of production must be reinvested in increasing production’ sounds trivial. Yet it was alien to most people throughout history. In premodern times, people believed that production was more or less constant. So why reinvest your profits if production won’t increase by much, no matter what you do? Thus medieval noblemen espoused an ethic of generosity and conspicuous consumption. They spent their revenues on tournaments, banquets, palaces and wars, and on charity and monumental cathedrals.

Today the nobility has been replaced by a new elite who are ardent followers of capitalism. The capitalist elite does not include dukes and kings, but stock traders and industrialists. These magnates are much richer than medieval nobility but less interested in extravagant consumption – they spend a small proportion of their income on unproductive activities.

It is impossible, however, to understand capitalism without understanding the role of science. When people borrow, when they have faith in the future, it is only because they anticipate that people in lab coats will invent new technologies that will create new industries that will justify the money borrowed.

The human economy has nevertheless managed to grow exponentially throughout the modern era, thanks only to the fact that scientists come up with another discovery or gadget every few years – such as the continent of America, the internal combustion engine, or genetically engineered sheep.

After the economic crisis in 2008, banks and government went on a money printing frenzy. Fearing that the economic crisis would halt the economy, they created trillions of dollars, euros, and yen – pumping cheap credit into the economy, hoping that scientists and engineers would come up with something big before the bubble pops again. If the labs don’t innovate in time, we’re in deep trouble.

Today, a country’s credit rating is more important to its economic health than its natural resources.

A country devoid of natural resources, but which enjoys peace, a fair judicial system and a free government is likely to receive a high credit rating. As such, it may be able to raise enough cheap capital to support a good education system and foster a flourishing high-tech industry.

But the relationship between capital and politics is highly controversial. Capitalists think that capital should be able to influence politics, but politics shouldn’t influence capital. The argument is that political interests result in inefficiencies and slower growth. But this believe in the free market as a self-correcting mechanism is naïve. Trust in the future is our most important economic resource, and markets don’t protect us from thieves, fraudsters, or charlatans.

When kings fail to do their jobs and regulate the markets properly, it leads to loss of trust, dwindling credit and economic depression. That was the lesson taught by the Mississippi Bubble of 1719, and anyone who forgot it was reminded by the US housing bubble of 2007, and the ensuing credit crunch and recession.

It’s not just the danger of collusion and corruption when markets are given free reign, the unintended consequences of the pursuit of profit contains its own caveats. The Europeans conquered America and opened sugar plantations. Sugar was a rare luxury at in Europe during the Middle Ages. The large plantations in America flooded the European market with sugar – which made the commodity cheap. And Europe developed a sweet tooth.

Entrepreneurs met this need enthusiastically, bringing to the market a wide selection of cakes, chocolate, cookies, and candy. The average Englishman used to consume no sugar in the early 17th century, but by the early 19th century, consumed around 8 kg’s of it.

The problem with the sugar market is that it requires heavy labor. And no one wanted to work long hours in malaria-infested sugar fields under the sweltering heat. European planation owners wanted to make sure their ventures stayed profitable, so they switched to slaves.

10 million slaves were imported from Africa during the 16th and 19th centuries and worked under the worst conditions. This happened so Europeans could indulge their sweet tooth, and enjoy large profits.

No one controlled the slave trade, it was an economic enterprise, and organized completely by the free market.

That is the problem with capitalism. It can’t ensure that profits are gained ethically without regulatory intervention. But despite the criticisms of capitalism, we cannot deny that the world that has been created because of it is superior to the Communist ‘utopia’ that once existed. Further, we may need to be more patient. While things aren’t perfect today, there are undoubtedly some positive signs.

At least when we use purely material criteria – such as life expectancy, child mortality and calorie intake – the standard of living of the average human in 2014 is significantly higher than it was in 1914, despite the exponential growth in the number of humans.

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"Silence is the best expression of scorn" - G.B. Shaw

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