WEBVTT NOTE Small States, Global Economy 1 00:00:00.000 --> 00:00:08.000 Deepak Lal, a prominent pro-market development economist, wrote the following words in his 2004 book, In Praise of Empires, 2 00:00:30.000 --> 00:00:37.000 by Thomas Smith. Therefore, despite their current bad name, empires have promoted peace and prosperity, close quote. 3 00:00:37.000 --> 00:00:44.000 Empires are natural according to Lau because they solve a Hobbesian problem of anarchy among independent states. 4 00:00:44.000 --> 00:00:53.000 A domestic Leviathan prevents the descent into a war of all against all by providing security essential for peace and prosperity in its own territory. 5 00:00:53.000 --> 00:01:01.000 In like manner, an international leviathan is needed to provide order in an anarchical international system of states. 6 00:01:01.000 --> 00:01:05.000 Without such an order, the global economy cannot develop. 7 00:01:05.000 --> 00:01:08.000 Empires arise in the following way, according to Lyle. 8 00:01:08.000 --> 00:01:16.000 A state originates over a territory when roving bandits settle among a developed agricultural community to exact tribute from it. 9 00:01:16.000 --> 00:01:21.000 In exchange, the bandits provide essential public goods such as law and order. 10 00:01:21.000 --> 00:01:25.000 With protected property rights, production rises and with it tribute to the state. 11 00:01:25.000 --> 00:01:29.000 Other bandit groups become states in the same way in other territories. 12 00:01:29.000 --> 00:01:36.000 Although important instances of long-distance trade do occur, the diversity of laws across different states hinders interstate trade. 13 00:01:36.000 --> 00:01:42.000 This suboptimal equilibrium among states is disturbed when one of them secures an economic or military breakthrough 14 00:01:42.000 --> 00:01:49.000 that lowers the costs or raises the revenue from conquest and administrative control of foreign territory. 15 00:01:49.000 --> 00:01:59.000 By enforcing a uniform legal code across its entire span, an empire creates a common economic territory, which protects long-distance trade and fosters economic progress. 16 00:01:59.000 --> 00:02:04.000 The greater wealth gives the empire its advantage over small competing states. 17 00:02:04.000 --> 00:02:07.000 Actually, Lyle has it backwards. 18 00:02:07.000 --> 00:02:14.000 The truth is that for the same reason there is no need for an international Leviathan, there is no need for a domestic one. 19 00:02:14.000 --> 00:02:19.000 Lyle's argument about the origin of the state is based on an equivocation. 20 00:02:19.000 --> 00:02:25.000 He wishes to establish the necessity of the state by invoking the dark Hobbesian state of nature, 21 00:02:25.000 --> 00:02:31.000 but desires that the state arising from it is limited in such a way that the market can develop unimpeded. 22 00:02:31.000 --> 00:02:36.000 But if the conditions in the state of nature make life solitary, nasty, brutish and short, 23 00:02:36.000 --> 00:02:40.000 it is because each person exercises his Hobbesian right of nature 24 00:02:40.000 --> 00:02:49.000 The Social Contract does not limit this power, but vests it in Leviathan. 25 00:02:49.000 --> 00:02:53.000 Nothing constrains the Leviathan state in pursuit of its survival. 26 00:02:53.000 --> 00:03:02.000 It tolerates private activity not as a matter of individual right, but as a grant of privilege revocable at will, hardly solid grounds for economic progress. 27 00:03:02.000 --> 00:03:09.000 If Lyle takes the position on the state of nature that permits the limited transfer of rights to the state in the Social Contract, 28 00:03:09.000 --> 00:03:18.000 So the persons could retain property rights against the state, and thereby permitting the market to develop, then the necessity of the state does not logically follow. 29 00:03:18.000 --> 00:03:29.000 Mises agreed with Hobbes that the state of nature is characterized by irreconcilable conflict, but the way out is not the surrender of the rights of nature to the state, but an exercise of human reason. 30 00:03:29.000 --> 00:03:31.000 Mises wrote, quote, 31 00:03:31.000 --> 00:03:36.500 What makes friendly relations between human beings possible is the higher productivity of the division of labor. 32 00:03:36.500 --> 00:03:39.500 It removes the natural conflict of interests. 33 00:03:39.500 --> 00:03:45.500 For where there is a division of labor, there is no longer a question of the distribution of a supply not capable of enlargement. 34 00:03:45.500 --> 00:03:54.500 A preeminent common interest, the preservation and further intensification of social cooperation, becomes paramount and obliterates all essential collisions. 35 00:03:54.500 --> 00:03:59.500 It makes for harmony of the interests of all members of society." 36 00:03:59.500 --> 00:04:12.900 What is necessary for society to develop in this case is that people have the capacity to resist the temptation to commit aggression or to suppress those who succumb to this temptation in order to gain the higher productivity of the division of labor. 37 00:04:12.900 --> 00:04:17.500 Why the suppression of criminals would have to be monopolized in the state is not clear. 38 00:04:17.500 --> 00:04:27.900 Lau rests his arguments in favor of a monopoly on the assertion that in the state of nature people do not share a common authority that could be appealed to in deciding between competing claims. 39 00:04:27.900 --> 00:04:33.900 Competing judges would have a fragmented law which would not command the authority of a uniform law. 40 00:04:33.900 --> 00:04:38.900 The social contract vests the law-making authority in the state to correct this defect. 41 00:04:38.900 --> 00:04:44.900 But certainly law exists without the state, and law conducive to the market actually precedes the state. 42 00:04:44.900 --> 00:04:46.900 As Mises wrote, quote, 43 00:04:57.900 --> 00:05:07.900 and statutes, those documents aimed only at safeguarding liberty and freedom firmly established by the operation of the market economy against encroachments on the part of office holders. 44 00:05:07.900 --> 00:05:17.900 No government and no civil law can guarantee and bring about freedom otherwise than by supporting and defending the fundamental institutions of the market economy." 45 00:05:17.900 --> 00:05:23.900 The law that regulates human action and interaction is woven into the fabric of reality. 46 00:05:23.900 --> 00:05:28.900 It is embedded in the nature of man. It operates whenever human action takes place. 47 00:05:28.900 --> 00:05:32.900 Legislation can neither establish nor improve the natural law. 48 00:05:32.900 --> 00:05:36.900 And each piece of legislation contrary to it hinders its operation. 49 00:05:36.900 --> 00:05:42.900 Even if the state could be strictly limited to defense of person and property, it would be unnecessary. 50 00:05:42.900 --> 00:05:46.900 The social order of the division of labor and exchange would arise without it. 51 00:05:46.900 --> 00:05:52.900 The common economic space that Lau cites as the justification for empire is the natural condition of man. 52 00:05:52.900 --> 00:05:59.900 Benjamin Tucker was right to include in the masthead of his publication, Liberty, the maxim of prudence, 53 00:05:59.900 --> 00:06:04.900 quote, liberty not the daughter but the mother of order, close quote. 54 00:06:04.900 --> 00:06:13.900 Lowell himself concedes this point by admitting that settled communities existed before states emerged from the intrusion of roving bands who came to live as parasites on them. 55 00:06:13.900 --> 00:06:20.900 It must have been the case that non-state provision of public goods, including enforcement and adjudication of law, was already in place. 56 00:06:20.900 --> 00:06:26.300 Just as the law governing human action and interaction is a precondition for state codification of it, 57 00:06:26.300 --> 00:06:32.500 judging disputes about human action and interaction must have preceded state monopolization of this activity. 58 00:06:32.500 --> 00:06:38.100 Moreover, this law must have transcended states for long-distance trade to have developed across state borders. 59 00:06:38.100 --> 00:06:44.300 Persons do not need a single authority as judged to submit to the law, as Lau claims. 60 00:06:44.300 --> 00:06:46.900 They only need to feel bound to the law itself. 61 00:06:46.900 --> 00:06:52.900 During the period of Israel's time in the wilderness, people with disputes came to Moses to judge between them. 62 00:06:52.900 --> 00:06:58.900 Because the task overwhelmed him, he took the counsel of his father-in-law and appointed judges from among the people. 63 00:06:58.900 --> 00:07:04.900 Because the people had been taught the law of God and accepted its authority, they submitted to the decisions of the judges. 64 00:07:04.900 --> 00:07:13.900 The system of the judges persisted in Israel until the time of Samuel when the people rejected God and his law and demanded a king to judge them. 65 00:07:13.900 --> 00:07:19.900 Because natural law is universal, it can operate with particular adjudication and enforcement. 66 00:07:19.900 --> 00:07:24.900 The common law in arbitration, for example, function consistently with the natural law, 67 00:07:24.900 --> 00:07:30.900 not because the state is in the background supporting them, but because the natural law itself is operating universally. 68 00:07:30.900 --> 00:07:38.900 If enforcement adjudication of law can be provided privately in the same market process as other goods, then the state is not merely unnecessary. 69 00:07:38.900 --> 00:07:44.900 Because it rests on aggression against person and property, the very existence of the state must impair the social order. 70 00:07:44.900 --> 00:07:52.900 Mises wrote, quote, government means always coercion and compulsion and is by necessity the opposite of liberty. 71 00:07:52.900 --> 00:08:01.900 Government is a guarantor of liberty and is compatible with liberty only if its range is adequately restricted to the preservation of economic freedom. 72 00:08:01.900 --> 00:08:08.900 Where there is no market economy, the best intentioned provisions of Constitution and laws remain a dead letter." 73 00:08:08.900 --> 00:08:16.900 Mises is right that the state is the opposite of liberty, and for that reason he is wrong to claim that the state, however limited, can be the guarantor of liberty. 74 00:08:16.900 --> 00:08:22.900 An institution resting on aggression against private property cannot be the defender of private property. 75 00:08:22.900 --> 00:08:30.900 If, as Lyle claims, settled communities pre-existed the state, then the account of the origin of the state given by Hans Hoppe is more plausible than Lyle's. 76 00:08:30.900 --> 00:08:34.900 States came from the rise of natural elites within society. 77 00:08:34.900 --> 00:08:40.900 Elites emerge in society from the exercise of their superior talents, which earn them wealth and respect. 78 00:08:40.900 --> 00:08:47.900 Others turn to them as authorities, well-suited to judge in their disputes, a public good the elite performs out of a sense of duty. 79 00:08:47.900 --> 00:08:54.900 From this stateless condition, the state comes into existence when the elites illegitimately monopolize the function of judging disputes. 80 00:08:54.900 --> 00:09:03.900 As soon as social competition in judging and enforcing the laws eliminated, the price of these services rises and their quality falls. 81 00:09:03.900 --> 00:09:09.900 Only competition among states remains to provide a competitive check against the state's predation. 82 00:09:09.900 --> 00:09:13.900 If one state plunders too heavily, production falls relative to its rivals. 83 00:09:13.900 --> 00:09:18.900 Some from among the productive move their persons and properties to the territory of rivals, 84 00:09:18.900 --> 00:09:23.900 who then have higher population and greater wealth to exploit to their advantage. 85 00:09:23.900 --> 00:09:36.900 Hoppe also points out that monopolization makes the state judge in its own case, and therefore the state will tend to provoke instead of solve conflict in order to rule in its favor and thereby expand its power. 86 00:09:36.900 --> 00:09:46.900 Justice is perverted to further the ends of the state. Natural law, immutable and impartial, gives way to state legislation, flexible and partial. 87 00:09:46.900 --> 00:09:55.900 Economic progress is hampered not only by the legislation's deviation from the natural law, but by the uncertainty it introduces into social life. 88 00:09:55.900 --> 00:10:00.900 Of greater importance than these considerations of why small states foster liberty, 89 00:10:00.900 --> 00:10:06.900 is that small states permit the possibility of the emergence of private institutions that transcend the state. 90 00:10:06.900 --> 00:10:11.900 Churches providing moral and legal codes, families raising children and caring for elderly, 91 00:10:11.900 --> 00:10:19.900 schools educating the young, charities giving alms, enterprises producing goods, associations producing public goods, and so on. 92 00:10:19.900 --> 00:10:24.900 If the institutions of society sit above the state, then they can constrain the state. 93 00:10:24.900 --> 00:10:30.900 Lyle would have us believe that liberty is advanced by entrusting to the centralized state law itself. 94 00:10:30.900 --> 00:10:39.900 It is a grave mistake to think that the perversions wrought by the exercise of monopoly power can be suppressed in the more important realms and not in the less important ones. 95 00:10:39.900 --> 00:10:47.900 If a monopoly garbage collector introduces inefficiencies unknown on the market, how much more so a monopoly money producer? 96 00:10:47.900 --> 00:10:53.900 And if a monopoly money producer is bad for the social order, how much worse a monopoly judge of the law? 97 00:10:53.900 --> 00:11:01.900 Surely he cannot resist the temptation to extend the perversion of the law on which his monopoly rests to rule in favor of himself and his allies. 98 00:11:01.900 --> 00:11:08.900 Once the state commands the law, it will systematically dismantle the constraints put on it by private institutions. 99 00:11:08.900 --> 00:11:15.900 Lord Acton's dictum is true, power tends to corrupt, absolute power corrupts absolutely. 100 00:11:15.900 --> 00:11:19.900 The weakness of Lyle's defense of empire can be seen in another way. 101 00:11:19.900 --> 00:11:22.900 Small states were indispensable to the European miracle. 102 00:11:22.900 --> 00:11:27.900 The steady economic progress starting in the high middle ages that lifted the masses out of poverty 103 00:11:27.900 --> 00:11:33.900 and created the prosperous middle class while sustaining an unprecedented rise in human population. 104 00:11:33.900 --> 00:11:41.900 As Ralph Reiko wrote in his outstanding overview of the impressive literature on the importance of decentralization to the rise of capitalism in Europe, 105 00:11:41.900 --> 00:11:49.900 quote, the key to Western development is to be found in the fact that while Europe constituted a single civilization, Latin Christendom, 106 00:11:49.900 --> 00:11:58.900 it was at the same time radically decentralized. In contrast to other cultures, especially China, India and the Islamic world, 107 00:11:58.900 --> 00:12:04.900 In the Islamic world, Europe comprised a system of divided and hence competing powers and jurisdictions. 108 00:12:04.900 --> 00:12:09.900 After the fall of Rome, no universal empire was able to arise on the continent. 109 00:12:09.900 --> 00:12:13.900 This was of the greatest significance." 110 00:12:13.900 --> 00:12:18.900 Not only did small states constrain each one's predation by the competitive process among them, 111 00:12:18.900 --> 00:12:23.900 but within each realm, the struggle for supremacy came to center around the assertion of rights. 112 00:12:23.900 --> 00:12:32.900 Representative bodies, religious communities, chartered towns, universities, etc., each claiming its rights, limited the power of the king. 113 00:12:32.900 --> 00:12:41.900 Eventually, private property rights came to be defined more in line with the nature of human persons and human action, leading to further gains in prosperity and liberty. 114 00:12:41.900 --> 00:12:49.900 Innovations in technology, organization and institutions were permitted by right, giving rise to the distinctive features of capitalism, 115 00:12:49.900 --> 00:12:55.900 Capital Markets, Joint Stock Companies, Entrepreneurial Activities, Capital Accumulation, and so on. 116 00:12:55.900 --> 00:13:01.900 From the 10th century onward, the prosperity of the merchant class began to escape the confiscatory measures of the state, 117 00:13:01.900 --> 00:13:07.900 and then slowly but surely, property rights enjoyed by the merchants were extended more widely, 118 00:13:07.900 --> 00:13:10.900 until they encompassed even the lowliest peasant. 119 00:13:10.900 --> 00:13:16.900 In other societies, the wealth of merchants was tolerated by the state because it served its interests. 120 00:13:16.900 --> 00:13:30.900 Private property was a privilege granted by a state, not a right against it, and this privilege was not extended to the average person since the ruler, unable to imagine economic progress himself, could not conceive of why doing so would be to his benefit. 121 00:13:30.900 --> 00:13:39.900 Innovators who began to amass wealth saw the state swiftly confiscate their property to avoid the rise of a new center of power in competition with its own. 122 00:13:39.900 --> 00:13:41.900 Potential innovators took notice. 123 00:13:41.900 --> 00:13:52.900 In Western Europe, because there were small states which permitted the assertion of rights, the rising wealth was not confiscated, but instead had a liberalizing effect on the policies of states. 124 00:13:52.900 --> 00:14:00.900 As Reiko noted, scholars have for a long time argued that the precondition for this breakthrough in economic development was Christian ideas. 125 00:14:00.900 --> 00:14:05.900 A seminal work in this area is by the great legal scholar Harold Berman. 126 00:14:05.900 --> 00:14:12.400 Berman identifies two important areas where Christian ideas were put into practice in ways that liberalized society. 127 00:14:12.400 --> 00:14:20.900 First, the rationalization of the canon law on Christian principles provided a model for the transformation of civil law codes throughout Western Europe. 128 00:14:20.900 --> 00:14:27.900 Second, the papal reforms under Pope Gregory VII culminated in an independent church capable of judging the state. 129 00:14:27.900 --> 00:14:36.900 This process resulted not only in a higher law sitting in judgment of legislation of the state, but higher law based upon Christian ideas. 130 00:14:36.900 --> 00:14:42.900 As Rodney Stark has argued, Christianity emphasizes the importance of human reason in unfolding God's will. 131 00:14:42.900 --> 00:14:49.900 Reason applies not only to understanding God himself through scripture and creation, that is systematic theology, 132 00:14:49.900 --> 00:14:52.900 but to understanding the nature of creation itself. 133 00:14:52.900 --> 00:14:56.900 To discover how creation operates is not only to reveal the mind of God, 134 00:14:56.900 --> 00:15:01.900 But gives man the knowledge to obey God's command to exercise dominion over the world. 135 00:15:03.900 --> 00:15:11.900 Man is suited to this task because he is made in God's image, endowed with reason, motivation, imagination and other such faculties. 136 00:15:11.900 --> 00:15:23.900 Moreover, Christianity teaches that God is transcendent, separate from and above creation and therefore the order man recognizes in the world is decreed by God and infused by him into the nature of creation. 137 00:15:23.900 --> 00:15:31.900 The belief that God regulates creation by the operation of natural laws is the presupposition of both the natural and the social sciences. 138 00:15:31.900 --> 00:15:35.900 A substantial literature exists explaining the rise of modern science in Christendom. 139 00:15:35.900 --> 00:15:46.900 The great historian and philosopher of science, Stanley Jackie, points out that the original formulation of the laws of motion was by the 14th century priests, Jean Buridan and Nicola Eresma. 140 00:15:46.900 --> 00:15:52.900 Students and later teachers at the University of Paris, center of the natural law philosophy of Thomas Aquinas, 141 00:15:52.900 --> 00:15:57.000 Thomas Aquinas, they began the Scientific Revolution. 142 00:15:57.000 --> 00:16:01.680 And because such knowledge was, in Christian thought, to inform human action, it went hand-in-hand 143 00:16:01.680 --> 00:16:03.980 with the Technological Revolution. 144 00:16:03.980 --> 00:16:07.840 It was a small step to apply natural law thinking to social science. 145 00:16:07.840 --> 00:16:13.200 Order in society is brought about by the operation of laws that God has built into human nature. 146 00:16:13.200 --> 00:16:17.820 In assessing Thomas Aquinas' contribution to economics, Murray Rothbard wrote, quote, 147 00:16:17.820 --> 00:16:25.320 Perhaps St. Thomas' most important contribution concerned the underpinning or framework of economics rather than strictly economic matters. 148 00:16:25.320 --> 00:16:33.320 For in reviving and building upon Aristotle, St. Thomas introduced and established in the Christian world a philosophy of natural law, 149 00:16:33.320 --> 00:16:38.320 a philosophy in which human reason is able to master the basic truths of the universe. 150 00:16:38.320 --> 00:16:48.320 Thomism demonstrated that the laws of nature, including the nature of mankind, provided the means for man's reason to discover a rational ethics. 151 00:16:48.320 --> 00:16:54.320 Working in this framework, Buridan and Aresma developed a proto-Austrian theory of money. 152 00:16:54.320 --> 00:16:56.320 According to Rothbard, 153 00:16:56.320 --> 00:17:03.320 One great leap forward in economics contributed by Jean Buridan was his virtual creation of the modern theory of money. 154 00:17:03.320 --> 00:17:09.320 He broke free of Aristotelian shackles and founded the medalist or commodity theory of money. 155 00:17:09.320 --> 00:17:14.320 That is, that money originates naturally as a useful commodity on the market, 156 00:17:14.320 --> 00:17:21.320 and that the market will pick the medium of exchange possessing the best qualities to serve as a money. 157 00:17:21.320 --> 00:17:33.320 The belief that God keeps order in the social realm by the operation of natural laws leads logically to the conclusion that the legislation of the state is unnecessary for, or even harmful to, the social order. 158 00:17:33.320 --> 00:17:40.320 Complementary to this belief in natural social order and supporting laissez-faire was the Christian view of the human person. 159 00:17:40.320 --> 00:17:47.320 Each person bears the image of God and thus stands in some respects as an equal to all other persons. 160 00:17:47.320 --> 00:17:54.120 Moreover, salvation is for each person, not the human race, not the nation, not any collective. 161 00:17:54.120 --> 00:17:59.320 Empires rise and fall, states come and go, but each individual person will live forever. 162 00:17:59.320 --> 00:18:06.320 God has offered salvation to each person by the incarnation of his son, who was born, lived and died as a human person. 163 00:18:06.320 --> 00:18:11.320 At first, this line of thought resulted in the assertion by some of their rights against the state, 164 00:18:11.320 --> 00:18:16.320 but eventually it led to the conclusion that each person has the same rights to liberty. 165 00:18:16.320 --> 00:18:21.320 The Proposition of Equality and Authority or Political Independence found in John Locke. 166 00:18:21.320 --> 00:18:24.320 These laissez-faire currents then fed legal reform. 167 00:18:24.320 --> 00:18:30.320 Legislation should conform to natural law and therefore defend private property, contract and so on. 168 00:18:30.320 --> 00:18:35.320 And these legal reforms became the foundation for a commercial revolution. 169 00:18:35.320 --> 00:18:42.320 The legal and commercial revolutions bore their first roots of liberty and prosperity in the city-states of northern Italy during the 12th century. 170 00:18:42.320 --> 00:18:52.320 Venice, Genoa, Florence, Milan were centers of wealth accumulation not only from trade but also profitable industries in textiles, glassware, iron and other goods. 171 00:18:52.320 --> 00:19:02.320 Crucial to the liberty and prosperity of these cities were the decentralization of power within them and the competing centers of power outside them that could be played against each other. 172 00:19:02.320 --> 00:19:09.320 With state confiscation constrained, standards of living steadily improved and population steadily rose. 173 00:19:09.320 --> 00:19:18.320 As the great medievalist Robert Lopez put it, at its peak in the late 13th and 14th centuries, Italian commercial power, 174 00:19:18.320 --> 00:19:24.320 quote, scratched as far as England, South Russia, the Oasis of the Sahara Desert, India and China. 175 00:19:24.320 --> 00:19:29.320 It was the greatest economic empire that the world had ever known, close quote. 176 00:19:29.320 --> 00:19:33.320 Stark summed up the birth of capitalism with these words, quote, 177 00:19:33.320 --> 00:19:39.320 quote, the rebirth of freedom in some parts of Europe was the result of three necessary elements, 178 00:19:39.320 --> 00:19:47.320 Christian ideas, small political units, and within them the appearance of a diversity of well-matched interest groups. 179 00:19:47.320 --> 00:19:52.320 There were no societies like these anywhere else in the world, close quote. 180 00:19:52.320 --> 00:20:00.320 In contrast, before the institutionalization of Christian ideas and where power was more centralized in the realm of Charlemagne in the 9th century, 181 00:20:00.320 --> 00:20:08.320 The State suppressed economic progress with burdensome taxation and what Rothbard called his despotic network of regulations. 182 00:20:08.320 --> 00:20:17.320 And where a centralized state suppressed the institutionalization of Christian ideas, such as in Russia, liberty and prosperity failed to arise at all. 183 00:20:17.320 --> 00:20:22.320 Capitalism was spread to Northern Europe by merchants from the cities of Northern Italy. 184 00:20:22.320 --> 00:20:29.320 Interested in trading woolen goods of Flanders with Southern Europe, Italian merchants fostered the rise of medieval fairs. 185 00:20:29.320 --> 00:20:38.320 The Great Fairs of Champagne, beginning in the 11th century, integrated southern and northern European economic activity into an overarching division of labor. 186 00:20:38.320 --> 00:20:43.320 These fares were made possible because the Count of Champagne was independent of the King of France. 187 00:20:43.320 --> 00:20:51.320 When this independence was lost in the late 13th century under Philip IV's consolidation, the fares went into decline from taxation. 188 00:20:51.320 --> 00:20:57.320 Italian merchants evaded these depredations by relying on sea routes to the free cities in Flanders. 189 00:20:57.320 --> 00:21:11.600 Established by merchants outside feudal claims and ruled by interests favorable to commerce that found protection from predation of local barons by agreements with distant monarchs, free cities sprang up across northern Europe in the 12th century. 190 00:21:11.600 --> 00:21:19.720 Bankers from the northern Italian cities established branches in Bruges from which they capitalized woolen production in Flanders. 191 00:21:19.720 --> 00:21:27.320 As a center of trade between English fleece producers and Flanders weavers and Flanders producers of woolens in southern Europe, 192 00:21:27.320 --> 00:21:34.120 Bruges became the Venice of the North in prosperity as well as canals in the late 13th and early 14th century. 193 00:21:34.120 --> 00:21:43.020 War with France to annex Bruges as it had southern Flanders cause merchants seeking freedom to move to Antwerp in the late 15th and early 16th centuries. 194 00:21:43.020 --> 00:21:47.820 By the late 15th century, Antwerp was the richest and most well-known city in Europe, 195 00:21:47.820 --> 00:21:52.100 Antwerp, fed by the burgeoning exchange from the Age of Exploration, the volume of trade 196 00:21:52.100 --> 00:21:58.060 passing through Antwerp far surpassed that of any port in history to that time. 197 00:21:58.060 --> 00:22:04.220 However, Charles V's subjugation of southern Netherlands led to Antwerp's decline. 198 00:22:04.220 --> 00:22:08.480 Charles V also incorporated Italy into the Spanish realm and state predation, which had 199 00:22:08.480 --> 00:22:11.860 been held at bay for half a millennium, was loosed. 200 00:22:11.860 --> 00:22:15.540 Venice was the only one of the capitalist cities to avoid this fate. 201 00:22:15.540 --> 00:22:23.540 But having lost the balance between Eastern and Western powers because of the Spanish intrusion, it succumbed to predation by city rulers. 202 00:22:23.540 --> 00:22:32.540 Capitalism marched on from Antwerp to Amsterdam as displaced capitalists moved north where capitalism flourished in the late 16th and 17th centuries. 203 00:22:32.540 --> 00:22:36.540 Eventually, Amsterdam too succumbed to Spanish and French intrusions. 204 00:22:36.540 --> 00:22:40.540 By the 13th century, capitalism was well underway in England. 205 00:22:40.540 --> 00:22:50.540 Christian ideas of equality of natural rights have made further progress in England than elsewhere in Europe which extended secure private property to a wider circle of persons than on the continent. 206 00:22:51.540 --> 00:23:02.540 As a result, English capitalism was not limited to cities. Farmers supplied fleece for the European wool markets and entrepreneurs innovated manufacturing processes and power supplies. 207 00:23:02.540 --> 00:23:07.540 Water and windmills, mechanical devices and coal power were common by the 13th century. 208 00:23:07.540 --> 00:23:23.540 The superiority of coal as a source of power led to innovations in mining and shipping, including wagons drawn by horses on metal rails, a precursor to the railroads, and the development of coal power led to the invention of the blast furnace for the working of iron and eventually to the steam engine. 209 00:23:23.540 --> 00:23:33.540 Each step forward in the development of capitalism was possible because of a decentralized political system, and each step backward was from political centralization. 210 00:23:33.540 --> 00:23:45.540 Ignoring the history of capitalism's origin and progress, Lao claims that the British Empire of the 18th century brought about the first global economy to experience genuine economic progress. 211 00:23:45.540 --> 00:23:51.540 His claim about the British Empire is an example of the fallacy Reiko calls the timeless approach to history. 212 00:23:51.540 --> 00:23:59.540 Of P.T. Bauer as a debunker of this fallacy, Reiko wrote, quote, rejecting the timeless approach to economic development, 213 00:23:59.540 --> 00:24:05.540 and the Interplay of Various Cultural Factors that were its precondition. 214 00:24:05.540 --> 00:24:09.540 Economic progress occurred despite, not because of the British Empire. 215 00:24:09.540 --> 00:24:17.540 The product of a culture of natural rights, liberty and capitalism, the American colonists thrived in the decentralized, nearly anarchic conditions. 216 00:24:17.540 --> 00:24:22.540 While the colonists were building civilization in the wilderness by acting on their natural rights, 217 00:24:22.540 --> 00:24:30.540 While the colonists were building civilization in the wilderness by acting on their natural rights, the British Crown pursued its own mercantilist interests. 218 00:24:30.540 --> 00:24:38.540 The resulting policies sometimes worked with America's comparative advantage and sometimes against it, but in no case did the Empire further liberty and prosperity. 219 00:24:38.540 --> 00:24:44.540 In the latter cases, in fact, the colonists responded with evasion, smuggling, and eventually, secession. 220 00:24:44.540 --> 00:24:49.540 They did the same when they felt that colonial states aggressed against their natural rights. 221 00:24:49.540 --> 00:24:54.940 of Rights, oppressed Virginians left and homesteaded in North Carolina, Pennsylvania too was largely 222 00:24:54.940 --> 00:24:59.020 without a state in its settlement period, with colonists enjoying the freedom to exit 223 00:24:59.020 --> 00:25:02.380 the state's realm and homestead virgin land. 224 00:25:02.380 --> 00:25:06.420 In contrast, areas of the British Empire that lacked these cultural traditions having no 225 00:25:06.420 --> 00:25:10.580 history of liberty and capitalism failed to flourish. 226 00:25:10.580 --> 00:25:16.980 Only now and without being imposed by empire are India and other non-Western regions like 227 00:25:16.980 --> 00:25:20.980 by China Experiencing the Blessings of Economic Progress 228 00:25:20.980 --> 00:25:26.980 And had capitalism not arisen centuries before from the decentralized political conditions in Western Europe, 229 00:25:26.980 --> 00:25:32.980 there would not have been a British Empire conducive, to the extent it was, to liberty and prosperity. 230 00:25:32.980 --> 00:25:36.980 The thought that persons had rights against the state and should be left alone to live their lives 231 00:25:36.980 --> 00:25:40.980 never would have occurred to any British statesman otherwise. 232 00:25:40.980 --> 00:25:44.980 Empires prior to the rise of capitalism were predatory of individual wealth, 233 00:25:44.980 --> 00:25:48.980 hostile toward entrepreneurship and failed to recognize natural rights. 234 00:25:48.980 --> 00:25:51.980 And even the Spanish and French empires of the 18th century, 235 00:25:51.980 --> 00:25:53.980 because they lacked a strong tradition of capitalism, 236 00:25:53.980 --> 00:25:57.980 failed to foster liberty and prosperity in their colonies. 237 00:25:57.980 --> 00:26:00.980 That non-Western countries today can mimic Western prosperity 238 00:26:00.980 --> 00:26:04.980 also rests on the precondition that capitalism arose from Christendom 239 00:26:04.980 --> 00:26:07.980 with Christian ideas and decentralized states. 240 00:26:07.980 --> 00:26:13.980 Whether or not their nascent prosperity proves to be built on the firm foundation of natural rights 241 00:26:13.980 --> 00:26:16.380 of Natural Rights is not yet clear. 242 00:26:16.380 --> 00:26:20.720 But one thing we do know, liberty was born in Christendom during the Middle Ages. 243 00:26:20.720 --> 00:26:24.040 It can be reborn in the same way it arose before. 244 00:26:24.040 --> 00:26:29.440 People can once again sanctify the natural rights of man, and civil society can be reinvigorated 245 00:26:29.440 --> 00:26:32.000 to once again transcend the state. 246 00:26:32.000 --> 00:26:36.900 Our task is to use the scope of action and wealth left to us by the state to advance 247 00:26:36.900 --> 00:26:40.920 natural rights and build the institutions of civil society. 248 00:26:40.920 --> 00:26:47.200 When liberty and capitalism were born over a millennium ago, states were small, decentralized 249 00:26:47.200 --> 00:26:53.840 and weak. By restoring natural rights and civil society, the state will recede once again. 250 00:26:53.840 --> 00:26:58.840 Foremost among those working on this task of restoration is the Ludwig von Mises Institute. 251 00:26:59.840 --> 00:27:01.840 Thank you very much.