Today’s Hub Dialogue is with economist Benjamin Friedman who is the William Joseph Maier Professor of Political Economy and formerly the Chairman of the Department of Economics at Harvard University. Professor Friedman joined the Harvard faculty in 1972 and has had an extraordinary and prolific career ever since.
His latest book, published in January 2021, is Religion and the Rise of Capitalism which outlines how religious ideas and values have shaped economic thinking since the beginning of modern Western economics and how this influence continues to be relevant in the field today.
This conversation has been revised and edited for length and clarity.
SEAN SPEER: I am honoured to have Professor Friedman join us today to discuss Religion and the Rise of Capitalism as well as his well-known, earlier book, The Moral Consequences of Economic Growth. Thanks for joining me.
BENJAMIN FRIEDMAN: Thanks for having me.
SEAN SPEER: You have described the book as “Weber upside down.” Why? What do you mean?
BENJAMIN FRIEDMAN: Thanks for having me. Max Weber, in his 1905 book, The Protestant Ethic and the Spirit of Capitalism, famously argued that religion was a major driver of the development of capitalism. What he had in mind was that in the 17th century, especially, and continuing on after that, many people who were active in starting businesses and engaging in capitalist economic endeavour, were predestinarian Calvinists. By that he meant, and I mean, that people thought that the question of whether they were to be saved in the afterlife or, alternatively, condemned to everlasting punishment, was a question that was decided for them long before they were born, indeed before the universe was even created.
In Weber’s mind, this led to what he called “existential anxiety.” People went around worried thinking, “Am I among the saved? Am I not among the saved? Am I going to be condemned to everlasting punishment?” According to Weber, this caused them to look for what he called “external signs.” These external signs consisted of things like working hard at their businesses, being diligent, being successful economically, being thrifty, and not spending their incomes frivolously, that sort of thing. His view was that it was the belief in predestinarian Calvinism that led to the development of capitalism.
My inquiry is different from Weber’s in two very important respects. First, he was looking at behaviour, in the economic sphere, of ordinary citizens—ordinary people who decided whether to start a business or not. I am looking not at the behaviour but rather at the thinking of people whom you and I and everybody else would recognize as economists—people like David Hume, Adam Smith, and all of their successors down through the centuries.
Second, instead of looking at the 17th century, which was when belief in predestinarian Calvinism was at its height, I’m looking at the time when modern Western economics got going under people like Smith and Hume, and that was in the 18th century when belief in predestinarian Calvinism was on its way out, and very contentiously so.
My argument, and this is where we get to “Weber upside down”, is that what gave us modern Western economics, what enabled and prompted people like Adam Smith to come up with the thinking that they did, was the more expansive and optimistic view of the possibilities for human agency, human choice, human action, and human decisions that came along with the movement away from predestinarian Calvinism.
So, here we have Weber, having argued more than 100 years ago that it was the belief in predestinarian Calvinism that prompted the development of capitalism, and here I am arguing that what enabled Smith and his contemporaries to give us modern Western economics was the move away from belief in predestinarian Calvinism. That’s the sense in which I think my book could be characterized as “Weber upside down.” It doesn’t mean that Weber was wrong. He was asking a different question and focusing on a different century.
SEAN SPEER: As you say, Professor Friedman, the book argues that religious ideas and values, particularly Protestant ideas and values, have come to shape economic thinking in Anglo-American countries. How were these ideas and values transmitted from the religious to the economic realm?
BENJAMIN FRIEDMAN: I am not in any way suggesting that the transmission, to use your term, had anything to do with religiously committed individuals self-consciously attempting to bring their religious commitments to bear on their professional writing. That would be absurd for many of the people whom I’m examining in the book. People like Adam Smith and David Hume, for example, were international celebrities in their own lifetimes. We know a lot about these individuals biographically and there is no evidence that either Smith nor Hume, nor many of the other people whom I’m describing, were committed, religious believers. Indeed, in Hume’s case, it’s quite the opposite: we know that he was a notorious skeptic, agnostic, and maybe even atheist. There’s no evidence of any religious commitment on Smith’s part either.
So, to return to your question, what was the transmission mechanism? My argument relies on a concept that Einstein articulated in the 1930s, called “the worldview” or, in Einstein’s original German, “Bild Der Welt.” The idea is that thinkers come equipped with a kind of view of the world. Why do they do that? Because the world is too complicated. The complexity is so hard to deal with that anybody who tries to think systematically about the world inevitably approaches it having in mind a simplified view of the world, in Einstein’s phrase. Then the question is, where does this view of the world come from?
A large part of the argument in my book is that because people like Smith and Hume and many who followed them lived at a time when religion was more central and more important and more pervasive and more multi-dimensional in their society than anything we know today, therefore their thinking was importantly shaped by these hotly contended arguments that were swirling all around them in the English-speaking Protestant world. They could not have helped but been influenced in forming their worldview by those arguments, even though, to repeat, they were not religiously committed men.
To go back to what I was saying just a moment ago, in response to your first question, this movement away from predestinarian Calvinism implied a much more optimistic, benign view of the human character and a more expansive, more optimistic view of the possibilities for human choice and human agency. I think that’s what underlies modern Western economics. It’s the idea that you and I, not because we’re altruistic, not because we are trying to benefit one another, but simply acting in our own self-interest, can, and under the right circumstances will, make actions in the economic sphere that make other people better off as well. Smith’s great contribution was to understand that those other circumstances involve competitive market competition. That’s what he brought to the development of the field.
This Einstein idea, which is the fundamental transmission mechanism on which my argument relies, has been picked up by other people, including in economics. Most famously, my Harvard predecessor Joseph Schumpeter said that whenever any economist sits down to do his or her work, the person inevitably has in mind what Schumpeter called a “pre-analytic Vision” of how the world works. He thought it was so important that when he wrote it down, he put a capital “V” on the word “vision.”
For my purposes in this book, what Einstein meant by a worldview, and what Schumpeter meant by pre-analytic Vision, is a way in which even non-religious individuals can have their economic thinking, or their other thinking for that matter, powerfully influenced by religious arguments if those arguments are going on around them and hotly contended, and therefore salient in their thinking.
Capitalism and virtue
SEAN SPEER: There has been a long-held view advanced by Smith and others that capitalism doesn’t just make us materially better off, but that it also makes us better by encouraging cooperation, industriousness, self-discipline, so on. But now different thinkers and writers, particularly social conservatives, are questioning this assumption. They point for instance, to drugs, pornography, and other vices that can flourish in market conditions. What would you say to those who believe that there’s a fundamental tension between free-market capitalism and virtue?
BENJAMIN FRIEDMAN: You’re posing a very important question, Sean, and I would not want to overemphasize the extent to which Smith made the argument that you’re associating with him. There is a line of thought in which it’s fair to place Smith, but also people like Montesquieu, for example, and others, who argued that participating in commerce led people to have what Montesquieu called “softened manners.”
His image was that if you’re, say, selling fish in the marketplace in downtown Paris, and you’re a rude, obnoxious person, your customers are perfectly capable to say that, “I don’t want to deal with this person. I’m going to walk down the street and deal with the next fishmonger instead of this one!” That’s what he had in mind.
Now, the important point for purposes of your question is that our modern economic activity today is a long way from the marketplace with fish stalls that Montesquieu strolled through in Paris. That’s why I wouldn’t want to overemphasize this argument and why I wouldn’t want to over-connect Smith to it.
Indeed, one of the important parts of Smith’s thinking was a reservation, not about capitalism per se but about modern production. Smith famously argued that the division of labour—people specializing in different tasks—was the key to productivity growth. But then, Smith has a long part in The Wealth of Nations, in which he points out that as jobs become more and more specialized, performing those jobs all day long dulls people’s thinking in precisely a way to which he had earlier attached a moral connotation. After all, this is a person whose previous book was titled The Theory of Moral Sentiments.
So, as I’ve said, Smith himself had these reservations, and modern economic activity is a long way from the circumstances that Montesquieu was observing in the 1740s. Would Montesquieu or Smith today have that view? I don’t know. But I think it’s an important question, and it’s a discussion that’s worth having on its own terms without having to anchor oneself in the thinking of 250 years ago.
SEAN SPEER: Should we assume that these religious ideas and values will persist as an implicit underpinning of modern economic thinking? Or is it possible that in a secularizing world they will gradually erode and be replaced by something different?
BENJAMIN FRIEDMAN: Here again, I take us back to Weber. One of the important parts of Weber’s argument in his 1905 book, which my argument shares, is the notion that in a context like this religious thinking can be a kind of catalyst. What I mean by a catalyst is the same thing they mean in chemistry. Namely, you introduce some agent into your mixture, and it triggers a reaction, and even after the agent is gone the reaction is still there.
That was very much Weber’s idea about how predestinarian Calvinist thinking had led to the development of capitalism. He was well-aware that by the 100 or so years after the period that he dealt with, belief in predestination had pretty well gone away. But he argued that, nonetheless, these behaviour patterns that he called Protestant Ethic behavior patterns—things like thrift and placing a moral value on working diligently at your calling in life—still persisted.
In order to make precisely that point, he chose Benjamin Franklin as the exemplar of what we are talking; he has all of these adages in Poor Richard’s Almanac about thrifty this and hard work that. The point of Franklin as an example is that, as Weber pointed out, he was not a religious person. Franklin wrote in his autobiography about how growing up in Boston, he’d gone around to many different churches and none of them appealed to him. That’s why Weber picked Franklin.
I think the same thing applies here, where we have this discipline called modern Western economics. It grew out of these origins, in which belief in the possibilities of what comes from human choice is at the center of the enterprise. I teach economics at Harvard. What do we teach not just at my university but everywhere? If any student takes introductory economics, they start with the decisions made by households, and then the course goes on to talk about decisions made by firms. We talk about how under the right circumstances, these decisions, even though they’re meant to be just in the interest of the family, or in the interest of the firm, will wind up making other people better off. This is exactly the Smith insight from 250 years ago. It’s still all about the possibilities of human action, human choice, human agency. My book is about where that came from. It persists today.
I’ll give you another example: Economists are very resistant to the idea of limits. We do have a field called environmental economics. But the whole idea is that growth is not necessarily limited; most economists never believed the claim that we were going to run out of oil, for example. The economists never believed in lots of that sort of thing. I think we have this optimistic view because of the origins of the subject.
Or yet another example for you: Most economists are very resistant to models in which initial conditions, like whether a person comes from this or that kind of family, or whether a country has this or that kind of economy, are determinative of final outcomes. The questions we ask are always “what is the intervention that’s required to move a country from this kind of economy to that kind of economy?” “What kind of education policy or job opportunity policy do we have to have so that people who are born in one kind of family can nevertheless live in a different way?” Where does that predilection, that presumption, that preference for enabling human intervention to matter so much come from? I think it comes from exactly what we’re talking about. It’s the origins of our discipline in the movement away from belief in predestination.
Growth and populism
SEAN SPEER: My final question relates to this inherent optimism that you refer to and in particular the ideas reflected in your famous book, The Moral Consequences of Economic Growth, which shook me when I first read it as a younger person. It seems even more relevant in today’s political economy context.
The rise of political populism is often described as outgrowth of the people and places who’ve been subjected to the process of Creative Destruction. Based on your own thinking and research, do you think the core problem is too much growth and too much dynamism in these places? Or is the problem actually insufficient growth and dynamism in these communities which have become incubators for populism and polarization?
BENJAMIN FRIEDMAN: I’m an American. When we talk about populism, I’m thinking of things like racial prejudice, religious bigotry, xenophobia with respect to immigrants, a lack of generosity toward the disadvantaged, and increasingly, I’m sorry to say, of the commitment to the fundamental principles of democracy.
I think these tendencies come from too little growth rather than too much. But let me be very clear since you referred to my previous book on the moral consequences of economic growth. What I mean by growth is not just an increase in a country’s Gross Domestic Product, but improvement in the standard of living for the majority of the population.
I think that if people on the whole were enjoying an improvement in their living standards, then they would feel able to be generous toward the disadvantaged, they would be willing to share opportunities with peoples of other races, or with immigrants, and with other folks as well. They wouldn’t need to be so defensive about protecting both the economic and the cultural aspects of what they treasure as the heritage that they’re clinging to.
So, my answer is that it’s too little growth rather than too much but, very importantly, for this purpose, it’s growth in the sense of improvement in living standards that matters. Up until just the last year or two, the average American citizen had seen no improvement in his or her living standard for 20 years. That’s a long time, comparable to the major periods of economic stagnation that I analyzed in my book on The Moral Consequences of Economic Growth.
What I found in that book is that when the bulk of the population is moving forward in its living standard, people mostly move forward also in these non-material aspects of their thinking like generosity, openness of opportunity, tolerance, and commitment to democracy. And conversely, alas, as in most of the last 20 years, when people see that their living standards are stagnating, and they don’t have any confidence that that improvement will revive anytime soon, those people turn inward. They retrench, they retreat, often with very unfortunate circumstances, including the kind of populist development that you’re referring to.
SEAN SPEER: Thank you so much, Professor Friedman, for speaking with us today. What an honour. The book, of course, is Religion and The Rise of Capitalism. I’m sure our audience will be keen to read it after this fascinating conversation. Thanks once again for taking the time to speak with us.
BENJAMIN FRIEDMAN: Thank you, Sean. I appreciate you having me.