Investment against charity: The emergence of capitalist

As most of the Christian predicator, Calvinist demonizes lust of wealthy spending. However, contrary to the catholic or nowadays Marxist related philosophy.  They do see the accumulation of industrial mean of production as an evil. On the contrary, they see it as a tool to practice Christian generosity more efficiency by giving a mean a living to the poor. During the end of the middle age, the principal means of production was land, which was hold mainly by feudal noble and the Catholic Church. So, they differentiate the mean of production they create to the one, which is created by god “land”. The new way to practice charity is named investment.

The opposition between investment and the catholic charity are numerous. Investment is retroactive and follows up by the donator. If the employee does not obey to his contract and deturnate the mean of production to other purpose, he can be fired. If the investment project does not work, the venture can be bankrupted and the remaining given back to the investors. An accounting system is established in order to check if expenses are justified. On the contrary, the Catholic Church kept the spending of the donation highly secret. The Catholic Church develops some highly visible: charity project like Mother Teresa in Calcutta, India with a high propaganda benefit to a reasonable cost. The pope Leo X was remembered to be one of the most lavish in alms toward retirement house, sick dispensary, poor student, retired solders, However, the amount of his alms evaluates to 6000 ducats per year is rather small compare to his ordinary personal income 517000 ducats for the only year of 1517.

Calvinist have the opposite philosophy: spending the minimum for themselves and investing the maximum for others but fearing a deturnment of the investment from their goal, they pay at the minimum their worker: the rate at which they do not consider another job: market rate and a strong accounting control. This divergence of point of view between Huguenots and Catholics degenerate into hatred and was one of the causes

of the religious war.

Max Weber has his explanation to support the attitude of Calvinist toward investment: the theory of “individual” predestination. The theory of predestination has a collective view aiming toward the end of time but also an individual view. God has predestinated us toward paradise or hell. The question is who is predestinated to hell and who is predestinate to paradise. The answer can be known by our achievements on earth. Who is successful in his investment or endeavor and participate to the purpose of god is predestinate to paradise.  It also mean that who never take risk can not deserve the paradise as only successful risk taking can prove our right toward paradise. This doctrine fits well entrepreneurial mind and so Calvinism will become the church of the small business entrepreneurial.

If the name “capitalism” seems to have been coined by “Karl Marx”, the system denominates under the name “capitalism” started much earlier. But, when did it really start ? Adam Smith uses the term “Mercantilism” to focus on the rise of the merchant class. Ricardo prefers the term “economy” or political economy” to focus on the rationality of the system. Karl Marx divides the producing class into two subclasses the worker and the investor/speculator, which is paid for the compensation of the risk of lost. In future chapter, I will analyze the validity of the division by considering the worker as a low level speculator. The worker speculates that if he stops working, he will be fired. But, for the time being, the division appears to be a fruitful one and so the term “capitalism” imposes itself. Marxist uses the term in order to create a political division inside the producing class by creating the illusion of an opposition between profit and worker income. The opposition is valid only if the profit is distributed as an income to be spent but the reality is that 90 % of the profit is reinvested so it can grow only if worker income grows in the same proportion. Instead of an opposition, we have cooperation between profit and worker spending. In the financial world, the term has been accepted because on the focus of the importance of the capital. The financial world analyzes compared investment opportunities in term of forecasted return related to risk and the capital is the maximum risk of lost that you are taking in the venture.

Some people uses the term agrarian capitalism to describe the roman antiquity economical system based on the confiscation of lands and the capture of slave to exploit them. I do not see a lot in common this economical system bases on force and constrain to the capitalism system based on free speculation and free contracting according to your own speculation. So, I will accept to use the term in the “Max Weber”. The capitalism economy is the economy, which has replaced the feudal economy. The moral support of capitalism is based on Calvinist as feudalism can find his moral basis in Catholicism, and roman paganism the moral basis of slavery based roman economy.

In this scenario, capitalism starts as an economy when democratization of investment starts.  And the democratization of investment starts with the first issuance of shares in 1602 by the Dutch East India Company    on the Amsterdam Stock Exchange.

The traditional Dutch trading venture often limited to one trip were driving to bankruptcy faced the competition of the Portuguese and the British East India Company. The Dutch government considers that that kind of investment was too risky for small venture and so a big venture was required. But, instead to rely on taxation, the government decides to produce shares given right to the redistribution of profit on the form of dividend and in order to do so the initial share creation was opened to every body from any social status and even to foreigner. The Dutch East India Company became the biggest financial success of this era. The dividend was never less than 12 % a year and reaches even 63 %. The number of employee amounts to 50000. The Dutch East India got government like power as for example starting war. His success marks the start of a new era: the capitalist era.

The relation between the  Dutch East India Company    and Calvinist is that it develops on one of the era where Calvinist has the highest influence: Amsterdam and which has accept a large French Huguenot contingent. The shareholders were mainly from international but Calvinist land. The French who might have the first stock market initiative in the middle age failed to develop it further ahead after the repression of the Huguenot.

On finely, there is little reason for an individual in that kind of venture except following the Calvinist tenet to put in common of your spare cash for the best of the society and the creation of good jobs for the future generation.

On an investment perspective at the date of 1609, it looks to be an investment with a risk extremely hard to evaluate. The venture operates far away and his involve in military conflict, which does not make it a very suitable investment for retirement purpose. A classical retirement investment would rather be low but safe return. As every investment, you have to put cash down with the reward to get cash back in future. If you do not need cash now, what will need it in future? What not use your cash by building a beautiful property that you can sell latter if necessary? The Dutch East India Company offers dividend (propose at least 18 % of the initial offering) but you can hardly control the investment distribution. The managing center in Batavia, Indonesian made the directors extremely independent from the European shareholders.

The Dutch East India Company happens to be an incredible financial success but put in his perspective of 1602, there were little reason to buy shares on the pragmatic base of future retirement or the catholic morality. The existence of shareholder can so be mainly explain by a moral evolution toward the prosperity of future generation, and not only the present one.

The formation of democratic Swiss confederation

The first successful peasant revolution was the one which took place in the latter known Switzerland. Protected by the Alps, the swiss canton of Uri, Schwyz, Unterwalden create a military confederation and defeat the Habsburg army at Morgaten in 1315 and Sempach in 1386. By 1353, the canton of Glarus, Zug, the city of Lucerne, Zurich and Berne joins the federation.

In 1499, the Swiss win their independence by military defeat against German noble army of the Sabian league. The independence from the Hasburg was legalized in 1648 by the treaty of Westphalia.

The Swiss model reminds us the antic Greek model. The Swiss joins into a military confederation in order to defeat their big imperial enemy the Holy German Empire. But, the Swiss succeed to maintain this confederation permanently and Switzerland looks from the outside like a country. Internally, each canton is politically autonomous. Each canton controls their taxation, economic and social politics. On the contrariot, the Greek confederation joins against Persia and then collapse into internal war. The war ends up by the victory and the unification under Philip II of Macedonia. The Greek adventure ends up by an imperialist assault against Persia.  The failure of the antic Greek can be attribute to the heterogeneity of their political and social system. Athena was a mercantilist democracy. Other city-state was Kingdom. Sparta was a king of “communist” republic with two kings elect for one year. The Swiss confederation is a confederation of democracy. As democracy could not be technically practice on a state larger than a city, Swiss decides to be a confederation and not a country submit to the dominance capital city. It is a remarkable and unique achievement. It is also the most stable political structure that has ever existed. Most country has known revolution and invasion. The Swiss are still a confederation of democracy: 500 years latter. The present day Swiss constitution is one of the clearest one and to appreciate it, one can compare it to the messy French constitution of 1958. The Swiss based their politic on the right of tax revolt and so the Swiss got one of the most cost efficient administrations of the world with probably the lowest corruption level.