BY PATRICK BARRON
Originally published by mises.org
Members of an Austrian School of economics forum to which I belong have been discussing the source of economic progress. It began with the usual elements of capital, technological development, and managerial expertise before getting more philosophical when a member suggested the acceptance of rationality in all things. I felt this was not a proper answer, because the definition of “rationality” is itself debatable and can be used by political authorities to suppress unpopular ideas.
For example, in the Soviet Union, to question the inevitable victory of communism and the ultimate transformation of man’s nature to communist man would land one in an insane asylum. If you didn’t believe all that communist propaganda, you must be crazy! I prefer Murray N. Rothbard’s definition of rationality as believing that one’s actions will bring about the result desired. Admittedly this is a narrow definition of the term and more suited to economics rather than psychology. Rothbard’s definition of rationality admits the possibility that rational men might disagree on the proper action to take to bring about the same goal, such as whether or not price fixing will bring about universal prosperity. Men who believe in price fixing are not irrational according to Rothbard; they are simply wrong and must be shown the error of their ways.
In my search for the answer to the question of the foundation of economic progress, I used Mises’s regression theory for my thought experiment. I started with the assumption that a completely unhampered free market produces the most prosperity. (If you do not agree, then stop right here.) The primary elements of such an economy would be capital accumulation, defense of property rights, and the rule of law. It would not include collectivism, which elevates the group — rarely defined and a moving target when it is defined — above the individual. But as collectivism sounds so enticing, something must have happened to elevate the individual over the group in the minds of many. At this point we are starting to get on the right track, looking for some seminal event or idea that elevated the primacy of the individual, rather than some group, to position numero uno.
Immanuel Kant said that the recognition of man as an end and not as a means was the categorical imperative and that it could be discovered by reason alone. But what is the origin of reason? Enter religion. Kant claimed that the existence of reason itself is an intimation of the existence of God. All of ethics and, as it happens, all of economic progress flows from this one maxim. Christianity teaches that man is formed in the image of God, and the implications of this have proven to be tremendous for economic progress. It has taken a long time, and the process can be reversed, which it may be doing right now, as Christianity has been abandoned by huge numbers in the West. Nevertheless, here’s the argument: if man is formed in the image of God, then all individual men are equal to one another in their rights, which derive from God and cannot be derived from other men. In the eyes of God, the lowest person on the social scale is equal in his God-given rights to the highest and most exalted anywhere in the world, whether he be a captain of industry, king, or president. The concept of the rule of law emerged in the West to protect the individual’s natural rights by giving him equal protection under the law; i.e., equal with all other men, no matter how exalted. Other protections of the individual followed, such as the right to government by representatives elected by the people themselves and trial by a jury of one’s peers. Magna Carta is the best known example of this statement, for the king was forced to admit that all men had rights that could not be taken away, regardless of social rank.
The political liberation of man that stems from accepting that he is made in the image of God has gradually been extended to include economic liberation. In the West it gradually came to be accepted that economic rights were protected under the banner of political rights. This makes sense, since taking away a man’s economic rights cannot be justified without taking away his political rights. In communist Cuba all legal jobs are owned and controlled by the state. One of the ways the Cuban tyrants keep people in line is to place them on an economic blacklist, prohibiting their employment anywhere in the country. Since the state owns all businesses, such a penalty can be a death sentence. There is no way such an ostracized person can earn a living; he must become either a beggar who lives off the handouts of others or he starves.
It is no wonder that most communist regimes forbid organized religion. They must deny that man has any God-given rights, only state-given rights, which, of course, may be taken away at any time and for any reason, even for no reason at all but just to terrorize the populace into fearful submission. Some totalitarian regimes recognize state-controlled or state-authorized religion, in sometimes elevating the tyrant to god-like status. The state uses such religions for purposes of internal control and as outlets for their propaganda. The pharaoh was a god and the people were treated as beasts of burden. The “official” religions of the Middle Ages come to mind, too, proclaiming that the king was placed on his throne by “divine right” and to oppose him was to oppose God. In modern times Shinto Japan elevated the emperor to god-like status, which the Allies forced the Japanese to abandon at the end of the war. Today communist North Korea requires its population to worship the Kim family, and Red China forces Roman Catholics to take orders from its own Chinese Patriotic Catholic Association. These state religions do not elevate man to enjoying equal political and economic rights; they are used as a tool of the state to set up a privileged, parasitic class, whether one calls them aristocracy or vanguards of the proletariat.
In summary, in the West men believed that they were formed in the image of God, that they were equal as all other men as a result, that their rights were “natural rights” and not given to them by a king with divine rights, and that these natural rights included economic rights. It was an ethic of individual rather than group rights, so man had a right to the product of his labor and did not have to surrender it to a collective. This gave rise to capital formation by ordinary men, whose property was protected by the rule of law, which also was derived from natural law and was affirmed over the centuries by such documents as the Magna Carta. Immanuel Kant explained in philosophical terms what had been increasingly accepted for 1,500 years by all strata of society, including the political elite; i.e., the primacy of the individual, who is formed in the image of God. This view led eventually to what Ludwig von Mises called modern economics, which led to the Industrial Revolution in the first country, England, that liberated the individual politically and economically. Whether the West and the rest of the world can remain economically liberated in the absence of a belief that man is made in God’s image remains to be seen. I have my doubts.
Patrick Barron is a private consultant in the banking industry. He teaches in the Graduate School of Banking at the University of Wisconsin, Madison, and teaches Austrian economics at the University of Iowa, in Iowa City, where he lives with his wife of 40 years.