Schweizerische Nationalbank · SIX:SNBN
Schweizerische Nationalbank — Investor Presentation (September 2022)
60 slides from Schweizerische Nationalbank's investor presentation, Sep 22, 2022
Slide 1: The Influence of Religious Thinking on Economic Thinking: The Origins of Modern Economics
The Influence of Religious Thinking on Economic Thinking: The Origins of Modern Economics Benjamin M. Friedman William Joseph Maier Professor of Political Economy Harvard University Karl Brunner Distinguished Lecture | 22 September 2022
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Slide 3: Religion and the Rise of Capitalism
RELIGION and the Rise of CAPITALISM Benjamin M. Friedman
Slide 4: The central question
The central question: • Where did the thinking behind modern Western economics come from? And why did it emerge when, and where, it did? • The first fundamental welfare theorem of economics: • Individuals, acting in their own self-interest in a competitive market setting, make not just themselves bu
Slide 5: The usual presumptions
The usual presumptions: • Adam Smith, The Wealth of Nations (1776) • “… Smith’s Wealth of Nations, the fountain-head of classical political economy” (Donald Winch)
Slide 6: The usual presumptions
The usual presumptions: • Adam Smith, The Wealth of Nations (1776) • “… Smith’s Wealth of Nations, the fountain-head of classical political economy” (Donald Winch) • Smith, and “economics” more generally, were products of the Enlightenment • A movement away from God-centered conceptions of the unive
Slide 7: The usual presumptions
The usual presumptions: üAdam Smith, The Wealth of Nations (1776) • “… Smith’s Wealth of Nations, the fountain-head of classical political economy” (Donald Winch) • Smith, and “economics” more generally, were products of the Enlightenment • A movement away from God-centered conceptions of the univer
Slide 8: The usual presumptions
The usual presumptions: üAdam Smith, The Wealth of Nations (1776) • “… Smith’s Wealth of Nations, the fountain-head of classical political economy” (Donald Winch) • Smith, and “economics” more generally, were products of the Enlightenment • A movement away from God-centered conceptions of the univer
Slide 9: My answer
My answer: üAdam Smith, The Wealth of Nations (1776) • “… Smith’s Wealth of Nations, the fountain-head of classical political economy” (Donald Winch) üThe Smithian Revolution was enabled by, among other influences, new religious thinking in the English-speaking Protestant world in which Smith lived
Slide 10: Martin Luther, Huldrych Zwingli, John Calvin
Martin Luther Huldrych Zwingli John Calvin Wittenberg Zurich Geneva 1483-1546 1484-1531 1509-1564
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Slide 20: What I am not suggesting
What I am not suggesting: • Self-conscious intent by religiously committed individuals • Hume: a notorious skeptic, if not atheist • Church of England bishops: “Retainers to Superstition” • “that virtuous heathen” (William Robertson) • Smith: at best an 18th century deist • No professed religious be
Slide 21: The influence of their time and place on their worldview
Instead: the influence of their time and place on their “worldview”: • Einstein: “Scientific thought is a development of pre- scientific thought.”
Slide 22: Einstein, Principles of Research quotation
“Man seeks to form for himself, in whatever manner is suitable for him, a simplified and easy-to-survey image of the world (Bild der Welt) and so to overcome the world of experience by striving to replace it to some extent by this image. This is what the painter does, and the poet, the speculative p
Slide 23: The influence of their time and place on their worldview
Instead: the influence of their time and place on their “worldview”: • Einstein: “Scientific thought is a development of pre- scientific thought.” • Schumpeter: “pre-analytic Vision” • Galbraith: “Economic ideas are always and intimately a product of their own time and place”
Slide 24: Economic Thinking as of 1700
“Economic” Thinking as of 1700 • Could individuals correctly perceive their self-interest? Probably not • Acting on individual self-interest, whether perceived correctly or not, bore no implication of more globally optimal outcomes • Action motivated by individual self-interest was “vicious” (a “vic
Slide 25: Economic Thinking as of 1790
“Economic” Thinking as of 1790 • Can individuals correctly perceive their self-interest? Mostly yes when people are acting as producers • Acting on an individual’s self-interest can, and under the right conditions will, make others better off as well • Actions motivated by individual self-interest a
Slide 26: Smith did have intellectual precursors
Smith did have intellectual precursors • France • Pierre Nicole • Pierre de Boisguilbert • Richard Cantillon • Francois Quesnay • England • Bernard Mandeville • Joseph Butler • Josiah Tucker
Slide 27: Do they deserve the credit instead?
Do they deserve the credit instead? NO: no explanation for how this result came about – No explicit awareness of the role of markets, or competition, in bringing about this result – No other economic mechanism either – Hence no systematic explanation capable of satisfying an era trained to think in
Slide 28: Smith's argument in the Wealth of Nations
Smith’s argument in the Wealth of Nations • Desire for material gain is inborn – and therefore morally legitimate • At the center: the role of competitively set prices and wages – and with a Newtonian interpretation
Slide 29: The natural price quotation
“The natural price, therefore, is … the central price to which the prices of all commodities are continually gravitating. Different accidents may sometimes keep them suspended a good deal above it, and sometimes force them down even somewhat below it. But whatever may be the obstacles which hinder t
Slide 30: The natural price quotation
“The natural price, therefore, is … the central price to which the prices of all commodities are continually gravitating. Different accidents may sometimes keep them suspended a good deal above it, and sometimes force them down even somewhat below it. But whatever may be the obstacles which hinder t
Slide 31: Smith's argument in the Wealth of Nations
Smith’s argument in the Wealth of Nations • Desire for material gain is inborn – and therefore morally legitimate • At the center: the role of competitively set prices and wages – and with a Newtonian interpretation • Competitive prices and wages as the outcome of interpersonal bargains motivated by
Slide 32: Beneficial outcome of self-interest in competitive markets
• Most important, the globally beneficial outcome of the private pursuit of self-interest pursued in competitive markets – Beneficial for other individuals – Beneficial for society – The “Invisible Hand” • Hence opposition to potential impediments to the competitive market mechanism • But overall, t
Slide 33: Smith's willingness to accept restrictions on commerce
• And therefore Smith’s willingness to accept restrictions on commerce, when he thought they were needed – Monopoly power of central banks – Regulation of private banks – Progressive income taxes – Luxury taxes – Taxes on whisky
Slide 34: What enabled Smith to reach this insight?
What enabled Smith (and, in a limited way, his predecessors) to reach this insight? • Training in Newtonian ideas of system and mechanism • Stoic philosophy: natural harmony in the universe • Observation of an increasingly commercial society • Introspection – Smith as a moral philosopher • The trans
Slide 35: The turn away from predestinarian Calvinism
The turn away from predestinarian Calvinism • Human nature • Human destiny • Human purpose
Slide 36: Human nature
Human nature FROM “total depravity” of all individuals TO inherent goodness of all individuals
Slide 37: Human destiny
Human destiny FROM “predestination” of who is to be saved (with no determinative role for human choice and action) TO everyone is potentially eligible to be saved, and human choices and actions matter
Slide 38: Human purpose
Human purpose FROM the sole reason man exists is the glorification of God TO human happiness is also a (the?) divinely intended end
Slide 39: This debate was at its height in Scotland
This debate was at its height in Scotland during Smith and Hume’s young to mid adulthood England: latter half of the 17th c. Scotland: mid 18th c. America: latter half of the 18th c.
Slide 40: Why would this religious debate have influenced their worldview?
Why would this religious debate have influenced their worldview/Vision? • The centrality and multi-dimensional importance of religion in their society • Education, patronage, politics,… • The integration of intellectual life at that time • University faculty and curriculum, social and intellectual l
Slide 41: University of Glasgow faculty in Smith's time
University of Glasgow faculty in Smith’s time: listing of professorships Divinity Mathematics Logic Church Hist. Nat. Philosophy Moral Phil. Anat. & Botany Humanity Pract. Astronomy Greek Law Medicine Oriental languages Chym. & Mat. Med.
Slide 42: University of Glasgow faculty in Smith's time
University of Glasgow faculty in Smith’s time: listing of professorships Divinity Mathematics Logic Church Hist. Nat. Philosophy Moral Phil. Anat. & Botany Humanity Pract. Astronomy Greek Law Medicine Oriental languages Chym. & Mat. Med.
Slide 43: University of Glasgow faculty in Smith's time
University of Glasgow faculty in Smith’s time: listing of professorships Divinity Mathematics Logic Church Hist. Nat. Philosophy Moral Phil. Anat. & Botany Humanity Pract. Astronomy Greek Law Medicine Oriental languages Chym. & Mat. Med.
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Slide 45: Original Members of the Select Society
Original Members of the Select Society • 15 lawyers • 5 CofS ministers (including Robertson) • 4 professors (including Smith) • 3 physicians • 2 soldiers • 1 merchant • 1 independent writer (Hume) • 1 painter
Slide 46: Original Members of the Select Society
Original Members of the Select Society • 15 lawyers • 5 CofS ministers (including Robertson) • 4 professors (including Smith) • 3 physicians • 2 soldiers • 1 merchant • 1 independent writer (Hume) • 1 painter
Slide 47: Original Members of the Select Society
Original Members of the Select Society • 15 lawyers • 5 CofS ministers (including Robertson) • 4 professors (including Smith) • 3 physicians • 2 soldiers • 1 merchant • 1 independent writer (Hume) • 1 painter
Slide 48: Why would this religious debate have influenced their worldview?
Why would this religious debate have influenced their worldview/Vision? • The centrality and multi-dimensional importance of religion in their society • Education, patronage, politics,… • The integration of intellectual life at that time • University faculty and curriculum, social and intellectual l
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Slide 50: Coherence between new economic ideas and new religious thinking
Most important, a substantive coherence between the new economic ideas – the intellectual foundations of capitalism – and the new religious thinking of that time and place
Slide 51: Secularizing the dominant religious thinking
These new religious ideas were part of the worldview/Vision that people of that time brought to thinking about the secular world as well In effect, Smith and his contemporaries were secularizing the dominant religious thinking of their time and place • A more benign view of the human character • A m
Slide 52: What's the relation to the Weber Hypothesis?
What’s the relation to the Weber Hypothesis?
Slide 53: Two strong parallels
Two strong parallels • Religious thinking has consequences for secular matters – in particular, economics • Those consequences survive the passing of the original religious impulse • over time the consequences become secularized • eventually most people even become unaware of the initial religious o
Slide 54: But also important differences
But also important differences • The driving religious impulse • Weber: belief in predestinarian Calvinism • Smith and Hume: the movement away from belief in predestination
Slide 55: Was Weber therefore wrong?
Was Weber therefore wrong?
Slide 56: Was Weber therefore wrong? No: two further differences
Was Weber therefore wrong? NO: two further differences • The time period of the religious impulse is different • Weber: 17th century • Smith and Hume: mid 18th century • What about economics is being influenced? • Weber: in the first instance, economic behavior • Smith and Hume: economic thinking
Slide 57: Economic thinking survived the passing of the religious impulse
As in Weber, this religiously motivated economic thinking that Smith and Hume produced has survived the passing of the religious impulse that gave rise to it
Slide 58: It has resonated within Western economics ever since
And it has resonated within Western economics ever since • The debate over free trade versus protectionism early in the 19th century • The discovery of ongoing, technologically driven, economic growth – also early in the 19th c. • Arguments over the role of government later in the 19th c. • The emer
Slide 59: It continues to characterize modern Western economics today
And it continues to characterize modern Western economics today • Today economics is still all about human choices and their possibilities • The first fundamental welfare theorem is still the heart of our analytical apparatus • Smith’s and Hume’s more expansive and optimistic view of human agency re
Slide 60: To conclude
To conclude: Economics was, and is, a product of the Enlightenment But the influence of religious thinking was, and remains, a central part of that story And the role of religious thinking continues to be at work today
Schweizerische Nationalbank — Investor Presentation (September 2022) on 6ix