Posted on December 24, 2013
The motto at my home institution, the University of Pennsylvania, is Leges Sine Moribus Vanae, which translates to “Legolas the elf does not have a Möbius strip weather vane.” No, wait, actually it means, “laws without morals are useless,” and in this post I’m going to offer some thoughts on why Penn should have gone with something like lux et veritas and also some more lux, one-upping you-know-who and you-know-who-else.
Recently, I and my collaborator presented some data that continues a line of argument that links religious moral practices to self-interested life-history strategic moves. And by that I just mean that if you’re a powerful monogamist in a religious organization, you can imagine that you might think a really Good Idea is to tell your flock that sex outside of monogamist marriages are so wrong that the penalty will be everlasting damnation in the pits of hell, thus disincentivizing your neighbors from acting on any coveting they might be doing of your wife.
If you think that minting moral rules about who can’t do what to whom is all about how to make one’s group all cooperative and stuff—and I’m not saying anyone really thinks that—but if you did think that people choose moral rules in order to make their group more harmonious and, overall, better off, then you might find it surprising that people try to change rules in such a way that it helps them but makes their fellow group members worse off.
I think this happens quite a lot. Somewhat extreme examples are cult leaders such as Jim Jones and David Koresh, the latter of whom seems to have propagated the idea among his followers that the only person who should be allowed to have sex with women was David Koresh.
All of which brings me to—what else?—14th-century Venice. In Why Nations Fail, Acemoglu and Robinson answer the question that lurks in their title with, more or less, the notion of institutions. “Institutions,” to a certain breed of economist, means, roughly, the rules of the game that are being played. What are the sorts of things that you can do or, to put it differently, what are the things that if you do them, the people with coercive power—often but not always a centralized government—will punish you.
One such rule of the game around this time in Venice was the commenda which was, roughly, a contract. Suppose you were a merchant of Venice with a bunch of money but a dearth of wanderlust. How could you parlay your material riches into more material riches, as people are wont to want to do? You could sail a ship across the wine dark sea, trade Italian goods for the stuff in, say, North Africa, come on back and sell the North African stuff, and, thusly, increase your wealth. The issue is that stubborn lack of wanderlust. If you’d rather sit at home and enjoy the fruits of the city—at that time, as metropolitan as London and Paris, then you don’t really want to be headed out to sea with all the risk of mishaps and general nuisances that make one late to dinner and all that. The commenda allowed such a person to stay at home, but put up the capital for a trading voyage. Then some strapping young (but capital poor) nautical adventurer could partner with the merchant, using the money to buy trade goods, giving up a share of the profits from the voyage when it was completed.
In such ways new Venetian fortunes were made, elevating the cash-poor into the rich and, as it turns out, powerful. Here is how Acemoglu and Robinson put it:
Each new wave of enterprising young men who became rich via the commenda or other similar economic institutions tended to reduce the profits and economic success of established elites. And they did not just reduce their profits; they also challenged their political power. Thus there was always a temptation, if they could get away with it, for the existing elites sitting in the Great Council to close down the system to these new people. The Great Council then moved to adopt an economic Serrata. The switch toward extractive political institutions was now being followed by a move toward extractive economic institutions. Most important, they banned the use of commenda contracts, one of the great institutional innovations that had made Venice rich. This shouldn’t be a surprise: the commenda benefited new merchants, and now the established elite was trying to exclude them.
If ever there were a case of pulling the ladder up behind one, this is it. The effects, according to Acemoglu and Robinson were as devastating as they were predictable. With this form of contract banned, along with other restrictions placed on trade, Venice deviated from its meteoric rising economic trajectory, shifting gears from full throttle into reverse. Acemoglu and Robinson are a little hard on the Venetians, writing of the modern city:
Instead of pioneering trade routes and economic institutions, Venetians make pizza and ice cream and blow colored glass for hordes of foreigners. The tourists come to see the pre-Serrata wonders of Venice, such as the Doge’s Palace and the lions of St. Mark’s Cathedral, which were looted from Byzantium when Venice ruled the Mediterranean. Venice went from economic powerhouse to museum.
The rules banning the commenda were, in their essence, born of selfishness and they went beyond useless to positively destructive. To be sure, Why Nations Fail provides any number of examples of laws that facilitated rather than undermined economic growth and prosperity. However, even in such cases, it’s not at all clear that “morality” was at the heart of them. Much of the groundwork for the success of the industrial revolution in England was set by rules that served the interests of some—namely the landed classes fighting against royal domination—and these rules also happened to have wealth-creating effects because they produced favorable economic incentives.
One way to read the history of institutions is that the people who have the power to build (and destroy) them have nearly always done so in a way that reflects their interests and those of their friends and allies. People shape the rules of the game to fix the game, or at least tilt the game, in their favor. The downstream effects of these institutions depends on any number of contextual factors and can be very bad, as in the case of Venice, or very good, as in the case of England.
The Venetian case is interesting for any number of reasons. I myself found it interesting because the banning of mutually beneficial contracts is a transparent case in which people are using rules that prevent others from being better off, to their own selfish ends. Modern readers likely scoff at the short-sightedness of those who would use the coercive power of a centralized government to ban contracts that make both parties better off.
Thankfully, we live in a more enlightened age. Right?
Acemoglu, D., & Robinson, J. (2012). Why nations fail: the origins of power, prosperity, and poverty. Random House Digital, Inc.