Munich Personal RePEc Archive Morality, institutions and economic growth: Lessons from ancient Greece Bitros, George and Karayiannis, Anastassios Athens University of Economics and Business 26 November 2006 Online at https://mpra.ub.uni-muenchen.de/994/ MPRA Paper No. 994, posted 01 Dec 2006 UTC Morality, institutions and economic growth: Lessons from ancient Greece* By George C. Bitros1 and Anastassios D. Karayiannis2 Abstract We show that the character and the morality of citizens are important ingredients of economic growth because they go hand in hand with the great institutions of private property, democ- racy, and free markets. Our approach enables us to establish this result by reference to the structure and performance of the ancient economies of Athens and Sparta during the period 490-338 BC. Athens grew vastly wealthier than Sparta essentially because its institutions were optimally adjusted to confront the basic scarcity of grains, whereas the institutions of Sparta were optimally adjusted to sustain its military supremacy. However, in both cases there emerged systems of morality, which secured the operating efficiency of their institutions. Therefore, poor countries in search of potent strategies for rapid economic growth should not just try to emulate the institutions of economically advanced countries. At the same time, they should put the emphasis of their efforts to setting up agoge systems, so as to infuse into the character of their citizens compatible “ethos”. For, without the latter, no matter how success- fully they adapt the institutions of democracy and free markets, rapid economic growth will be inhibited from the lack of an environment of generalized morality. In this regard, the ideal type model of agoge is the one that prevailed in ancient Athens 25 centuries ago. JEL Classification: O10, B11, N30 Keywords: ancient Greece, morality, institutions, economic growth 1 Professor, Department of Economics, Athens University of Economics and Business, 76 Patission St, 10434, Athens, Greece. 2 Associate Professor, Department of Economics, University of Piraeus, 80, Karaoli & Dimitriou, 18534, Pi- raeus, Greece. Corresponding Author: Anastassios D. Karayiannis Department of Economics University of Piraeus Tel: 22970-22258 Fax: 210-4142301 E-mail: [email protected] * Acknowledgements: We wish to thank, T. Amemiya, C. Perrotta, C. Baloglou, T. Lianos, and I. Pepelasis- Minoglou, for their valuable comments and suggestions. The usual disclaimer applies. 2 (From a dialogue between Pope Benedict XIV and Voltaire somewhere in the grateful memory of mankind) ………………………………………………………………... Voltaire: I still think that philosophers can dispense with morality. Pope Benedict XIV: How naïve you are. Are children capable of philosophy? Can children reason? Society is based upon morality, morality is based upon character, character is formed in childhood and youth long before reason can be a guide. We must infuse morality into the individual when he is young and malleable; then it may be strong enough to withstand his indi- vidualistic impulses, even his individualistic reasoning. I am afraid you began to think too soon. The intellect is constitutional individualist, and when it is uncontrolled by morality it can tear society to pieces. ……………………………………………………………………………... Durant and Durant, (1967), The Story of Civilization, The Age of Voltaire, vol. 9, 791. 1. Introduction Thinking and policy advice about questions relating to economic development have changed dramatically over the last 50 years. In the two decades following World War II economists thought, and policy advisors from international organizations suggested to poor countries, that the quickest road to development was to save and invest, in order to accumulate modern and hence more productive capital, to educate their labor force, so as to meet the demand for various skills that accompanies industrialization, to give emphasis to exportable goods, so as to alleviate the deficits in the balance of payments, etc. But the results were not encouraging. The industries they established became dormant and inefficient behind the tall walls of protection from international competition. The educational systems they set up to train their citizens, led to mis- alignments with demanded skills, whereas many of their better minds emigrated to advance coun- tries in search of better opportunities; and in general, as certain authors have noted,1 the biggest beneficiaries of these development strategies may have been the high-priced consultants who recommended them. Thus, in view of the persistence of poverty in many parts of the world and the inability of prevailing growth theory to provide effective policy guidance, economists turned to the hy- pothesis that the culprit to blame was geography. Admittedly since it determines the climate, the resource endowments, the incidence of diseases and the ecology, geography should influ- ence the technology of a country as well as the incentives of its citizens. But given that policy 1 For a critique of the failure of neoclassical growth theory and policy to help many countries to escape from their poverty trap, see, for example, Krueger (1993). 3 makers cannot exercise meaningful control over these variables, the geography hypothesis presented a gloomy outlook for many countries located in disadvantaged regions, and pro- voked researchers into looking for more efficient development strategies in other directions. This search led to the realization that poor countries lack better markets, more educated peo- ple, and more modern capital, because they do not have well defined systems of property rights, the rule of law is lax, the freedom of exchange is restricted, etc. Thus, by attributing the differences in living standards between rich and poor nations to these fundamental causes, researchers proposed the so-called institutions hypothesis.2 Tests of this hypothesis have shown that institutions do matter for economic growth. But in as much as the results from these tests provide considerable and encouraging evidence, the establishment of effective institutions is not an easy undertaking. This is so because the choices of desirable forms of institutions and the degree of their effectiveness have been found more recently to depend on various context specific factors, that arise from differences not only in geography but also in historical developments, political economy circumstances and other initial conditions. Still, from the research by Platteau (1994), Yaffey (1998), Fehr and Schmidt (1999) and others, it turns out that there are certain fundamental context invari- ant processes that contribute positively, either by improving the quality of life per se, or by facilitating the establishment and the functioning of wealth enhancing institutions. One of them being morality that Pope Benedict XIV stressed in the captioned passage from his imaginary discussion with Voltaire. So for us it is fascinating to add to this literature by look- ing at the difference that morality made to the distinctly disparate levels of wealth that the classical Athens and Sparta reached at the peak of their power. With this agenda in mind, our plan is to characterize the nature of the relationship be- tween morality and growth promoting institutions by drawing on the case of ancient Greece. By doing so, it is our hope that a clear picture of the fundamental differences between Athens and Sparta will emerge, which will explain in a convincing manner why only Athens became the main economic power in classical antiquity. This endeavor is undertaken in the next three sections. In particular, in Section 2 we present a brief account of what we know with relative certainty about the stylized features pertaining to the economies of the two city-states during the 150 year period from the victory of Greeks in Marathon against the Persians in 490 to 430 BC., i.e. the year that Sparta attacked Athens thus starting the Peloponnesian War, and from then to 338 during which the economic growth in the two city-states decelerated (Isager and 2 Hodgson (1988) gives an early list of authors and writings that contributed to the foundation of the school of Institutional Economics. 4 Hansen, 1975, 52-5). In Section 3 we attempt to answer the following questions: a) the econ- omy of Athens was organized according to a proto-capitalistic market system, whereas that of Sparta had all the characteristics of a centrally administered economy. Did this fundamental dif- ference influence their economic performance? b) Aside from the differences in their economic organization, the two city-states differed also in the moral norms that prevailed among their citi- zens. Which were their main differences? c) Significant differences were also observed in the processes for infusing moral norms to their citizens, as well as in the institutions for monitoring moral behavior and discouraging transgressions. To what extent might these differences in moral norms be attributed to the differences in the organization of the respective economies? Then, in Section 4 we turn to the lessons that we can derive from the above discussion, and, finally, Sec- tion 5 contains a synopsis of our conclusions. 2. The stylized features of the two economies From Aristotle’s Politics and The Athenian Constitution in antiquity, to Fustel des Coulages (1866), Glotz (1928), Finley (1981) and numerous other writers, we have come to know how the city, i.e. the Greek Polis, evolved through association and symbiosis. The first unit