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THE LOGIC OF GIFT AND SOCIAL CAPITAL IN THE EARLY DEVELOPMENT OF FINANCIAL INSTITUTIONS IN SPAIN Antonio Moreno Almárcegui, Universidad de Navarra, [email protected] Germán Scalzo Molina, Universidad Panamericna, [email protected] Abstract This paper explores the relationship between reciprocity, social capital and the development of financial institutions in Spain. Since the beginning of modernity, both gift and contract logics move in completely separate and independent spheres, leaving the contractual relationship as the only social model possible. We will support the thesis that the development and functionality of the market and the State is a result of something previous, i.e., the presence of the gift in social relations. This is also the foundation of what is called “social capital.” We will study the case of Spain, particularly the evolution of the creation of charities during the fourteenth through nineteenth centuries as an indicator of building social capital, in order to better connect the logic of gift and economic development. We add evidence to answer the question of whether or not the defense of the primacy of the gift prevented modern Spain’s economic development at the same rate as most dynamic Protestant countries. Key Words: Logic of gift, social capital, financial institutions, Spain, Hénaff Introduction Hénaff (2010) has recently returned to an old issue raised by Weber (1955) on the connection between Protestantism and capitalism, developing his argument from a social point of view. Hénaff suggests that in Protestantism’s social vision there is a defense of the contract as the exclusive framework for public social relations, separating it entirely from the logic of gift and therein lies the key to Protestantism’s economic success. Hénaff asserts that for Protestantism: “…accomplishing professional tasks was more important than performing charitable works; it even replaced them. Luther went as afar as to assume that the division of labor in and of itself fulfilled one’s obligations to others (PE 81). In this way, according to Weber, Luther somewhat naively foreshadowed Adam Smith. Not so naively, actually, for what was being questioned (which Weber does not mention) was the whole question of the charitable attitude as the primary condition of the social.” This doctrine has important long-term consequences— on the one hand, the emergence of a social order based exclusively on exchange relations, i.e., on work, price and contract. On the other hand, based on a new notion of grace as unilateral divine gift, the “modern” notion of gift emerged, i.e., the unconditional moral gift as a pure and generous gift that does not expect a response (without reciprocity). Thus, it ended up universalizing the concept of fraternity, while it emptied it of specific content, which was until then governed by gratuity (Nelson 1949). Within the society that emerged from Protestantism, both gift and contract logics move in completely separate and independent spheres. This doctrine made the contractual relationship governed by the do ut des logic the only social model possible, excluding the gift from social relations. Against this tradition, which advocates for the contract’s radical autonomy, the Catholic worldview in the Modern age, according to the earlier tradition, continues to defend the superiority of gift over contract, that is to say, of distributive over commutative justice. For some authors, this subordination of the contract to the gift has important implications for the development of capitalism in the Catholic worldview. They argue that the key to the expansion of capitalism in the Protestant world is found in a radical separation between the gift, reduced now to the world of private relationships, and the contract, which becomes the socially hegemonic form of public social relations. This relationship was questioned within the Catholic worldview, where gift and contract continued to be united in the modern world, making it impossible to develop a capitalist economy (Clavero 2000). It is true that the confusion between the gift and the contract is the basis of many forms of powerful corruption and therefore poses a risk in every society, especially in those who advocate a strong relationship between gift and contract. But often in these cases what is presented as a gift it is actually a very self-interested behavior, and what is offered as “free” has a tangible price, a powerful counter offer. However, late medieval tradition clearly distinguishes between them. All case-based reasoning about usury involves the effort to establish which part corresponds to the contractual relationship, and which one is free; in other words it looks to establish what is due to friendship and what is due to justice, to then say that without justice there is no friendship possible. This is so because friendship is superior to justice, and the gift to the contract. Approaching the problem: The logic of gift, social capital and economic growth The intellectual tradition coined in American sociology related to social capital during the 1990s (Putnam 2003a) has recently returned to this old problem from a somewhat different and, in a sense, original point of view. The study of social capital is the study of “social networks and norms of reciprocity associated with them” (Putnam 2003b). For Putnam, “Dense networks of social interaction appear to foster strong norms of generalized reciprocity: right now, I do something for you without expecting an immediate return because later you will return my goodwill (or if not, someone else will). Social interaction helps, in other words, to solve collective action dilemmas, encouraging people to act with confidence on occasions that they perhaps otherwise would not. When economic and political relationships are embedded in a dense networks of social interaction, incentives for opportunism and corruption weaken” (Putnam, 2003b, 14). The originality of this approach is that it seeks to measure the intensity of reciprocity networks from the institutional framework that directs the formation and development of dense networks of interaction in strategic sectors of society— politics, education, labor relations, religion— contributing to a generalized climate of trust and good will in society. The purpose of this approach is to measure and explain the effect that such an institutional framework has on social and economic development as a whole because, at the same time, these institutions contribute to and express the trust that “lubricates social life.” This approach is in fact essentially close to the late medieval vision. Indeed, if social capital is an attempt to apply quantitative methodology to the phenomenon of the logic of gift to measure its intensity and power objectively related to social development, then to assert the relevance of social capital is to affirm the close connection between gift and contract, between gratuitousness and market development and the state. If so, the key to economic development is the creation of social capital sufficient to maintain generalized social trust. Our thesis is that the proper functioning and historical development of the market and the state– which is a prominent topic in historical research— is actually the result of something previous, more complex and difficult to establish, but that, at the same time, makes it possible. Indeed, such institutions are the result of a very fragile balance and only a climate of widespread and deep trust allows its development. That is precisely what the concept of social capital refers to. Assuming this thesis is true, the key to social development in the long term is to build a strong social network, expression of broad social relationships and norms of strong reciprocity, which is an expression of a widespread climate of confidence that enables the emergence of economic institutions and stable and efficient policies. In other words, rather than economic institutions themselves, what matters most is the social network of security and confidence that makes them possible. Thus, the long-term key to economic development is the creation of social capital sufficient to maintain a general climate of confidence. During the Modern Age, business expansion was possible in Europe thanks to the emergence of large cities that were unheard of in the Middle Ages. They were responsible for promoting and organizing trade, leading to the emergence of international and domestic markets of new quantitative and qualitative dimensions (De Vries 1980). From a demographic point of view, these large cities grew through immigration, which opened the problem of rootlessness: how could new cities avoid negative social outcomes and instead integrate newcomers as any other community member? Thus, these large cities saw the birth of a new archetypical relationship that is more impersonal, neutral and objective, and that is vital to the development of the market and the state. For the development of the market it is essential to expand the contractual relationship, based on commutative justice, which insists on the equivalent value of exchanged goods, but that ignores the condition of the subject. The development of the modern state is essential for commutative justice to triumph as the central criterion for relationships developed in the public sphere. But neither mass immigration nor contractual relationships based on the modern notion of law are capable of generating personal recognition, and thus founding personal relationships, which is ultimately the foundation of social cohesion (Revue du Mauss 2004, 23; Hénaff 2010). They create, instead, a world without recognition, which becomes a potential source of tension that can end up spreading to the whole society and paralyzing social development in a country. The historical significance of these new social institutions is studied herein: they plan to extend the logic of gift and reciprocity beyond natural circles— i.e., the family, neighbors, friends— to new social environments created in big cities. In short, the historical significance of these institutions is to insert new impersonal relationships within a framework of social recognition: to accept and recognize others, widening the circle of relations and contributing to a climate of general confidence that contributes to peace and social stability. Only this environment can make possible the emergence of the new financial institutions. The creation of an intense flow of social capital is a necessary precondition for the emergence and development of capitalist institutions and the continued growth of a metropolis. However, a decrease in the creation of capital in big cities can lead to the collapse or break down of urban growth and thus to the deterioration of trade and weak economic growth in the long term. Under these assumptions, hereinafter we try to answer the following questions: Did the defense of the primacy of the gift prevent modern Spain’s economic development at the same rate as most dynamic Protestant countries? Furthermore, is it possible to measure the intensity of social capital in the history of Spain? If so, how did it evolve over the corresponding period of the emergence and development of capitalism? Did large Spanish cities create more social capital to compensate for new social circumstances? And finally, does this evolution explain periods of expansion and crisis in Spanish economic development? In order to answer these questions, we will first study the general evolution of the creation of charities as an indicator of building social capital, after distinguishing between the metropolis– Madrid and the Seville-Cadiz axis— and the rest of the country. Thus we can better connect the gift, social capital and commercial revolution. Then we will separately study institutions offering help in the form of services, basically health and education, and institutions offering help in the form of money– dowry, alms, widow's pensions or scholarships. This study is so divided because, although both types of institutions suffered crises during the mid-seventeenth century, those that provided money went through a profound transformation in the nineteenth century. Moreover, this division allows us to better connect the logic of gift, the creation of social capital and economic development. Finally, we will use a qualitative approach to outline the rules of reciprocity that inspire these institutions in each period. Charities in Spain as indicators of social capital: Fourteenth to nineteenth centuries In the early twentieth century, the Spanish government made an inventory of charities that had arisen through social initiative throughout the centuries and that had survived until then. This inventory contains about 13,000 very heterogeneous institutions (hospitals, nursing homes, hostels, pensions for dowries or studies, schools, granaries, montepíos, savings, etc.) and will be our main source for the analysis of social capital. Despite not being exhaustive, it contains a sample sufficiently representative for the purposes of this study. The evolution of the number of social institutions between 1450 and 1900 is presented in Figure 1.i 1,400 1,200 1,000 800 Institutions 600 M.A. 60 years 400 200 1,900 1,850 1,800 1,750 1,700 1,650 1,600 1,550 1,500 1,450 - Figure 1: Charitable Institution Building in Spain. 1450-1910. Three major periods can be distinguished in Figure 1: the first one includes two centuries (the fifteenth and sixteenth) characterized by the growth of institutions, with climax in the decade from 1600 to 1610 (coinciding with one of the brightest periods in Spanish history) and maintained until 1650, a second period of crisis, covering the next two centuries (16501850), and a third period, after 1850, when the pace quickens, exceeding previous levels by 1870. The two periods defined by growth (1400-1650 and 1840-1900) coincide with the best moments of Spanish history, including the "Golden Age" of Spanish culture and a broad movement of political and social reform ("Regenerationism"). However, compared with the total population to which such institutions should respond, the first period is clearly better. Madrid, Seville and Cadiz represent the biggest Spanish cities during the modern age, containing a concentration of the strategic functions that drive the creation of large markets, which are key to the expansion of capitalism. Madrid was the capital of the new monarchy and Seville and Cadiz were port cities where international traffic with America originated (De Vries 1987). If the per capita evolution of these large metropolises is compared with the rest of the country, institutions were created at almost six times the rate of other places (1.62 institutions per 10,000 inhabitants, compared to 0.28). In addition, periods of crisis were much more intense in the bigger cities, showing a correlation between urban crisis and the deterioration of social capital. As already mentioned, the institutions herein considered are very heterogeneous. However, they can be divided into two groups: those offering services (mainly health and education) and those that donated money. The institutions that offered services tended to be more stable over time, while the ones that offered help in the form of money follow a more erratic path. In periods of expansion (1550-1650, 1850-1900) the development of the latter institutions was much more intense than the other group. However, the composition of institutions during these two periods is qualitatively different: in the first period, institutions were small and started through individual initiative; whereas in the second, larger institutions, which were carried out by companies and driven by capital, dominated. Help offered in the form of money– unlike services— gave greater flexibility to the recipient, reflecting a greater confidence in its proper use. The relationship between the expansion of charitable institutions and the expansion of institutions that gave money is remarkable. Figure 2 shows this correlation. Our hypothesis is that the creation of social institutions is a reflection of the intensity of the logic of gift in a given society at a given time, i.e., a confident and intense circulation of money requires a general climate of trust and enables security for social development. In this context, money is an expression of the logic of gift. According to Putnam "a society characterized by generalized reciprocity is more efficient than a distrustful one, for the same reason that money is more efficient than bartering. Trust lubricates social life" (2003, 14). Both generalized reciprocity and money are the expression of a climate of confidence that softens and eases social life. The Spanish experience shows that, channeled institutionally, money can be a powerful expression of the “generalized reciprocity” of a society. Noonan suggests that much of Scholasticism considered money as a gift on the basis of human relations governed by this logic (Noonan 1957, 104), and that view was present during the late Middle Ages and the early modern age. Thus, the generous and confident use of money can be one of the most powerful signs of the intensity of the logic of gift. 100 90 80 70 60 Services 50 40 Money 30 20 10 1,900 1,850 1,800 1,750 1,700 1,650 1,600 1,550 1,500 1,450 - Figure 2: Relative distribution of institutions offering their support in the form of money or services. The crisis of 1650-1850 was primarily caused by the contraction of social institutions that donated money. To be clear, it was a sign of a widespread loss of confidence. Figure 2 shows that, as Putnam suggests in his comparison, this general loss of confidence equates to the deterioration of the logic of gift and reciprocity. Social institutions that donated money were clearly the most sensitive to short-term social change; they emerged more rapidly in good times and they failed more intensely in crisis. Institutions that provide money were an expression of the crisis of the period 1650-1850. Finally, the study of charitable institutions leads to a surprising conclusion, i.e., the development of charities seems to be intimately linked to the development of financial institutions. At least since the modern age, the expansion of charities and financial institutions requires a social climate of confidence. In addition to the quantitative analysis herein (number of institutions as an indicator of social reciprocity) the notion of social capital includes a qualitative aspect that is very difficult to pin down and refers to the intensity and quality of the notion of reciprocity. A way to approach this factor is to distinguish between institutions whose aid is not intended to incorporate the recipient as a full member of the community, from those that seek to transform him into an “equal.” Nelson (1949, 163) suggested that by the eighteenth century the notion of charity began to deteriorate in European Protestant countries. In this new concept, charity became something done for someone considered to be “inferior.” In other words, receiving charity becomes a somewhat humiliating act for the recipient and includes a public recognition of one’s inferior social status. In such action, although it objectively entails helping, there is no aspiration to transform social differences. In short, it does not aim to incorporate the recipient to the community as a member, as a "brother," as someone ultimately equal. We consider this as a qualitative deterioration of the notion of reciprocity. In the Spanish government’s study, there is a continuous and steady increase in institutions dedicated to the “poor,” compared to what might be called the “needy.” The latter term, in our opinion, refers to a subject’s momentary state caused by a concrete and objective situation, which institutions would seek to remedy. The former term, on the other hand, refers to a socio-economic situation that is more structural and permanent and that institutions would not necessarily try to remedy, but rather alleviate. The “needy” do not correspond to a social category, but rather a concrete situation, while the “poor” seems to refer to a permanent social state. For this reason, the increase in the percentage of institutions for the poor related to the expression of a general deterioration in reciprocity. This change in how charities regard their public reveals an asymmetric difference between who attends and who is attended, indicating a sense of social distance and a treatment that does not aspire to make the other an equal. In a direct way, increasing institutions dedicated to the “poor” is the indirect expression of a certain qualitative deterioration of the notion of reciprocity proper to the logic of gift. The relative distribution of this evolution is shown in Figure 3. 40 35 30 25 Overall number of poor people 20 Poor people in large cities 15 10 5 1,900 1,850 1,800 1,750 1,700 1,650 1,600 1,550 1,500 1,450 0 Figure 3: Relative distribution of the poor This deterioration, although general, is more intense in the metropolis, achieving greater relative importance during a critical period in the creation of social institutions (18201830). It corresponds to the transition from the old regime to a new one. As historians have noted, the data suggest that this political transition was accompanied by a profound deterioration of reciprocity that affected the formation of social capital. This critical decade corresponds to a period of markedly decreased institution building per capita and to a decrease in the quality of reciprocity that supports them. 1820 witnessed the further deterioration in social capital creation, corresponding to a deep crisis in Spain and especially in the Madrid-Seville-Cadiz areas, which were the seat of the modern age in Spain. This could be related to the fact that contemporary Spain has seen resurgence in other cities that previously had a minor role (Ringrose 1996). Conclusions Evidence provided suggests that in Spain, after a particularly successful period beginning with the Catholic Kings and culminating in 1550-1650, the formation of social capital faced a crisis that spread over the next two hundred years until the middle of the nineteenth century. This corresponded with the end of the old regime and the emergence of the liberal state. This long crisis is apparent not only in the significant reduction in the number of charitable institutions per capita– especially in big cities of modern Spain— but also in the deterioration of the notion of reciprocity that drives them. At the beginning, the notion of fraternity dominated, while at the end of the process, a significant percentage of social institutions, especially in large metropolises, were focused on the “poor,” that is to say, a qualitative difference that reflects a society divided by irreconcilable differences. This rise and fall of the creation of social capital was much more intense in Madrid and the Seville-Cadiz axis, cities destined to boost the commercial revolution in Spain, modernizing the country's economic-social fabric and promoting the Spanish economy’s overall growth. These cities’ crises explain the weakness of the Spanish society’s overall growth compared to more dynamic economies in Europe. The creation of large national and international markets and the development of a financial system have as a pre-condition a climate of generalized social trust that, because of the size of the new large cities, could no longer rely on old kinship networks and typical neighborhoods of the Middle Ages. Thus, the historical significance of social institutions’ intense growth in large cities leading up to 1550-1650, and paralleled by an intense urban boom, is found in the expanding networks of reciprocity and mutual aid beyond the traditional circles of solidarity, generating a widespread social climate of confidence that lubricates social and economic life. Conversely, the subsequent crisis of 1650-1850 shows a slow and steady deterioration of the creation of social capital, which gave rise to a profound crisis and resulted in a rather mediocre economic and urban growth compared to the most dynamic economies in Europe. Returning to the logic of gift in relation to that of contract, in Modern Spain, the contract did not fail. Indeed, it seems a paradox that Spain promoted the development of legal doctrines of the time, to the extent that some have suggested that one of the School of Salamanca’s main contributions to contemporary culture relates to the modern notion of contract (Gordley 1991). Instead, the creation of social capital, which is an expression of what is known as “the logic of gift,” failed. Perhaps this is so because the contract is not self-sustaining, but rather requires something prior that by its nature cannot be included in the contract, but that is real and tangible in society. It is manifested in widespread social trust, extensive networks of generous and trusting reciprocity, which makes it easy to establish institutions, sign contracts, and promote the rapid and extensive circulation of money throughout diverse social corners. Indeed, although the crisis in capital formation affected all institutions, we have shown that it was particularly serious in the institutions that offered help in the form of money. Before 1650 those kinds of institutions grew the most and after 1650 they shrunk the most. This is paradoxical taking into account that Spain had direct access to sources of precious metals, but that is not the problem. Instead, the wide and intense social circulation of money that the new scenarios in the modern age created– in metropolises and large markets— required an extension of broad networks of trusting and generous social relationships beyond circles of kinship and neighborhoods, which help feed the institutions examined. That confidence and general generosity are the forces that allow for the circulation of money through the social body, giving it life. 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Un estudio internacional sobre las sociedades y el sentido comunitario. Barcelona: Galaxia Gutenberg. Putnam, Robert D. & Gross, Kristin A. “Introducción”, Putnam, R.D. (2003b). El Declive del Capital Social. Un estudio internacional sobre las sociedades y el sentido comunitario. Barcelona: Galaxia Gutenberg, 7-33. Revue du Mass (2004). De la reconnaissance. Don, identité et estime de soi, Revue du Mauss. 1er sementre, nº 23. Ringrose, David (1996). España, 1700-1900: el mito del fracas. Madrid: Alianza. Weber, Max (1955). La ética protestante y el espíritu del capitalismo. Madrid: Revista de Derecho Privado. Notes i The data is presented in decade-long blocks, adding the moving average of 6 decades (60 years). The period, which amounts to 560 years, allows us to observe medium and long-term trends. This paper treats them in general terms, but for a more detailed study see Moreno-Scalzo (2016).