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Dinesh

Dinesh club

Posted: 18 Jun 2013

Taken: 18 Jun 2013

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Implicit interest rates in England, 1170-2000

Implicit interest rates in England, 1170-2000
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 Dinesh
Dinesh club
One way to bridge the gap between psychology and history is to look for changes in a society-wide index of self-control. As we have seen, an interest rate is just such an index, because it reveals how much compensation people demand for deferring consumption from the present to the future. To be sure, an interest rate is partly determined by objective factors like inflation, expected income growth, and the risk that the investment will never be returned. But it partly reflects the purely psychological preference for instant over delayed gratification. According to one economist, a six-year-old who prefers to eat one marshmallow now rather two marshmallows a few minutes from now is in effect demanding an interest rate of 3 per cent a day, or 150 per cent a month.

Gregory Clark www.econ.ucdavis.edu/faculty/gclark/ the economic historian we met in chapter 4, has estimated the interest rates that Englishmen demanded (in the form of rents on land and houses) from 1170 to 2000, the millennium over which the Civilizing Process took place. Before 1800, he argues, there was no inflation to speak of, incomes were flat, and the risk that an owner would lose his property was low and constant. If so, the effective interest rate was an estimate of the degree to which people favored their present selves over their future selves.

Figure 9-1 shows that during the centuries in which homicide plummeted in England, the effective interest rate also plummeted, fro more than 10 percent to around 2 percent. Other European societies showed a similar transition. The correlation does not, of course, prove causation, but it is consistent with Elias’s claim that the decline of violence from medieval to modern Europe was part of a broader trend toward self-control and an orientation to the future.
11 years ago.
 Dinesh
Dinesh club
What about more direct measures of society’s aggregate self-control? An annual interest rate is still quite distant from the momentary exercises of forbearance that suppress violent impulses in everyday life. Though there are dangers in essentializing a society by assigning it character traits that really should apply to individuals, there may be a grain of truth in the impression that some cultures are marked by more self-control in everyday life than others. Friedrich Nietzsche distinguished between Apollonian and Dionysian cultures, named after the Greek gods of light and wine, and the distinction was used by the anthropologist Ruth Benedict en.wikipedia.org/wiki/Ruth_Benedict in her classic 1934 ethnography collection ‘Patterns of Culture’. Apollonian cultures are said to be thinking, self-controlled, rational, logical, and ordered; Dionysian cultures are said to be feeling, passionate, instinctual, irrational, and chaotic. Few anthropologists invoke the dichotomy today, but a quantitative analysis of the world’s cultures by the sociologist GREET Hofstede has rediscovered the distinction in the pattern of survey responses among the middle-class citizens of more than a hundred countries.

According to Hofstede’s data, countries differ along six dimensions. One of them is Long-Term versus Short-Term Orientation. “Long-term oriented societies foster pragmatic virtues oriented toward future rewards, in particular saving, persistence, and adapting to changing circumstances. Short-term oriented societies foster virtues related to past and present such as national pride, respect for tradition, preservation of ‘face,’ and fulfilling social obligations.” Another dimension is Indulgence versus Restraint: “Indulgence stands for a society that allows relatively free gratification of basic and natural human drives related to enjoying life and having fun. Restraint stands for a society that suppresses gratification of needs and regulates it by means of strict social norms.” Both, of course, are conceptually related to the faculty of self-control, and not surprisingly, they are correlated with each other (with a coefficient of 0.45 across 110 countries). Elias would have predicted that both of these national traits should correlate with the countries’ homicide rates, and the prediction turns out to be true. The citizens of countries with more of long-term orientation commit fewer homicides, as do the citizens of countries that emphasize restraint over indulgence.

So the theory of Civilizing Process, like the theory of the expanding circle, has found support in experiments and datasets that are far from its field of origin. Psychology, neuroscience, and economics have confirmed Elias’s speculation that humans are equipped with a faculty of self-control that regulates both violent and nonviolent impulses, that can be strengthened and generalized over the lifetime of an individual, and that can vary in strength across societies and historical periods. ~ Pages 609 - 611
11 years ago.

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