The Prosperity Pyramid Scheme

In the West, we live in prosperity but are often unaware of the sources of that prosperity. We even think we have some special insight into the causes of prosperity because we’re wealthy. At the extreme it’s like my offering to wire your house because my lights turn on. Ask a random sample of business leaders and development experts about what causes poverty and wealth, and most assuredly they will talk about geography or infrastructure, electricity, education, healthcare. No doubt these are important. Sickness and disease are real obstacles to economic development and human flourishing. Poor roads and unreliable electricity make it difficult to operate businesses and transport goods to market. And lack of education keeps people in low-productivity jobs and prevents people from reaching their full potential. But starting with these things distract us from core institutions of justice that ultimately underlie their development. One way to think about this is to ask yourself this question: If you have a highly educated, healthy person with access to healthcare and good roads and bridges, but who cannot get clear title to his land, cannot get access to justice to get his court case heard, cannot register his business in the formal economy, and cannot get access to capital and credit, what do you think he will do? I suggest there are four options: despair, join the political class, join the criminal class, or migrate.

Throughout the developing world, poor people are poor not simply because they lack material goods. The primary reason is that millions of poor people are excluded from the institutions of justice we take for granted and without which we would be poor as well. They lack the invisible layers of society that make entrepreneurship and wealth creation possible. Peruvian economist Hernando de Soto describes the developing world as “teeming with entrepreneurs,” but we don’t hear about them because they remain micro-entrepreneurs forced to focus on short-term gains instead of long-term growth. Those of us who live in wealthy nations can easily forget about these institutions of justice. They’ve become so much a part of the tapestry of our lives that we take them for granted and include everything from the rule of law to the freedom to participate in private voluntary organizations, mutual aid societies, educational institutions, scientific organizations, churches—what Alexis de Tocqueville called “intermediary institutions.”

In stressing the importance of institutions, I am not saying anything radical or new. Aristotle, Augustine, Aquinas, and Adam Smith all recognized this. In the past few decades, there has been a renewed interest in the importance of institutions, including by Nobel Prize–winning economists Douglass North and Edmund Phelps and the New Institutional Economics, and the work of Daron Acemoglu and James A. Robinson in their book Why Nations Fail. Yet, in the dominant approaches to economics and poverty, institutions have been neglected. North summarized many of the problems with the current model of development and the poverty industry in his Nobel acceptance speech:

There is no mystery why the field of development has failed to develop during the five decades since the end of the second world war. Neoclassical theory is simply an inappropriate tool to analyze prescribed policies that will induce development. It is concerned with operations of markets, and not with how markets develop. How can one prescribe policies when one doesn’t understand how economies develop? The very methods employed by neoclassical economists have dictated the subject matter and militated against such a development. ^⁠

North argued that the dominant theories had a “mathematical precision and elegance” but did not reflect the reality of the developing world. The overly mathematical nature led development economists to focus on “technological development” and “human capital investment but ignored the incentive structure embodied in institutions that determined the extent of society investment in those factors.” North argued that the neoclassical model of economic performance made two “erroneous assumptions: one, that institutions do not matter, and two, that time does not matter.” Yet North maintains that “institutions form the incentive structure of a society and the political and economic institutions in consequence are the underlying determinant of economic performance.”

A Pyramid Scheme

In some ways these institutions are simple to understand but hard to implement and develop. If they were easy, everyone would have them, but they take time. They also require certain anthropological and cultural assumptions and conditions to be sustained. Acemoglu and Robinson, for example, also stressed the importance of what they called “inclusive” institutions rather than “extractive” institutions, but they did not really address the cultural underpinnings. But these institutions are in fact cultural artifacts, products of deeply held beliefs about justice and the human person. One way to think about the institutions of justice is through the image of a pyramid in which entrepreneurship and major developments in science and innovation sit at the top and rest upon broader foundations that make this long-term thinking possible. These foundations include things like healthcare, education, and infrastructure, but there are other layers below. They include private property and rule of law, and at the bottom foundational cultural ideas about justice, life, time, family, work, progress, religion, and what it means to be a human person.

Taking a moment to think through a simple commercial exchange sheds light on the levels of complexity. We talk about a “free market” or “free exchange,” but as Harry Ballan has noted, an apparently simple transaction requires layers of complex support. Let’s start with a buyer and a seller who freely decide to make an exchange. They require a stable currency, a price system, private ownership, rule of law, and enforcement of contracts so people will be willing to exchange money for goods. The exchange also requires legal structures of reciprocity and government regulations that prevent buyers from being taken advantage of, market information, market price signals, and so on. The exchange often includes other boundaries to ensure commutive justice, such as activist groups paying attention to issues of labor exploitation, consumer welfare and safety; government organizations and regulatory bodies like the Securities and Exchange Commission or the Food and Drug Administration, which approves certain chemicals or medicines for use, and so on. This is not to say that all these things are perfect and that these organizations and advocacy groups do not sometimes distort transactions. But the point is that when we engage in even a simple exchange, we are doing this in the midst of embedded, complex social, political, economic, and cultural structures. And the more complex the product and the exchange, the more factors are involved.

As Mariana Mazzucato notes in The Entrepreneurial State, many of the things that go into the iPhone to make it “smart” were not simply the result of one entrepreneurial company but were developed by various forms of government investment in military research or other private–public partnerships. Mazzucatto’s critique is important, but it doesn’t go far enough. We also have to ask why the U.S. government had the capacity to develop these technologies and make these investments in the first place. U.S. military power is not disconnected from the tax base created by entrepreneurial activity and wealth creation of private citizens. And this ability to create wealth required, among other things, a constitutional republic and a commercial society based on the rule of law, private property, and free association—elements that in turn rest upon the development of banking and commercial revolutions in the medieval period, which in turn rested on specific views of justice, impartiality, the value of labor, the goodness of being, and even ideas about linear time. The point here is that entrepreneurs in the West don’t emerge simply because of raw talent, nor do state militaries invent smart technologies out of thin air. The ability to accomplish these feats rest on complex and deeply embedded historical, political, economic, and most important cultural and religious foundations.

For example, where did we get the ideas that clear title to land, impartial justice, and freedom of exchange are good things to begin with? Where do we get the practice of modern banking? These are not universal. Where did they come from, and specifically why did they emerge first in the West? As Max Weber wrote in a letter before his death: “Why solely in the Occident has a rational capitalism based upon profitability developed? … Somebody has to explore this question.”

There is no single answer, but it is worth taking some time to think through the Jewish and Christian influences on the rise of capitalism. This is important not only as a matter of historical interest but because understanding its origin can help us appreciate complexity and avoid the temptation to think we can solve poverty with policy and technology alone. The institutions of market economies are cultural artifacts that arise from a combination of multiple ideas and practices. Yet we often think about economic development, innovation, and entrepreneurship as distinct or even unrelated to the traditions and cultural sources that make it possible.

Overcoming the Origin Myths

There are several persistent myths that distort the history of economic development. The most common is that the world lived in darkness until the Enlightenments of the 17th and 18th centuries. Part of this is understandable. When we look at the history of economic growth, we see a profound change take place around 1800 with major shifts in wealth and life expectancy. This graph of the growth of GDP per capita in England from Our World in Data is astounding.

The Industrial Revolution, the American Revolution, the influence of Adam Smith’s work on economics, and medical and other scientific innovations helped lift millions of people out of poverty and enabled them to live longer and healthier lives. Nobel Prize–winning economist Angus Deaton calls this story the “Great Escape.” People got wealthier, mortality rates dropped, and the world population grew from around 1 billion to 7 billion in 200 years. David Landes documents this incredible transformation in his wide-ranging book The Wealth and Poverty of Nations.

While this change was profound, contrary to the standard narrative taught in textbooks many of the foundations for this “great escape” did not originate in the 17th and 18th centuries. As scholars like Robert Lopez, Harold Berman, Richard Goldthwaite, Robert Nisbet, Alejandro Chafuen, Henri Pirenne, Christopher Dawson, Rodney Stark, and Raymond de Roover have shown, the seeds of this development began in the medieval period. These include the commercial revolution starting in the ninth century, the development of modern banking, double-entry accounting, representative government, parliaments, social contract, and a host of technological and scientific discoveries. Because the textbooks don’t teach it, many contemporary scholars are simply unaware of ancient or medieval commentary on economic and political matters.

A Winding Road

The evolution of the institutions of justice and corresponding economic development was not a straight path. Western civilization has many influences—from Greek and Roman to Jewish and Christian, Germanic, Islamic, and more that came through travel and global interaction. Banking in some form or another is ancient, but even our modern banking and capitalist economies began to develop around the ninth century. The technology now is more advanced, obviously, with transactions taking milliseconds rather than days, but the basic elements are similar.

Another example is social contract. Many people think that the origin of “social contract” and democratic intuitions can be found in the writings of John Locke, especially his Second Treatise of Civil Government. No doubt Locke influenced the American Founders and other modern proponents of limited government, but he did not invent the idea of the social contract. Social contract was in wide practice throughout the medieval period. If this seems implausible, perhaps one example may help. In 1620, 70 years before Locke wrote his Second Treatise, pilgrims to the New World that would become the United States created an agreement on how they would live together, and they called it the Mayflower Compact. It was a social contract in the New World and Locke wasn’t even born yet. The Pilgrims didn’t invent it either. It was in the air they breathed back in Europe. I’m not saying everything was perfect there (or they wouldn’t have left). But that doesn’t change the reality that social contract, as well as the roots of modern banking, finance, capital markets, business management and practices, was part of the social structure of medieval Europe in theory and in practice.

A third example is private property, which developed over centuries with trial and error and amid intense debates about the role of inheritance, primogeniture, family, agriculture, industry, social hierarchy, and more. These ideas developed during the medieval period influenced by a confluence of Roman law, Greek philosophy, the Hebrew Bible, canon law, and of course political compromise and struggles for power.

The Role of Jewish and Christian Traditions

It would take a series of books and scholars from dozens of fields to even begin to explain the story of economic development in the West. Yet one of most neglected aspects of this origin story is the role of the Jewish and Christian traditions. Yet without the specific vision of reason and the goodness and intelligibility of creation; without an understanding of impartiality and justice for rich and poor alike that comes from the Hebrew Bible and the books of the New Testament; without the Christian vision of the human person as an unique, unrepeatable individual with dignity and at the same time a social being born into a family and a community; without a Jewish view of the call to complete creation and the dignity of labor, including servile labor, which was generally thought of as something fit only for slaves or the lowest classes, we would never have seen the development of the institutions of justice that have led to unparalleled political liberty, cultural and aesthetic accomplishments, technological and scientific innovations, and the creation and widespread distribution of wealth and prosperity that have enabled hundreds of millions of people to live out their freedom and responsibilities. We moderns have reaped the fruit of these ideas, but the cultural and intellectual foundations of these ideas did not originate in modernity or magically appear in the Renaissance.

To affirm the important role of medieval and Jewish and Christian sources on the role of development, I am not denying the positive contributions of the Industrial Revolution or the French and Scottish Enlightenments. But even the Enlightenments were inheritors of the medieval Christendom they sought to throw off. As Joseph Ratzinger, later Pope Benedict XVI, argued, while the Enlightenments had serious intellectual errors, they also played a corrective role in regard to Christianity. Ratzinger argued in a lecture delivered in 2005 that “Christianity, against its nature and unfortunately, had become tradition and religion of the state. … It was and is the merit of the Enlightenment to have again proposed these original values of Christianity and of having given back to reason its own voice.”

In his book, Understanding the Process of Economic Change, Douglass North presents a schema of how humans create institutions to deal with uncertainty:

Perceived Reality > Beliefs > Institutions

North wasn’t writing about theology or faith when he wrote about belief. But the importance of religious belief and the deeper views about the order and structure of the world had profound effect on the institutions that developed in the West, including tremendous impact on economic life and the creation of prosperity. The development of the West cannot be explained by the Industrial Revolution alone or “guns, germs, and steel.” As sociologist Rodney Stark has argued—it is precisely the guns, germs, and steel that we are trying to account for!

As the famous economic historian Joseph Schumpeter has written, there is very little in Adam Smith that did not already exist in the economic writings of medieval Scholastic theologians who were heavily influenced by the philosophical works and biblical commentaries of St. Thomas Aquinas, who was in turn influenced not only by the Church Fathers but also by medieval rabbinic commentators such as Maimonides and Rashi.^⁠ The same goes for political liberty and the scientific research. Simply put, these ideas did not pop out of nowhere in 1800. Historian and sociologist Christopher Dawson argued consistently that the driving force of culture is not the economy or politics but in fact cultus—religion. Dawson did not deny that law, politics, and economics also have an impact on religion and culture, but they are ultimately downstream from more foundational cultural and religious ideas, and we cannot come to any serious understanding of a culture and the institutions that emerge from it if we do not take religion seriously. This is not to say we cannot live for a time under and benefit from institutions and economic arrangements without understanding their source, but cultural capital lasts only so long. If we are to understand the institutions that have brought about unparalleled wealth creation, it means we need to pay attention to the Jewish and Christian sources that produced them. To ignore them is to miss an essential if not the most important part of the puzzle. To explicate further, here are several key ideas that undergird some of the things we take for granted.

Time and Progress

A profound influence on Western economic development, innovation, and the idea of progress is the concept of linear time. Time, and creation, has a beginning and is going somewhere. This may seem obvious, and you may wonder why I would even bring it up, but the idea of time as linear is unique. Most cultures viewed time as cyclical. This was as common among the Chinese as it was among the Mesopotamians and the Greeks. The idea of linear time derives from Judaism and was spread through Christianity to Europe and the Western world. Even Nietzsche, who was no friend of the Jewish or Christian God, admitted this. Linear time and the resultant idea of progress falls between pagan cyclical fatalism and the secular utopian promise of heaven on earth. Part of this comes from an understanding of the world as created by God. As Ismar Schorsch explains in his essay “Judaism and Linear History”:

Judaism replaces nature with history as its basic category of religious experience. … The consequences of this shift from nature to history reinforce the idea of ethical monotheism. Judaism develops a linear concept of time as opposed to a cyclical one and sanctifies events rather than places. … Time becomes for Judaism the realm in which humanity and God join to complete together the work of creation.

In contrast to Greek, Chinese, and Hindu civilizations, Judaism teaches that the world is not eternal. It has a beginning. It is also moving toward an end, not just a finality, but a purpose: the coming of the Messiah and the new heavens and earth. This idea has profound implications for the Western understanding of progress and development. The contemporary secular concept of progress is a derivative of the Jewish-Christian understanding of time. Linear time encourages innovation and optimism, but when detached from its religious context, it can become a utopian view of progress, either technological or political. This can tend toward something like the optimistic English Whig theory of history where the world is on an inevitable trajectory toward liberty and material progress, or to darker authoritarian and materialist schemes as the 20th century demonstrated. Twentieth-century utopianism was an example of what the late political philosopher Eric Voegelin called the “immanentization of the eschaton.” It takes the Christian idea of the second coming of Christ but secularizes the End Times, replacing the New Jerusalem coming from Heaven with the idea that man can create heaven on earth by technical means. Examples of this include the Nazi thousand-year Reich, the communist idea of perfect equality and the withering away of the state, and contemporary transhumanism, which sees a technical solution to the problem of death.

In contrast, as Benedict XVI notes in Spe Salvi, while progress is good, it is not an end in itself. It must be tempered by morality, and by hope, which is the confident expectation that God will deliver us. He explains that we do not put our faith in progress or technology or the state. Only God can bring about perfect justice, and any attempt to create the perfect society results in enslavement and death. Rabbi Jonathan Sacks, in his essay “Jewish Time,” echoes this point: the Jewish sense of time is not simply linear but “covenantal.” “Tragedy gives rise to pessimism. Cyclical time leads to acceptance. Linear time begets optimism. Covenantal time gives birth to hope. These are not just different emotions. They are radically different ways of relating to life and the universe.”

This concept of a universe with a purpose and meaning shaped the Western idea of progress and impacted science, technology, innovation, and economic development. We cannot understand it—nor its distorted utopian derivative—without understanding its religious sources.

The Goodness and Intelligibility of Nature

Another fundamental idea that shapes the West is the idea that being is good, that the material world is good, and that nature is intelligible, not simply random. We see this vision set out in the creation narrative in the book of Genesis, which, perhaps surprisingly, provides several foundational ideas that undergird Western science, politics, and progress.

First, the world is created by God. Nature is not divine. As Joseph Ratzinger notes, this is a radical proposition for the time: the sun and the moon have no divine or sacred character. They are just “lamps in the sky to measure time.” Nature is not to be worshipped and is no longer a mystery shrouded with divine characteristics. It can be analyzed and understood. As Ratzinger writes in In the Beginning: “This creation account may be seen as the decisive ‘enlightenment’ of history out of the fears that had oppressed humankind. It placed the world in the context of reason and recognized the world’s reasonableness and freedom.”

Second, creation and the natural world are affirmed as good. This, too, is distinct from most other religious and cultural traditions, which see matter as negative or bad, made from a dragon’s body, created by a demon, or forged by an evil demiurge. This positive view of nature as good and intelligible is a precursor to the development of science.

Third, within the order of creation men and women are called to “fill the earth and subdue it” and are given dominion over all of nature. We are called to complete creation and by using our intellects to transform it. Nature is not a mysterious force to be worshipped but rather to be understood and utilized for good. This dominion does not mean the right to abuse or destroy creation at will. It does not mean that the natural world or the animals can be used and discarded in any way we please. Radical abuse of the environment is a modern, utilitarian view, not a Jewish or Christian idea. It was after all Francis Bacon who said that “knowledge is power” and that “nature is a whore.” In contrast, examples abound from Jewish law about animal welfare and the care of creation. Further, the command is not only to subdue but to “fill the earth” or “replenish the earth.” The Jewish and Christian view of nature and the natural world is a positive one. This idea in Genesis becomes philosophically articulated in the idea of the goodness of being—as St. Augustine explains, all things are good insofar as they have existence.

The Hebrew Bible, along with later Greek philosophy, begins the process of de-mythologization and de-divinization, which leads to the idea that nature is not simply the will of the gods but is intelligible. Echoing Genesis, the prologue of the Gospel of John begins with “In the beginning was the Word.” The original Greek is Logos—meaning “word” but also reason and intelligibility. The world is complex, but it is not completely erratic and unpredictable, moved by fate or the whim of the gods. The fact that nature is created and needs human action to achieve its fullness provides a unique framework for engaging and understanding the world. The human mind can apprehend meaning and patterns about the universe. We can discover and improve things. When this realization is combined with the linear idea of time mentioned above, it opens up the potential for thinking about progress.

These original ideas became part of European civilization and had a profound impact on science, innovation, and economic development, forming the foundation of the scientific method in Christian Europe. From medieval monks like St. Albert the Great, to Enlightenment scientists like Isaac Newton and Robert Boyle, to the Augustinian priest Gregor Mendel, who founded modern genetics, many famous scientists saw the connection between faith and science and the goodness and intelligibility of the universe. We see this reflected in Einstein’s famous quote that “God does not play dice with the universe.”

The Dignity of the Human Person and of Work

At the core of Western ideas, the Jewish and Christian idea of what it means to be human is the most important contribution to the sources of justice and economic development. The idea that human beings are made in the image of God, are free and rational, unique and unrepeatable individuals with an inherent dignity, and moral agents capable of heroic virtue and profound evil—this vision of the person had a profound impact on how the West developed and on the institutions of private property, rule of law, and the limited role of the state, all of which had to function in the service of human flourishing.

In Genesis we also read that man is commanded to use his intellect and strength to improve and complete creation. Many people have the idea that work is a punishment for sin, but the text of Genesis is very clear that work comes before the Fall. Genesis 2:15 states that God commanded Adam to cultivate and care for the garden. Work itself is not a punishment; rather it is one of the ways in which man lives out his vocation. Again, human beings are called to “complete creation.”

Innovation and creativity are part of the reflection of the divine image. Work is not something from which we need to escape. Fully automated luxury communism is not the goal of man. We are called rather to sanctify the world with our work. The toil, difficulty, and burden of work, “the sweat of our brow,” may have come about as a result of the Fall, but work itself is a good. The tradition is also clear that work should be seen in the context of the nature of man, his higher calling to worship, and the priority of being over having. Work is not our end or final purpose. Work is always seen in light of the Sabbath rest, which puts work and material gain in their proper place.

The Babylonian Talmud states: “A person should love work and not hate it; for just as the Torah was given with a covenant, so too was work given with a covenant.” And that “if a person has no work to do, what should he do? If he has a dilapidated yard or field, he should go and occupy himself with it.” ^⁠

This respect for manual labor continues in the Christian tradition, though there were times in Christian Europe when aristocrats appropriated a pagan disdain for labor and commerce. But as we see in the rule of St. Benedict: “Idleness is the enemy of the soul. Therefore, the monks should be occupied at certain times in manual labor, and at other fixed hours in holy reading.”

Monasteries living under the Benedictine motto of ora et labora were often centers of commercial activity wherein we saw the origin of a number of modern agricultural and management techniques, from operations and logistics to double-entry accounting.

Ideas Have Consequences

In summary, while I have obviously left out many key factors, we cannot understand the development of Western political and economic institutions apart from the metaphysical and moral ideas that are at the heart of Judaism and Christianity. This does not require one to assent to the theological claims of Judaism or Christianity, but I am asserting that without these fundamental ideas of linear time, the goodness and intelligibility of the natural world, and the dignity of man and labor, we would not have seen the scientific or economic developments that have characterized the West, and that frankly have become models for progress in non-Western contexts.

This essay is an edited excerpt from EXCLUDED: How the Poverty Industry Excludes Poor People from Prosperity and Justice, forthcoming from Herder & Herder/Crossroads in 2024.