Wednesday, January 21, 2009

History 112: Brave New World of Economics (Part I)

For the past few sessions we have been focusing on the religious changes occurring during the early modern period. Today I would like to move into the realm of economics. By way of transition I would like to consider the thesis of Max Weber that Protestantism led to the rise of Capitalism. What do people like Martin Luther and John Calvin have to with Capitalism? Justification by faith, reading the Bible and rejecting the Pope and many of the sacraments may all be very nice things, but they do not appear to have anything to do with economics. You have just come into some money, what do you do with it? If you are a Catholic you might give it to the Church to buy Masses for yourself, to support monasteries and to adorn your local cathedral with gold adornment. Come the Reformation and you are now a Protestant; no more lavish Masses, no more cathedrals full statues to that saints (that is all papist idolatry now), no more gold crucifixes adorned with jewels. So what are you going to spend your money on? How about buying shares in a boat going to India. This is Max Weber. As we have seen from our reading, there are Catholic merchants, so things are a bit more complicated than Weber had it; Catholics are also involved in this economic revolution.

The discovery of the New World and the Age of Discovery profoundly affected life in Europe. It was not just a matter of some explorers traveling to some place that no European had been before and planting a flag in the ground. Different countries were affected in different ways. Spain and England offer useful contrasts in this.

Spain hit the monetary jackpot with Mexico and Peru as Hernan Cortez and Francisco Pizaro respectively conquered the Aztec and Incan empires. This was one of the worst things to ever happened to Spain and it was the ruin of Spanish civilization. You have heard stories of lottery winners whose lives were destroyed by winning; the same was true with Spain. People in the sixteenth century did not see things this way. The rest of Europe salivated as Spain was able to spend itself to its heart’s content; war in the Netherlands, sure thing, Spanish Armada, not a problem. Starting in the seventeenth century, though, Spain went into a decline that they never recovered from.

How could finding so much gold be a bad thing? First you should consider what gold is actually worth. You understand that paper currency has no utilitarian value and in of itself is absolutely worthless. If President Obama would decide to try boosting his approval ratings by handing out a million dollars to every single American, no one would actually be helped by it. We would simply have inflation. At the end of the day gold is really no better. Like paper currency gold has little utilitarian value in of itself. Gold from the New World brought no real wealth back to Spain. It gets even worse. Where was the biggest share of this gold going to? The Crown. Regular Spaniards did not benefit from this. Furthermore now that the Spanish monarchy was completely self sufficient, monetarily speaking, it had no need to reform itself. Previously we learned about Charles I needing parliament in order to raise funds. If you are Philip II you have no such problems and can rule as an autocrat to your heart’s content. A modern example of this is Saudi Arabia where the house of Saud is completely protected by their wealth in oil and can safely ignore any call to reform either from the West or from their own people.

England, on the other hand, had a very different experience. For example, they came to Jamestown in 1607 looking for gold. They did not find any. Probably one of the greatest things ever to happen to them. How can this be? Once the colonists, those who survived the first few years, realized that they were not going to find gold they settled down and started growing tobacco. While we know now that smoking is addictive and causes cancer and are paying the price for the introduction of tobacco into European culture, tobacco is an actual product with real value. England therefore received something that was actually worth something. More importantly they developed a culture of trade. They become a model of Max Weber’s Protestant work ethic. Spain on the other hand, as the Catholic country par excellence, become a model of Weber’s Catholic non mercantile culture.

(To be continued …)

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