The Foundations of Prosperity and Economic Growth

James A. Montanye
Consulting Economist
Falls Church, VA USA

Abstract - The structure of social institutions, the process of entrepreneurship, and the effects of
both on prosperity and economic growth are ineluctable consequences of Mankind’s genetically-
inspired predispositions toward reason, cooperation, reciprocity, and trust. The “cost” of
prosperity and growth is gauged by the social burdens that individuals must incur, and to the
opportunities for private gain that must be foregone, all in order to optimize the level of trust and
cooperation within a given society. The next step in the development of growth theory is to
incorporate these influences more fully into formal economic models.

heories of prosperity and economic growth presently fall under two descriptive headings.

T One heading encompasses the old and new neoclassical theories that model growth
mathematically as production functions capturing the separate effects of capital, labor,
technology, and such other productive factors as education and natural endowments. These
models do a poor job of explaining and predicting prosperity and economic growth; the
economist Mancur Olson concluded that “[i]n general, the [new] endogenous growth models do
not have anything in their structures that predicts that the most rapid growth will occur in a
subset of low-income countries, and the old growth theory is contradicted by the absence of
general convergence” (Olson 1996, 31). Olson attributed these failures to the inability of
neoclassical models to account for the tendency of productive factors to migrate spontaneously
across national boarders in pursuit of the highest economic returns.
The second category of theories comprises efforts to understand the dynamic economic
processes that attract and allocate mobile productive factors. This literature analyzes economic
performance in terms of policies, institutions, incentives, and entrepreneurship; to wit, “How
well does a nation protect its entrepreneurs? In what countries do you get rich by inventing a new
product, and in what countries do you get rich be wresting control of government from your
rivals?” (Powell 2008, 1). This new institutionalism focuses upon the formal and informal rules
that affect all economic interactions within a society, especially the definition and protection of
property rights, and the enforcement of contracts.
The Institutions 6 Entrepreneurship 6 Growth (IEG) approach to analyzing economic
growth moves beyond the static, as if assumptions of neoclassical economics, which posit no
useful role for institutions and entrepreneurship (Montanye 2006a, 549-58). The approach in fact
resembles the older Structure 6 Conduct 6 Performance (SCP) models of industrial organization
theory. Both paradigms imply directionality; the initial term in each case is assumed to be
exogenous and static, and each succeeding term is the consequence of its predecessor. However,
institutions, like market structures, are neither exogenous nor static. Rather, they are
consequences of the never-ending process of creative destruction and reformation wrought by
entrepreneurship.
The Nobelist Douglass North aptly has argued that “[t]he agent of [institutional] change is
the individual entrepreneur responding to the incentives embodied in the institutional framework.
... the immediate instruments of institutional change are political or economic entrepreneurs who
attempt to maximize at those margins that appear to offer the most profitable (short-run)
alternatives. ... it is the existing constraints and changes in incentives at the margin that determine
opportunities (1990, 83;100). North concludes in brief, however, that “[t]he sources of
[institutional] change are changing relative prices or preferences” (83). North sees changes at the
margins as destabilizing existing contractual agreements, thereby causing adversely effected
parties to seek renegotiation. Failing a satisfactory resolution, the parties then seek to change the
institutional rules binding them to the old prices – that is, the parties promote change either by
fashioning new rules, or else by simply ignoring the old ones.
Neoclassical arguments imply that institutional change is the last line of defense when, in
fact, it is often the entrepreneur’s first line of offense (Montanye 2006a). Preemptive
entrepreneurial change, as opposed to North’s neoclassical description of changing prices and
preferences, is driven by “the articulated interests of those [entrepreneurial individuals] who
stand to gain or lose from politicization of the allocation of resources” (Petlzman 1980, 287). The
effective articulation of private interests – that is, rent seeking – causes institutions to evolve in
unpredictable and seemingly irrational ways, making long-range macroeconomic forecasting a
fool’s errand. Rent seeking, which is the entrepreneurial pursuit of windfall economic gains
through political action (Tullock 1989 and 1991), is a pejorative description of economic behavior
that is intended to generate asymmetrical benefits by altering institutional structures and rules.
Opportunities for promoting institutional change through rent seeking have increased in recent
years, so much so in fact that “[t]he state itself is becoming the chief weapon in a political war of
all against all” (Yeager 2001, 249).
The historian Caroll Quigley provided a particularly useful description of institutional
change from this perspective. His view is in tune with modern theories of entrepreneurship,
public choice, and industrial organization theory, and also with the emerging science of complex
adaptive systems (see, for example, Gell-Mann 1994):

An instrument is a social organization that is fulfilling effectively the purpose for

which it arose. An institution is an instrument that has taken on activities and
purposes of its own, separate from and different from the purposes for which it
was intended. As a consequence, an institution achieves its original purposes with

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 decreasing effectiveness. Every instrument consists of people organized in
relationships to one another. As the instrument becomes an institution, these
relationships become ends in themselves to the detriment of the ends of the whole
organization. ... The purpose of the organization ... becomes no more than a
secondary aim for everyone in the organization. ... [E]veryone in such an
organization is only human and has human weaknesses and ambitions, or at least
has the human proclivity to see things from an egocentric point of view. Thus, in
every organization, persons begin to seek their own advancements or to act for
their own advantages: seeking promotions, decorations, increases in pay, better or
easier assignments; these begin to absorb more and more of the time and energies
of the members of an organization. All of this reduces the time and energy
devoted to the real goal of the organization and injures the general effectiveness
with which an organization achieves its purposes. Finally ... the social conditions
surrounding any such organization change in the course of time. When this
happens the organization must be changed to adapt itself to the changed
conditions or it will function with decreased effectiveness. But the members of
any organization generally resist such change; they have become “vested
interests.” Having spent long periods learning to do things in a certain way or with
certain equipment, they find it difficult to persuade themselves that different ways
of doing things with different equipment have become necessary; and even if they
do succeed in persuading themselves, they have considerable difficulty in training
themselves to do things in a different way or to use different equipment. (Quigley
[1961] 1979, 101-103)

Quigley’s description of institutional dynamics, increasing entropy, and eventual sclerosis – that
is, of the process by which good ideas and sharp instruments are dulled and deformed by
internal, entrepreneurial self interest – is itself compelling. It gains further explanatory power
when the similarly detrimental effects of entrepreneurial rent seeking by external factions are
incorporated (see, for example, Baumol 1993). Institutions that degenerate past the point of self-
reform require extirpation, as often occurs through putsch, revolution, and war (Olson 1982).
The IEG paradigm represents a substantial improvement over purely neoclassical growth
theory. Obstacles to understanding nevertheless remain. Economic performance itself is a
multidimensional measure that resists easy definition, quantification, and analysis. Above all,
growth theory stands to benefit from a deeper understanding of the relationship between
aggregate economic performance and innate human behavior. The Nobelist Ronald Coase shares
with other economists the suspicion that “ultimately the work of sociobiologists (and their critics)

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will enable [economists] to construct a picture of human nature in such detail that we can derive
the set of preferences with which economists start” (Coase 1988, 4). The distinguished biologist
E.O. Wilson, who coined the term sociobiology, defines the field as an interdisciplinary approach
to human behavior operating at “the conjunction of biology and the various social sciences”
(Wilson 1978, 7). Sociobiology’s cornerstone is consilience; that is, “a ‘jumping together’ of
knowledge across disciplines to create a common groundwork for explanation” that obviates
“[t]he ongoing fragmentation of knowledge and resulting chaos in philosophy [that] are not
reflections of the real world but artifacts of scholarship” (Wilson 1998, 8). Economists have
begun developing testable, behavioral theories of economic man using sociobiological constructs
(see, for example, Frank 1985 and 1988; Rubin 2002). Economists also look to the developing
program in neuroeconomics, which uses brain imaging to discover links between genetic
programming and economic behavior (see, for example, Zak forthcoming).
I shall argue along sociobiological lines that the foundations of economic prosperity and
growth are the direct consequences of Darwinian evolution and behavioral biology (see also,
Montanye 2009). I begin by relating institutions and entrepreneurship to Mankind’s genetic
predispositions toward reason, cooperation, reciprocity, trust, and discrimination, all of which are
evolved biological mechanisms for promoting survival and reproduction. I link these foundations
to three overarching determinates of economic prosperity and growth: (i) common virtues; (ii)
religion; and (iii) government. I argue that developmental differences among nations reflect, in
large measure, the differing costs of advancing Mankind’s biological imperatives.

Biological Foundations

The idea that social institutions are products of Mankind’s genetic endowment is
suggested by the distinguished evolutionary biologist Richard Dawkins. Dawkins (1999) argues
that genetic manifestations extend far beyond physical attributes like eye color. He offers the
example of lakes that form behind beaver dams, both of which are as much a product of the
beaver’s genetic programming as the animal’s outsized incisors, flat tail, and webbed feet.
Dawkins labels this “long reach” of genetic consequences extended phenotypes. Similarly, I
argue that institutions are the extended phenotypes of Mankind. Environmental circumstances
also play a role in determining institutional structure, but the underlying drivers are genetically
predisposed.
Economists have drawn copiously from Dawkins’ legacy over four decades. His influence
now extends to theories of economic competition, and to the spontaneous organization and
subsequent evolution of economic systems (Rosen 1997). By contrast, about half of all
Americans – including three of ten Republican presidential primary candidates in 2007 – reject

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Darwinism’s scientific underpinnings. Mankind is remarkably reluctant to accept its own
biological nature (Dawkins 1995; Pinker 2002; Dennett 2006), choosing instead to regard nature
pejoratively as a feral Hobbesian state, red in tooth in claw. Dawkins tempers this view by noting
that “nature is not cruel, only indifferent. This is one of the hardest lessons for humans to learn.
We cannot admit that things might be neither good nor evil, neither cruel nor kind, but simply
callous – indifferent to all suffering, lacking all purpose” (1995, 96).
Aristotle aptly characterized Mankind as a collection of intrinsically virtuous social
animals that cooperate for mutual advantage. Modern observers employ institutional terms, like
civilization (Quigley 1979), capitalism (Rothschild 1990), and freedom (Friedman 1962; Rubin
2002; Dennet 2003) to characterize Mankind’s cooperative nature. Biologists, by contrast, argue
that Darwinian evolution predisposes and conditions Mankind to cooperate in ostensibly virtuous
ways. Evolution is not the consequence of a rational, directional, intelligent, or normatively
judgmental process. Rather, it results from Mankind’s most beneficial and fruitful genes (alleles)
passing from one generation to the next through individual vehicles called human beings
(Dawkins [1976] 1989 and 1999). The process is likened to an arms race, with the best genes
surviving and reproducing, and the rest disappearing from the river of life. Biological evolution
has not made Mankind’s struggle against scarcity kinder and gentler over time, merely more
efficient.
Evolution has endowed Mankind with two refined qualities of particular relevance to
understanding prosperity and economic growth. The first of these is reason (rationality), which
John Locke famously (and somewhat mistakenly) described as the capacity “which God hath
given to be the Rule betwixt Man and Man, and the common bond whereby humane kind is
united into one fellowship and society” ([1690] 1988, II:§172). The corresponding scientific view
is that “[t]he human mind is a device for survival and reproduction, and reason is just one of its
various techniques” (Wilson 1978, 2). Reason is the capacity for calculation and adaptation. It is
closely linked with the capacity for language, making it a conscious (cortical) process and
distinguishing it from the brain’s subconscious (limbic) functions. Reason is touted as a force for
good, but it’s essential purpose is entrepreneurial self interest, entailing payoffs that are both
pecuniary and non-pecuniary, tangible and intangible. It is one evolved means by which
individuals compete for survival and reproductive advantage in an environment characterized by
indifference and scarcity. As such, it an exogenous driver of prosperity and economic growth.
The second evolved quality of interest here is Mankind’s capacity for cooperation,
reciprocity, and trust. Biologists now recognize that these behaviors are genetically predisposed,
and that they are conditioned by neurotransmitter hormones that “reward” the brain chemically
for compliant decision-making, punish its sinful deviations, and encourage interpersonal trust.
This amends the earlier opinion, once held by Dawkins and other biologists, that evolution did

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not equip individuals to “cooperate generously and unselfishly towards a common good”
(Dawkins [1976] 1989, 3). Behavioral biologists now recognize “four good reasons for individuals
to be altruistic, generous or ‘moral’ towards each other:” (i) kinship; (ii) reciprocation; (iii) a
biological predisposition toward acquiring a reputation for generosity; and (iv) the acquired tactic
of developing a reputation for generosity (Dawkins 2006, 219). The evolved capacity for ad hoc
rationality carries a portion of this load. The balance is borne by Mankind’s genetic
predisposition for rationally selfish cooperation, the external effects of which often deceptively
mimic altruistic behavior directed toward some common good.
The biologist Matt Ridley argues that Mankind is psychologically primed for virtuous
behavior by a brain module that he labels the “social-exchange organ.” “We don’t know for sure
where the social-exchange organ is, or how it works,” writes Ridley, “but we can tell that it is
there as surely as we can tell anything about our brains” (1997, 131). The module, which owes its
existence to Mankind’s competitive struggle for life amidst scarcity, works by artfully signaling
and managing cooperation, reciprocity, and trust. The result is a form of undeniably selfish
predispositions that biologists term reciprocal altruism (Trivers 1985); what earlier generations
of thinkers termed “enlightened self interest.” The propensity for reciprocal altruism underlies all
of Mankind’s innate civilizing virtues, including concepts of brotherhood and non-sexual love
(agape), golden and silver rules of conduct, categorical imperatives of ethical behavior, the
proscription of usurious interest, and the innate preference (at least among non-economists) for
bartered exchange over money and markets. Reciprocal altruism is the ultimate source of social
unity and moral order, which commonly, and mistakenly, are described as being external to
human existence. It is the essence of Aquinas’ natural law: “There is in people an appetite for the
good of their nature as rational, and this is proper to them, that they should know the truths about
God and about living in society. ... whatever this involves is a matter of natural law” (Summa
theologica, trans. in Freeman 2003, 331). It is also the essence of Adam Smith’s “invisible hand”
and his moral sentiments of “approbation and esteem,” of Locke’s “Rule betwixt Man and
Man,” and of the biblical “assurance of things hoped for, the conviction of things not seen”
(Hebrews 11:1). The predisposition for reciprocal altruism also gives rise to the human God-sense
(about which more below), thereby raising a credible claim to being the universal god of
monotheism, with cooperation, reciprocity, and trust reigning as a holy trinity. Most relevant for
purposes of this essay, reciprocal altruism, like reason, is an exogenous driver of prosperity and
economic growth.
The instinct for reciprocal altruism predisposes Mankind to coalesce into cooperative
groups that discriminate in favor of its members (us) and against strangers (them) (Dawkins 2006,
179). Individuals who can be trusted a priori to cooperate reciprocally constitute the us group; all
others are regarded as them. Trust lowers the transaction costs of cooperation by reducing the

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suspicion that individuals will renege on reciprocal obligations. It facilitates wealth creation and
capital formation (as when neighbors cooperate to raise a barn), and wealth distribution (as
through markets, politics, and war). It allows Mankind to overcome the “collective action”
problem that logically impairs the provision of public goods (Olson 1965), and it creates
productive opportunities for division of labor and exchange. Economists use the word
“catalactics” to describe the exchange process, a term rooted in the ancient Greek verb
(Anglicized to katalattein and katalassein) meaning “not only ‘to exchange’ but also ‘to receive
into the community’ and ‘to turn from an enemy into a friend’ (Hayek 1988, 112). The
correlation between trust and economic development is easily observed (see, for example,
Easterly 2006; Harrison and Huntington 2000). Societies lacking in trust and cooperation are
inefficient and generally unpleasant environments in which to live and work (see Fukuyama
1995).
Discrimination between us and them also generates conflict. “Once cooperators segregate
themselves off from the rest of society,” notes the biologist Ridley, “a wholly new force of
evolution can come into play: one that pits groups against each other, rather than individuals”
(1997, 147). The consequences of this are often destructive and dehumanizing. The sociologist
Max Weber noted, for example, that “Cavaliers and Roundheads did not appeal to each other as
two parties, but as radically distinct species of men” ([1930] 1992, 88-89). Similar sentiments are
evident today between races, religions, nationalities, and civilizations.
The predisposition for cooperation ironically gives rise to a collateral predisposition that
engenders a sense of entitlement entailing envy, free-riding, and predatory rent seeking. Ridley
labels this phenomenon “parasitism of reciprocity,” which he describes as

a human invention to exploit our pre-existing natures, our innate respect for
generosity and disrespect for those who would not share. And why would we
have such an instinct? Because to be known as intolerant of and punitive towards
stinginess is an effective way to police a system of reciprocity, to extort your
share of others’ good fortune. (1997, 123-124, italics added)

In sum, evolution has conditioned individuals to behave cooperatively and reciprocally when
they must, but also to behave parasitically and opportunistically when and where they can. The
rational choice between cooperation and parasitism is driven by the structure of economic
payoffs. Nature and institutions together shape these payoffs, both through the potential for
reciprocal non-cooperation and violence, and through rational rules of productive conduct.
Evolution has endowed Mankind with an innate sense of private property (Pipes 1999,
chap. 2) and fairness (Frank 1988), which often engender predatory and defensive violence.

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Mankind’s willingness to defend property is unsurprising, as is the willingness to fight for
survival, reproductive opportunities, and a share of essential resources. What is surprising is the
willingness to fight “for trifles, as a word, a smile, a different opinion, and any other sign of
undervalue” (Hobbes [1651] 1994, chap.13). The precursor of this behavior is an internal sense of
fairness that links to Ridley’s “parasitism of reciprocity.” Evolution has endowed Mankind with
“a predisposition to cooperate with others, and to punish (even at personal cost if necessary)
those who violate the norms of cooperation, even when it is implausible to expect these costs will
be recovered at a later date” (Ginitis and others 2005, 3). The rationality that underlies this
evolved behavior has been discovered experimentally through computer simulation (Axelrod
1984). The behavioral economist Robert Frank notes that “[t]he emotions that lead people to
behave in [such] seemingly irrational ways can ... indirectly lead to greater material well-being”
(1988, 258). The sociologists Richard Nisbett and Dov Cohen, who study cultural violence,
conclude that “sensitivity to insult is secondary: it’s purpose is to preserve the individual’s
reputation for being willing and able to carry out violence if needed” (1996, 89). Violence, and the
threat of it, are genetically primed complements to cooperation that stimulate reciprocal altruism
by raising the cost consequences of non-cooperation and parasitism.
Instrumental rules, by contrast, are rational and nuanced means for controlling parasitic
and opportunistic behavior within the us group, including fraud, theft, free-riding, and reneging
(see generally, Posner 2000). Proper rules emerge, as with the common law of old, from the
efficient “natural law” of reciprocal altruism. Rules operate both by institutionalizing punitive
threats and actions against life, liberty, and property, and by proscribing and punishing private
acts of coercion and retaliation.
The beneficial nature and effects of institutionalized rules become reversed when
institutions are corrupted by entrepreneurial influence. Instead of proscribing and punishing
parasitic acts, corrupted institutions selectively confer property rights in them. Corruption retards
aggregate prosperity and economic growth by restricting the play of positive-sum cooperation
and exchange opportunities.

The Fabric of Institutions

Cooperative groups coalesce around unifying beliefs. This is equally true at the level of
nations (Day 2008; Hosking and Schöpflin 1997), small towns (Vidich and Bensman [1958]
2000), and private associations. The historian Michael Burleigh describes such beliefs as “objects
of devotion and refocused religiosity” (Burleigh 2007, xii). His list of objects includes “ ‘science’,
‘progress’, ‘morality’, ‘money’, ‘culture’, ‘humanity’ and even ‘sport’ ” (xii), and also the arts
“in the sense of giving higher meaning to a world that was increasingly disenchanted” (Burleigh

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2005, 273). Casual observation reveals many other catalyzing objects, including political and
religious ideology, skin and hair color, national origin, ethnicity, class, language, couture,
common enemies, the environment, and all manner of charismatic and numinous individuals.
The beliefs around which cooperative groups form need not be objectively true, and they
frequently are patently false. The historian Oswald Spengler (1926) noted the willingness of
individuals to form into civil sects that believe their own myths without proof, a phenomenon he
characterized as a “second religiousness.” The sociologists Peter Berger and Thomas Luckmann
note that unifying beliefs may

be taken on by a group because of specific theoretical elements that are conducive

to its interests. ... It would be erroneous, however, to imagine that the relationship
between an interest group and its ideology always is so logical. Every group
engaged in social conflict requires solidarity. Ideologies generate solidarity. The
choice of a particular ideology is not necessarily based on its intrinsic theoretical
elements, but may stem from a chance encounter. (1966, 114).

The philosopher Richard Rorty extends this view to encompass wholly fanciful beliefs: “the idea
of truth as correspondence to reality [i.e., objective truth] might gradually be replaced by the idea
of truth as what comes to be believed in the course of free and open encounters” (1989, 68). In
this light, the ultimate value of unifying beliefs must be gauged, not in terms of right/wrong and
true/false dichotomies, but in useful/unhelpful terms. Unifying beliefs are always right on the
spirit, but they need never be right on the facts. The relevant test of a belief’s value is whether it
promotes reciprocal altruism. Natural scientists and other analysts who criticize institutions for
being founded upon objectively false beliefs either fail to appreciate, or else chose to ignore, the
role that such beliefs play in facilitating reciprocal altruism.
Berger and Luckmann touch upon ideology’s role in forming unifying beliefs. Ideology
often promotes prosperity and economic growth; laissez faire is one such ideology. However,
ideology also spawns “isms” that complement Ridley’s “parasitism of reciprocity.” The legal
scholar J.M. Balkin deconstructs the ostensibly deleterious effects of ideology, which he terms
“cultural software,” by relating them to egalitarian notions of social justice. Echoing Marx, Balkin
writes that “ideology [not only] is the creation or preservation of domination ... it is the creation
or preservation of unjust power or unjust social conditions” (1998, 112); “the mystification [of
power] that serves class interest” (103); “Ideological effects ... help create or sustain unjust social
conditions, unjust social relations, or the unjust use of social power” (104). Ideology, in other
words, is a powerful means of benefitting us at the expense of them.

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 The late jurist Oliver Wendell Holmes Jr., whose near-death wartime experiences drew
him to the naturalistic ideas of Herbert Spencer and Charles Darwin, explained legislation, law,
and institutions in similar terms. Holmes despaired of attempts to categorize the law logically,
ultimately attributing its compulsions to the success of entrepreneurial factions that are best able
to fight for particular outcomes (Gordon 1992, passim).

Institutional Foundations of Prosperity and Economic Growth

Institutions are manifestations of biological predispositions. They are transfigured over

time by the forces of creative destruction and reformation wrought by entrepreneurship. Three
institutions of particular importance to prosperity and economic growth are (i) common social
virtues, (ii) religion, and (iii) government. These institutions have direct links to human biology,
and also to each other.

Common Social Virtues

Holmes believed that society prospers from the virtuous affectations of genteel
individuals, like himself, who perform civil obligations cheerfully (paying taxes, for example)
rather than grudgingly (Gordon 1992, 150-51). Holmes’ guileless virtue marked him as both a
Kantian moralist and a trustworthy cooperator, behavioral characteristics whose significance I
address in the sections that follow.
The economist Deirdre McCloskey (2006) considers a range of virtues, spanning the
gamut between the solitary virtue of prudence (rational self-interest), by which economists
characterize the ethos of economic man, and the 613 commandments of Moses identified by
Rabbi Hillel. McCloskey concentrates upon seven “bourgeois” virtues, which she argues
characterize civilizations that are structured around commerce and the market process: viz., four
pagan virtues, including prudence plus courage, temperance, and justice; and the three Christian
virtues of faith, hope, and love. Comparable lists have been assembled by social thinkers since
antiquity. More recently, Mahatma Gandhi located happiness and prosperity with reference to
seven institutional sins whose virtuous opposites must be fought for: politics without principal;
wealth without work; commerce without morality; pleasure without conscience; education
without character; science without humanity; and worship without sacrifice (Gomes 2007, 122).
Litanies of this sort are descriptive and always evocative, but they are inherently arbitrary
generalizations derived from the objective, universal, and exogenous biological “virtues” of
cooperation, reciprocity, and trust.

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 Religion

Economists appropriately regard religion as an institution that affects prosperity and

growth. Mankind’s innate God-sense is an artifact of the perpetual search for beneficial exchange
opportunities, which explains why “[m]ost of the world’s religious scriptures abound in the
language of exchange” (Stark and Finke 2000, 40).
In the absence of bona fide exchange partners, Ridley’s “social-exchange organ” projects
exchange scenarios into deities and other powerful figures. Willing cooperators without
appropriate exchange partners – frightened soldiers in foxholes are the classic example –
desperately signal their willingness and desire to cooperate through prayer, worship,
commitment, and sacrifice. Behavioral biologists term behavior of this sort in vacuo because it
occurs in the absence of appropriate external stimuli. Individuals who are distressed, lonely,
disaffected, and despairing are especially prone to such behavior. Their condition renders them
vulnerable to religious indoctrination and fleecing by manipulative evangelists (Hedges 2006),
and to fanciful interactions with alien spacemen (Sagan 2006).
Previous generations of scholars attributed religious belief to compulsive neuroses, the
need for father figures, a taste for opiates, and the apprehension of death. Modern biology views
religion differently. Dawkins classifies himself as

one of an increasing number of biologists who see religion as a by-product of

something else. ... Religious behavior may be a misfiring, an unfortunate by-
product of an underlying psychological propensity which in other circumstances
is, or once was useful. On this view, the propensity that was naturally selected in
our ancestors was not religion per se; it had some other benefit, and it only
incidentally manifests itself as religious behaviour. (2006, 172-74)

Biologists regard religion as a misfiring, rather than a direct consequence of biological evolution,
because

[f]rom an evolutionary standpoint, the reasons why religion shouldn’t exist are
patent: religion is materially expensive and unrelentingly counterfactual and even
counterintuitive. Religious practice is costly in terms of material sacrifice (at least
one’s prayer time), emotional expenditure (including fears and hopes), and
cognitive effort (maintaining both factual and counterintuitive networks of beliefs).
(Atran 2002, 4)

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Despite its unusual pedigree, religion is both a cornerstone of civilization and a costly driver of
prosperity and economic growth.
The word religion, like the word law, is a cognate of the Latin word ligere, meaning
literally to bind and to unify. Unification for the sake of prosperity is the essence of all
institutions. In antiquity, notes the historian Charles Freeman with reference to ancient Rome,
“[r]eligious practice was closely tied to the public order of the state and with the psychological
well-being that comes from the following of ancient rituals. Religious devotion was
indistinguishable from one’s loyalties to the state, one’s city and one’s family” (2003, 68). This
description aptly characterizes many societies today. By contrast, the theologian Helmut Richard
Niebuhr viewed modern Western religion as the ultimate bulwark against “the gangrenous
corruption [i.e., the parasitism] of a social life in which every promise, contract, treaty, and
‘word of honor’ is given and accepted in deception and distrust” (1989, 1).
Religious practice, like the predisposition for reciprocal altruism that inspires it, has an
instrumental aspect. All cooperative relationships require trust, and religion excels at generating it
at low cost. Niebuhr recognized that “[t]he massive law books and the great machinery of justice
give evidence of the vast extent of fraud, deceit and disloyalty among men” (81). The philosopher
Adam Seligman similarly notes that “in the current [market] situation we are more dependent on
trust (and less on familiarity) to supplement those interstitial points where system confidence is
not sufficient” (1997, 160). The sociologist Robert Putnam, who studies the ebb and flow of
social capital – which he defines as the “connections among individuals: social networks and the
norms of reciprocity and trustworthiness that arise from them” – concludes that “[f]aith
communities in which people worship together are arguably the single most important repository
of social capital in America. ... nearly half of all associational memberships in America are church
related, half of all personal philanthropy is religious in character, and half of all volunteering
occurs in a religious context” (2000, 19; 66). Britain’s Astronomer Royal, the atheist Martin Rees,
epitomizes the duality of religious practice by attending church regularly as “an unbelieving
Anglican ... out of loyalty to the tribe” (qtd. In Dawkins 2006, 14).
New York City’s diamond trade provides a compact example of trust and economic
cooperation fostered through religion. The trade was dominated for decades by Orthodox Jews,
who did business on a pledge and a handshake, relying upon “trade custom and usage, a little
common sense, some Jewish law, and, last, common-law legal principles” while their less
successful business rivals were driven to contracts and litigation (see Bernstein 1992, 127; 140-42;
Williamson 1993, 465; 472-73). Religious association can be counterproductive when taken to
extremes, however, because orthodoxy restricts the number of potential cooperating partners
(Wilder and Walters 1998), and so limits productive opportunities for division of labor and
exchange.

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 God is the perfection of cooperation, reciprocity, and trust, and so represents the ultimate
exchange partner. Second-best institutions for cooperation and exchange arise, in Niebuhr’s
view, from disillusionment with God’s apparent indifference, lack of systematic and predictable
benevolence, and inability or unwillingness (except by coincidence) to deliver prosperity directly
(1989, 99). Niebuhr’s view implies that interpersonal trust and cooperation cannot develop fully
in civilizations whose core unifying belief is the omnipotence of God’s will. The implication is
supported by data gathered subsequently by the political theorist Ronald Inglehart (2000, 90),
whose scatter diagrams show that Western nations generate more interpersonal trust, prosperity,
and economic growth than do those Islamic societies that impose strict behavioral codes to
minimize popular disillusionment with God. A collateral proposition is that civil societies which
suppress popular disillusionment with government similarly retard the formation of interpersonal
trust and cooperation. Myths regarding powerful, personal, and wish-granting institutions
obviously have unifying power, but they diminish reciprocal altruism, prosperity, and economic
growth.
The economic growth literature contains frequent, albeit passing references to Max
Weber’s ([1922] 1960 and [1930] 1992) views about religion, particularly the economic
consequences of Protestantism. The economists Robert Barro and Rachael McCleary, by
contrast, study religion’s effects empirically. They find that “growth responds positively to the
extent of religious beliefs, notably those in hell and [to a lesser extent] heaven, but negatively to
church attendance” (2003, abstract). The authors model religious beliefs

as the principal output of the religion sector, and we view church attendance as
one of the inputs to this sector. Thus, if we hold fixed the beliefs—as we do in the
regressions that we highlight—an increase in church attendance signifies that the
religion sector is less productive. That is, more resources, in terms of time and
goods, are being consumed for given outputs (beliefs). Hence, our anticipation is
that, for given religious beliefs, higher church attendance would show up as a
negative influence on economic performance. ... We think that higher church
attendance depresses growth because it signifies a larger use of resources by the
religion sector, and the main output of this sector (the religious beliefs) has already
been held constant. The results do not mean that greater church attendance has a
net negative influence on growth—this net effect depends on the extent to which a
rise in attendance leads to greater beliefs, which encourage growth. (2003, 24,
footnote omitted; 38)

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The argument of this essay suggests an alternative to this neoclassical interpretation: viz.,
attitudes regarding heaven and hell reflect the chemically-conditioned sense of rewards and
penalties associated with the “natural law” of reciprocal altruism; and church attendance proxies
both the cost of building social trust and the burden of parasitic rent seeking conducted through
religious institutions.

Government

The line of political theory running through Hobbes, Locke, and Jefferson places the
impetus for Western-style government in the rational desire to protect and extend life, liberty,
property, and the pursuit of happiness. The institutions examined by modern growth theory
comprise the complex web of laws and social norms that serve these ends.
The Bible records that the age before kings was a state of anarchy in which “every man
did what was right in his own eyes” (Judges 21:25). Hobbes characterized life in this natural state
as a war of every man against every man, and following biblical precedent, located salvation in
sovereign authority. That sovereign, according to Locke, “puts Men out of a State of Nature into
that of a Commonwealth, by setting up a Judge on Earth, with Authority to determine all
Controversies, and redress the Injuries ... And where-ever there are any number of Men, however
associated, that have no such decisive power to appeal to, there they are still in the state of
Nature” ([1690] 1988, II:§89). Civilization to Locke meant an earthly cooperator of last resort; a
point of presence and locus of prayer operating one level below the supreme sovereign of heaven
and earth.
Sovereign government unfortunately falls short of being the panacea of classical
imagination; as noted previously, it is instead the “weapon of choice” for Hobbesian warfare.
Public Choice, which is to government what skepticism and doubt are to religion, implicitly
grounds government upon Ridley’s biologically-driven “parasitism of reciprocity;” that is, upon
the instinct for extracting one’s “fair share” of wealth from other, more successful individuals.
Entrepreneurial individuals and factions, operating in both the public and private sphere, seek to
better the “normal” economic returns from reciprocal altruism by capturing and redistributing the
wealth and property rights of others, while simultaneously defending themselves against similar
predatory attacks. Behavior of this sort is aggressive and coercive rather than reciprocally
altruistic. It is wasteful and directly unproductive (Bhagwati 1982), and fosters the sort of
economic decline that Western nations presently fear (Olson 1982).
A more useful view of the sovereign’s role is as a residual claimant, an entrepreneur (or
cluster of entrepreneurial individuals) whose implicit claim on a nation’s prosperity is equivalent
to a private individual’s claim on his business. The sovereign, acting within an institutionalized

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scope of authority, defines society’s maximand and shapes public institutions in his own image
and interest. That maximand is pursued through a blend of persuasion and force that compels
public compliance and punishes contrary behavior. Modern sovereigns seek, within the scope of
their authority and consistent with their desire to retain the power and perquisites of office, to
assert control over all resources that lie within reach (see generally, Brennan and Buchanan 1980).
This arrangement enlarges the pecuniary and non-pecuniary wealth of those individuals who are
best suited to compete within the prevailing institutional structure.
Sovereignty promotes peace, prosperity, and economic growth so long as the sovereign’s
social design complements both the local resource environment and Mankind’s underlying
biology. Coercion increases perforce as the social design diverges from these constraints, as past
experience with Communism amply demonstrated. The biologist E.O. Wilson deftly described
Communism’s inherent flaw: “Wonderful theory. Wrong species” (qtd. in Pinker 2002, 296).
Individuals, in other words, are predisposed to behave both cooperatively and parasitically, but
not to behave collectively and altruistically outside of the family. Consequently, a single inchoate
effort to humanize communism’s institutions (perestroika) was sufficient to collapse the entire
system.
Within theocratic societies, by contrast, sovereign power flows from the presumed will of
God, as revealed through the interpretation of ancient scriptures, and reified through acclimation,
repetition, imitation, and faith. Theocratic societies have no implicit residual claimants (apart,
perhaps, from God’s ostensible prophets and interpreters) and, consequently, are less likely than
otherwise to prosper. A theocracy nevertheless can embody the best of all possible tradeoffs
under certain circumstances; T.E. Lawrence’s description of the “biting social discipline” of the
Arabian Peninsula, where “sterile experience robbed [the individual] of compassion and
perverted his human kindness to the image of the waste in which he hid” ([1926] 1966, 15) speaks
to the ascetic origins of Islamic civilization. A reasonable assumption, which is founded on the
economist’s presumption that all durable institutions are efficient, is that every civilization over
the long run tends toward institutional structures that maximize the aggregate value which can be
extracted from the local environment. A correlative proposition is that attempts to change local
institutions by force is likely to worsen exiting conditions.

The Convergence of Sovereignty and Religion

The distinction between God and State turns upon the difference between reified spiritual
truths on one hand, and reified civil truths plus the “deification of civil power” (Burleigh 2005,
199) on the other hand. Civil religions (as they are called, following Rousseau) replace a
transcendent God – the perfect cooperating partner – with second-best charismatic social

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prophets and numinous personalities that are at once powerful and all too human. Scholars
quibble about whether deified civil power constitutes a “substitute religion” or a “substitute for
religion” (Burleigh 2007, 197). Either way, the argument correctly characterizes the two systems
as substitutes. Burleigh (2005 and 2007) provides vivid examples of the substitutions that have
occurred since the French Revolution, documenting in particular how nationalism became “the
most potent church to emerge [in Europe] during the nineteenth century” (2005, 199). The
economist Joseph Schumpeter similarly characterized Marxism as a religion, observing that it is
“first, a system of ultimate ends that embody the meaning of life and are absolute standards by
which to judge events and actions; and, secondly, a guide to those ends which implies a plan of
salvation and the indication of the evil from which Mankind, or a chosen section of Mankind, is
to be saved. ... [It] belongs to that subgroup [of ‘isms’] which promises paradise this side of the
grave” (1942, 5). As much can be said of other modern civil religions – Fascism, National
Socialism, and Liberal Democracy in the twentieth century, and American Democratic
Fundamentalism in the early twenty-first century (Montanye 2006b; Buchanan 2008). The literary
and social critic Harold Bloom notes that “[the West’s first] war against Iraq ... was a true
religious war, but not one in which Islam was involved spiritually, on either side. Rather, it was
the war of an American Religion (and of the American Religion abroad, even among our Arab
allies) against whatever denies the self's status and function as the true standard of being and
value” (1992, 15-16). The biologist E.O. Wilson nails the overarching point:

Religions, like other human institutions, evolve so as to enhance the persistence

and influence of their practitioners. Marxism and other secular religions offer little
more than promises of material welfare and a legislated escape from the
consequences of human nature. They, too, are energized by the goal of collective
self-aggrandizement. (1978, 3)

Modern Western civilization has drawn a conspicuous line between civil and religious power by
building a metaphorical spite fence between state and church without ever acknowledging that
the two institutions have more intrinsic similarities than differences.
By ostensibly exchanging spiritual faith for civil reason, Western civilization has moved
away from Mankind’s primal, albeit essentially virtuous, genetic predispositions. The rise of civil
religions manifests Mankind’s overt desire to promote prosperity and economic growth, and to
realize the economic rents flowing therefrom, by replacing voluntary cooperation with
compulsion. Twentieth century history is the bloody consequence of this process, and twenty-
first century history is developing along similar lines. Societies clash inwardly and outwardly as
they find themselves compelled to choose “between irreconcilable opposites – God or Man, Soul

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or Mind, Freedom or Communism” (Chambers [1952] 2002, 16). For “Communism” here, read
“Reason.” Attempts to engineer economic growth and to “perfect” Mankind against its inherent
nature, in order ostensibly to promote prosperity while simultaneously ridding the world of
Hobbesian conflict, ironically have produced serial episodes of super-Hobbesian nastiness and
brutality (Rummel 1997).

The Cost of Prosperity and Economic Growth

Prosperity and economic growth are not free goods. Every cooperative group, from
nations down to private associations, obliges its members to incur burdens that further a
prescribed maximand, and to forego conflicting entrepreneurial activities that are privately
beneficial, but publically detrimental. The extent of these obligations determines whether a
society is characterized as being inherently high-cost (“conservative”) or low-cost (“liberal” or
“progressive”).
Cost characteristics ultimately reflect a nation’s optimal level of trust. Individuals assess
each other’s trustworthiness by the same means that markets interpret price as a proxy for
qualities that cannot be observed directly. Behavioral biology and economics alike teach that such
proxy signals must be costly to fake (mimic) in order to be credible. Individuals routinely signal
their willingness and desire to behave cooperatively, but they often signal falsely in order to share
parasitically in the success of others. Fraudulent signaling is so prevalent in nature that biologists
now reason that communication behaviors evolved as means for deception rather than
cooperation (Dawkins 1999, 57). Hence the need to signal trustworthiness through such costly
commitments as religious practices and initiation rights; adult circumcision and gang beat-downs
are painful examples of commitment signals that are difficult to fake. High-cost civilizations, like
high cost religions, facilitate reciprocal altruism by allowing individuals to identify themselves,
both to their peers and to God, as trustworthy cooperators through the Holmesian virtue of
cheerful compliance. Suicide bombers personify signaling of this sort, as do individuals who rise
to sing hymns in church and national anthems at public events. Signaling group solidarity in this
manner is not always a matter of discretion; upwards of 175,000 American were arrested and
jailed during World War I, and many others were beaten and murdered, for failing to signal
patriotic solidarity in often trivial ways (Goldberg 2007, 116-17). Similar treatment has befallen
insular individuals and sects through history.
High-cost alone doesn’t compel cooperation and prosperity, as advocates of conservative
social policies often imply (see, for example, D’Sousa 2007). It does facilitate trust, however,
thereby reducing the need for synthetic social institutions to stimulate prosperity and economic
growth by dictating cooperation and compelling reciprocity.

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 Societies spontaneously discover the social cost structure that efficiently maximizes the
net benefit that can be extracted from the local environment. Within pluralistic societies,
however, differences of opinion regarding the optimal cost structure often form a distribution that
is both multi-peaked and fat-tailed. These differences give rise to conflicts and hostilities that fuel
violent clashes, both internally and with other nations and civilizations. These encounters reflect
disagreements about whether one group’s cost structure complements the other’s optimal level
of trustworthiness, and vice versa.
As between Islam and the West, for example, casual observation reveals that the two
measures do not equate. The low-cost structure of liberal Western civilization is insufficient in
Islamic eyes to engender the overall level of trust that is necessary to the maintenance of Islamic
societies. Conversely, the high-cost of Islamic civilization, like that of old time Calvinism and
New England Puritanism, is too high to benefit modern Western market societies. Such cost
differences pose a credible answer to the question, “Why do they hate us.” They (Islam) hate the
West, not because of conflicting interpretations of ancient scripture, or because of the West’s
freedoms, wealth, and power, as often alleged, but because the West’s loosely fettered exercise
of wealth and power produces external effects that are inimical to the relative prosperity of
necessarily high-cost Islamic societies.
The political theorist Samuel Huntington and the neo-conservative scholar Dinesh
D’Souza argue along this line, albeit without specific reference to cost. Huntington argued that
the worldwide revival of Islamic religion “is a rejection of the West and of the secular, relativistic,
degenerate culture associated with the West” (1996, 101). D’Souza characterizes Huntington’s
clash-of-civilizations thesis as a war “between the Muslim-led forces of monotheism and morality
against the America-led forces of atheism and immorality” (2007, 180). D’Souza accuses
America’s “cultural left” of promoting socially disruptive moral values at home and abroad. He
relates the international war on terror to the domestic war on modern liberal culture, and argues
that American conservatives are “allied with ... Muslims in their opposition to American social
and cultural depravity” (25), and so should “join with the Muslims and others in condemning the
global moral degeneracy that is produced by liberal values” (26). His argument is cast in terms of
raising moral standards rather than raising the internal cost of Western Civilization to more
“conservative” levels by constraining certain valued cultural activities, but the nexus is clear.

Conclusion

Insights from sociobiology militate the conclusion that evolved behavioral biology, as
manifested both in the structure of institutions and through the cooperative and parasitic
processes of entrepreneurship, drives prosperity and economic growth. This conclusion will be

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resisted by neoclassical economists, who are committed (more or less) to the methodology of
positive economics. Research in neuroeconomics ultimately will confirm or reject the
conclusions implied by sociobiology.

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