The Reformation financed the Industrial Revolution

After millennia of stagnation, why did the European economy explode in the 17th century into what economic historians call the hockey stick of per capita GDP? We know that Christianity had finally made an impact on envy; Christian individualism had broken out; modern science, created by Christian theologians, began to contribute; the Salamancan scholars persuaded people to respect commerce and protect property. Those are all necessary ingredients. Still, where did business people get the money to invest?

Marx claimed that Europe stole it from the Americas when Spain began looting it colonies of gold and silver. But Spain never took part in the Industrial Revolution and declined in wealth and power throughout the 17th century.

Europe lacked the wealth needed to ignite the revolution for two reasons. One was the conspicuous consumption of the nobility. They held to an economic principle that their spending benefitted the poor, so they were required to spend as much as possible on moral/economic grounds. Also, their status in the community required them to spend lavishly on houses and throw parties with great banquets. Had investing in business interested the nobility, which it didn’t, they would have had no savings to invest.

Big State Good For Growth? Then Why Did Humanity Starve For Millennia Under Big States?

Among the debates between socialists and capitalists is the question of who made the West so rich? Was it private enterprise or the state? Former President Barack Obama energized the discussion when he told us, "If you’ve got a business, you didn't build that. Somebody else made that happen" during a 2012 election campaign speech.

The left continues to prop up the idea that the state is the fount of all blessings. Mariana Mazzucato, Professor of the Economics of Innovation and Public Value and Director of the Institute for Innovation and Public Purpose at University College London, wrote recently that western economies are failing because the people have hobbled the state:

The View Through Copper Colored Glasses

If you own a sailboat you know that copper infused paint protects the hull of your boat from barnacles. Plumbers like copper because it kills bacteria. Copper may also be good for your portfolio. To understand why, we need to keep in mind the method the National Bureau of Economic Research uses to define recessions.

The NBER waits until after GDP falls for two consecutive quarters. The lowest quarter becomes the bottom or end of the recession. The next quarter is the beginning of the recovery. Then the NBER gnomes crawl backwards through the data to find the most recent peak of GDP growth. The quarter after marks the beginning of the recession. So we don’t officially learn that we are in a recession until the recovery starts, sometimes 18 months after the recession has begun.

Financial Education Fails

 Many people share a strong pessimism about the future of Social Security while secure pensions from a lifetime of working for the same company have followed the path of buggy whips. So in spite of decades in which the nanny state tried to protect people from life, people feel  less secure than ever. 

As usual and when all else fails, the experts turned to education. Teaching people about the miracle of compound interest and providing GPS guides to navigate the forest of investment alternatives and complex securities would empower consumers to make wise investment decisions. But as usual it failed according to a paper by three academics who analyzed 168 papers covering 201 prior studies. The paper, “Financial Literacy, Financial Educationand Downstream Financial Behaviors” was made available online in January and will appear in a forthcoming journal, Management Science. The authors concluded that

These interventions cost billions of dollars in real spending and larger opportunity costs when these interventions supplant other valuable activities. Our meta-analysis revealed that financial education interventions studied explained only about 0.1% of the variance in the financial behaviors studied, with even weaker average effects of interventions directed at low-income rather than general population samples.