The Economic Decoding of the Phenomenon of Culture Based on the Antientropic Formation and Ranking of Human Ends: Definition, Formation and Impact

Paul Fudulu

Abstract: The phenomenon of culture is about a layer of representative emerged preferences and rules, in the sense of being unintended or non-designed, that are causal in shaping the characteristic behavior of human collectivities. Consequently, the crux of the economic understanding of culture and its consequences is the unintended or non-designed formation of preferences and rules, which falls under the guidance of the same fundamental causal principle that governs the comprehensive identification and ranking of human ends: It is the objective antientropic formation of human ends that underlies the formation and evolution of cultures. Against all odds, both the formation of human ends and the formation of cultures are economic phenomena.

1. Introduction

This study is not the kind of work that draws upon previous efforts of economic “science” to understand and adopt a phenomenon which is hard to understand by its very nature, like culture. On the contrary, it is about how Western-inspired orthodox economic “science,” which failed on other fundamental topics, cannot model a phenomenon like culture. This paper will show that the economic understanding of culture must be based on a transcultural perspective that the prevailing economic “science” has never taken, and on fundamental concepts and theories about phenomena that orthodox economists have avoided because of their assumed unknowable nature or because of groundless hope that knowledge about those phenomena is the burden of some other social sciences.

Consequently, part 2 of this study, “The Status Quo: No Economic Decoding of Fundamental Anthropological Terms and Errant Understanding of Fundamental Features of Culture,” emphasizes the lack of even minimal effort to decode, in economically meaningful ways, terms used in defining culture, as well as economists’ failure and reasons for correctly identifying the nature of culture. Part 3, “The Status Quo: Fundamental Features of Culture Ignored,” deals with features of cultures which economists have ignored even though they are vital to a correct understanding of culture. Part 4, “The Cause of Confusion in Understanding Culture: Fundamental Failures of Orthodox Economic Theory,” takes up the problem of concepts and phenomena that economic theory has abandoned or misconceived, and without which the economic definition and understanding of culture are ruled out. Part 5, “The Basis for the Economic Understanding of Culture: The Antientropic Formation of Ends, Preferences, and Rules,” introduces in a very brief way the true nature of ends, preferences, rules, and institutions, and the causal principles of their formation. All of these theoretical elements are conceived from the general power perspective, which I have been developing for more than twenty years—and the results of which the prevailing orthodox economists have

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constantly rejected, with one exception.1 It is based on these new definitions and principles that in Part 6, “An Economic Definition of Culture,” I introduce an economically meaningful definition of culture and comparatively assess its ability to capture the features of culture as they have been revealed by anthropologists. Part 7, “An Economic Theory of Culture Formation and Its Impact on Economic Performance,” grounds the primordial role of culture in determining the economic performance of human collectivities and conceives an economic theory of culture formation that draws on the antientropic formation of ends, preferences, and rules. The final Part 8, “Conclusions,” reveals consequences that, to an orthodox economist, cannot but be surprising.

2. The Status Quo: No Economic Decoding of Fundamental Anthropological Terms and Errant Understanding of Fundamental Features of Culture

Before saying anything about the definition and nature of culture, I have to make clear what I do not mean by culture in this paper. I leave aside all the meanings of culture which, although important for some research interests, are not in any way directly related to the differences in behavior of human collectivities, especially in terms of their economic performance. I especially exclude culture as a social sector that produces objects of art and culture as nonbiological transmissions of information between generations. In other words, here I use the anthropological meaning of culture.

If I had to assess economists’ knowledge about culture I would sharply distance myself from a relatively recent assessment which runs: “In spite of the attention that has been paid to culture in social sciences over the centuries, we are still no closer to an unambiguous, widely accepted definition of the term. Conceptualizations of culture vary across disciplines, between schools and simply between authors” (Beugelsdijk and Maseland, 2011). This assessment errs by treating anthropologists and economists alike, between whom there are great differences in terms of the ability to understand, define, and identify the features of human cultures. Leaving aside exceptions in the ranks of anthropologists (I do not know anyone notable in the ranks of economists), most anthropologists have a quite accurate understanding of culture, while economists have wholly meaningless definitions, poor or flatly wrong understandings of some important features and are ignorant of other fundamental features (as revealed by anthropologists), which have very important consequences for the general understanding of the phenomenon and its expected economic impact. The root cause of all of those economists’ failures is a theoretical perspective which does not go into enough depth and width and, correspondingly, lacks even the conceptual apparatus to depict and understand the subtle and comprehensive phenomenon which culture is.

The first symptom of this situation is the absence of even the least effort to decode anthropological definitions, which have no meaning to economists. If properly decoded in economic concepts, Kluckhohn’s definition of culture as “patterned ways of thinking, feeling and reacting, acquired and transmitted mainly in symbols” (1951:86), Geertz’s definition of it as “an historically transmitted pattern of meanings encoded in symbols” (cited in Jong, 2009:6), and Hofstede’s visible manifestations of culture

1 “On the Rationality of Immiserating Coercion” (with Roger D. Congleton) in Journal of Economic Behavior and Organization, July 1996, 133-136, University of Southern California, Los Angeles, USA.

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consisting of values (as desired rather as desirable), symbols, heroes, and rituals or his statement that “Culture is to a human collectivity what personality is to an individual” (Hofstede, 2001:10) are not different “conceptualizations” but different descriptions (using mostly synonymous words) of the same social phenomenon.

Since “patterned ways of feeling and reacting” cannot but be about values (preferences) and rules, “patterned meanings” cannot but be about values, and values and rules are fundamentally perfectly similar rankings of human ends, although measured on two coordinates which differ in nature (satisfaction or benefits and, respectively, costs or sacrifices), all of the above-quoted anthropologists have the same understanding of culture as much as the definition is contained in those components. But the other components of the definitions support the same idea. The “symbol” component in Kluckhohn’s and Geertz’s definitions is perfectly matched by values as desired (as opposed to values as desirable) in Hofstede’s definition. Symbols make the objects, actions, or ends they suggest rather discreet and so discourage debates or open, direct, explicit exhibitions of values. As such they are techniques to keep away from values as being desirable, which for some (moral, ideological, political) reasons move the description away from facts.

Economists’ understanding of those definitions of culture as descriptions of the same social phenomenon is precluded by the absence of any economic definition, or the existence of only tautological definitions, of preferences and rules, plus the inability to account for emerged or non-designed rules and institutions, which are the most fundamental and important of all. To my knowledge there is not one single instance or example in the whole orthodox economic literature, Hayek included, of how a rule can emerge and guide behavior without human intentional design and third party enforcement. Add to this economists’ inability to conceive sound theories of ends and preferences (values) formation, and then why wonder that all they were able to do was to move from meaningless anthropological definitions to unworkable economic definitions of culture?2

Moving now to more detailed descriptions of culture, I will describe economists’ lack of understanding in two ways. The first is to show that fundamental ideas about culture, which were issued by anthropologists, have been taken wrong by economists or have simply been defied without any reason—except maybe the desire to accommodate the conception of culture to their own economic theories. With regard to the idea that culture differentiates one collectivity from another, although most anthropologists would agree with it, there is nothing in their work that would warrant economists’ understanding that culture has the purpose of differentiating collectivities (Throsby, 2001) or building up collective identities (Beugelsdijk and Maseland, 2011:13).

2 What could an economist make of the following two definitions: (1) “…we define culture as those customary beliefs and values that ethnic, religious, and social groups transmit fairly unchanged from

generation to generation” (Guisi, Sapienza, Zingales, 2006:23), and (2) “…we loosely define culture as those behavioral and ideational structures that are deemed essential to the constructed identity of a community” (Beugelsdijk and Maseland, 2011:13)? How could terms like “customary beliefs” or “ideational structures” be used in economists’ choice models, which should predict behavior in various human activities or social sectors? How could those definitions support economic models that can account for the huge and very real differences in economic performance across epochs and countries?

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For instance, Vandenberghe (2003) accepts that culture as “the totality of human products” conditions the existence of humans,3 and that culture in this comprehensive sense exists only in plural. Consequently, culture differentiation is intimately connected to human existence and as such to the causal principle of the objective phenomenon of life generally. Economists, as much as they consider themselves scholars and, consequently, keep away from any mystical stance, must consider life an objective phenomenon of the universe and as such connected to its more comprehensive causal principles. Yet economists are completely silent on this topic because, consciously or not, they have replaced objective causality with human ideals, as Veblen noted as early as 1898. It is here where we have to start our quest for a sound understanding of culture, and it is also here where a theory of values (preferences) formation, which conditions a sound understanding of culture, has to start. Anticipating in brief one of the basic ideas of this paper, economists should start their intellectual endeavor by acknowledging the antientropic nature of life (as defined by the great physicist Schrodinger) and, in this particular case, accepting that differentiation of human cultures and human values generally are means to maximizing humans’ antientropic control. As a conclusion on this issue, for human collectivities, differentiation of cultures is a means and not a purpose in and of itself.

But economists went furthest in the wrong direction regarding what is perhaps the most fundamental feature of culture, which is strongly connected with other very important features revealed by anthropologists. With North (2005), Jong (2009), and others, culture is located in the realm of means4 or instruments to reduce poverty and increase efficiency in terms of (absolute) wealth. The logic is that of transaction costs: With common cultural values predictability and mutual trust increase and, consequently, transaction costs decrease and economic growth is enhanced. This economic idea about culture errs on two grounds. First, culture is about human values and values ultimately rank human ends. If economists like North and Jong are right, either culture is not about values or it is about values but all human ends can be squeezed down to only the megaend of (absolute) wealth. In other words, culture can value or rank anything except wealth, which must be an invariable transcultural human megaend.5 This idea is not backed by social reality and would be denied by many solid scholars.

Because most economists accept anthropologists’ idea that culture ranks human ends or is about values, economists’ escape should be in the realm of human ends. Unfortunately, long ago economists abandoned the issue of human ends, including their taxonomy. Consequently, their knowledge in this regard should be based on other social scholars’ authority such as anthropologists, sociologists, and philosophers. To their disappointment—and this is the second ground on which the idea of culture as a means to

3 “Without humans there is no culture, but without culture there are no humans either” (Vandenberghe, 2003:462).4 Some anthropologists such as Swindler (1986) have taken this stance. But Swindler, who sees culture as a “tool kit” from which people construct strategies of action, is flat wrong with regard to her fundamental hypotheses. First, her example about the ethos of Protestantism that outlived Protestantism is based on an errant conception of religion. Religion uses Heavenly beings and facts but is essentially a special description of Earthly social systems and as such of human ends. After a religion perishes, human ends stay and are expressed some other way. Second, there cannot be end-neutral “tool kits” or strategies because these very tool kits are derived from the nature of ends.5 It is ironic that economic theory, which emerged as a “science” due to cultural evolution consisting of an increasing weight for the megobjective absolute wealth, ended up in negating any cultural evolution.

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poverty reduction is flawed — although none of those groups developed a precise taxonomy, they would all agree that besides absolute wealth there are other human ends (and they mean equal substitutes) such as approval and status or, in short, relative power. The implication is dramatic and orthodox economists seem to have sensed that. If culture values or ranks human ends, and human ends are more comprehensive than absolute wealth, then absolute wealth is also ranked. Anthropologists singled out this comprehensive feature of culture,6 and it is no coincidence that this is one of the features of culture economists have ignored without exception. Culture values all human ends or interests. Nothing is left unranked including (absolute) wealth.

The dramatic character of the preceding idea stems from the fact that different-in-nature human megaends entail different maximizing principles or different behaviors and as such different economic principles or theories. Consequently, different cultures entail different economic rationalities. By the same tken one single type of economic rationality or one economic theory equals ignoreing the huge differentiation of cultures whose populations’ behavior has to be explained and predicted. Anthropologist Herskovits (1960) was right on target when, during his dispute with Knight, he charged orthodox economists with what would be a kind of Western ethnocentrism: “We are tempted to consider as rational the behavior that represents only the typical reactions to be expected of those who order their lives in terms of the economic systems of Europe and America” (1960:24).

Knight’s response consisted of an idea that had already become a basic orthodox economic idea: Economic principles are valid for all human ends and as such “The most general principles are not different in different cultural situations—exactly as the principles of mathematics are not different” (in Herskovits, 1960:510). In order to disprove this idea, this time I leave aside the purely theoretical argument about the fact that that the orthodox idea defies the causal relations between ends and means, which are not at all theoretical but concrete and specific. This time I present two forceful examples. First is Becker’s (1996) fundamental hypothesis of market equilibrium as a fundamental component of his economic approach, which he claims to have general validity. The institution of a market is characterized by relative power equality. Within a sound theoretical perspective on institutions, which are defined as patterned opportunity costs of the megaends absolute wealth and relative power (Fudulu, 2003), the institution of a market makes only the megaend absolute wealth available since the opportunity cost of relative power is infinite (relative power equality makes it impossible to exercise any relative power). Consequently, Becker’s economic approach draws upon the behavior derived from only one human megaend. It is for this reason that, when his approach is used to explain social activities that are heavily marked by cultural variation, implicitly variation in the nature of human (mega)ends, its explanatory power is negligible (see Iannaccone’s and his followers’ application of the Beckerian economic approach to the study of religion).

The second example is based on my personal research on the economic decoding of religious dogmas (Fudulu, 2010). Not surprisingly, Weber is a point of reference, but my model of the economic understanding of religion is quite different. One of my 6 Eliot leaves no doubt about the reality of this all-inclusive feature of cultures: The cultures of various collectivities determine their “whole way of life, from birth to the grave, from morning to night and even in sleep” (cited in Vandenberghe, 2003:462). And Hofstede (2001:18) talks about culture’s “all-encompassing influence on our mental programming.”

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conclusions is that those following the Beckerian economic approach (especially Iannaccone) are fundamentally not so different from Weber, whom they do not quite understand and about whom they are very critical. In a way Weber’s comparative analysis of Protestantism (in his The Protestant Ethic and the Spirit of Capitalism), especially in relation to Catholicism, has striking similarity to Knight’s stance, which had become and has stayed a characteristic component of orthodox economics, including the Beckerian economic approach. Knight considered economic behavior as “a normative ideal” (in Herskovits, 1960:510). Within his theoretical framework various “culture settings” can only account for various departures of actual behaviors from the ideal behavior. The implication is that cultures are not different human rationalities derived from various human megaends, as with Herskovits, but that cultures are responsible for the various real degrees of rationality. And because what Knight considers ideal behavior is in fact Western behavior derived from the Western ideal megaend of absolute wealth, the ideal rationality is the Western type.

With Weber the Protestant religion was conducive to higher economic performance by Protestant populations because of its high degree of intrinsic rationalism. The other religions, except maybe Judaism, possessed lower levels of rationalism and as such were not as favorable to the adoption of a capitalist system or the formation of a sound economic rationality. Although the great world religions analyzed by Weber are good proxies for the cultures of the respective populations, I would part company with Maseland who sees Weber “as the father of the culture and economy debate” (in de Jong, 2009:11). In a very strict sense Weber does not see religions as cultural expressions because various religions do not embody various human megaends. The criterion of his analysis was the ideal religious rationalism of Protestantism and all dogma components of Protestantism are consistently shaped by the Western ideal megaend of absolute wealth. This is the junction between Knight’s and Weber’s perspectives. And it is because of this striking similarity between the two conceptions that proving wrong one entails revealing the errant character of the other.

My research on the economic decoding of religious dogmas assumes that, in a way similar to cultures, religions express specific rankings of the human megaends. Accordingly, for each religion each dogma component should contain a type of rationality derived from its specific mix of megaends. The result was stunning: Without exception, for each religion each dogma component proved to contain a type of rationality described by specific values and rules, which perfectly fits its specific mix of megaends. For instance, both the Catholic believer’s behavior and the Chinese judge’s practice to judge not based on rules but case by case (which Weber disapproves and presents as cases of low rationalism), are perfectly rational when absolute wealth ceases to be the only assumed megaend, and relative power, the other comprehensive human megaend, has no negligible weights. In other words, when the variation in human ends is taken into account, the various real human behaviors, religious or not, prove to have no difference in terms of the level of rationality. Consequently, there is no ideal economic behavior because there is no ideal mix of human ends except in relation to a specific culture, which cannot but be one of the very many. Or, if one enjoys playing with words, there are as many ideal economic behaviors as there are cultures in this world.

3. The Status Quo: Fundamental Features of Culture Ignored

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With respect to the second way of showing economists’ lack of understanding of the phenomenon of culture, I present important features of cultures which are almost unanimously accepted by anthropologists but are wholly ignored and even implicitly denied by economists.

The first feature of this kind is that described by Hofstede (2001:6) by separating values as “the desired” from values as “the desirable.” The purpose is to get as close as possible to describing the real behavior of collectivities. Avoiding desirable values equals avoiding ideology that distorts understanding of real behavior.7 The idea that culture is about values as “the desired” corresponds to what in economic theory should be emerged preferences and rules, that is, patterns of behavior that appear not by intentional design but out of thousands of ordinary choices that individuals make in their day-to-day life when contemplating a myriad of alternative actions and objects. Those rankings (in terms of benefits or sacrifices) derived from ordinary choices become values and rules because time and again in invariable choice situations the same behavioral solutions are chosen. Individual behaviors seem invariably valued or ruled because similar choice situations produce invariable decisions. Orthodox economists lack the conceptual apparatus to understand the emergence of values and rules and, consequently, avoid those real facts. Because all they can tackle are “created” or debated values, rules, and institutions—and they have no theory of values (preferences) and rules formation—they cannot imagine culture as a non-designed fact.

Two relatively recent books on culture written by economists (de Jong, 2009 and Beugelsdijk and Maseland, 2011) contain this errant idea of culture as humanly designed or intentional8 fact. To Jong (2009:8) this idea seems so natural that he even cites DiMaggio without noticing that in that particular quotation DiMaggio was referring to “high culture” or culture as the social sector associated with objects of art created by an elite (which has features opposite to culture as representative values for a collectivity). Most economists who study and write about culture seem unprepared to separate a human-made fact from a human-designed one. Hayek insisted on drawing attention to social phenomena like rules which are a result of human activity but not a result of human intentional design. Yet without sound fundamental hypotheses and a specific theory to show how exactly rules emerge, the impact of his ideas seems to fade away.

There are two consequences of confounding human-made facts with human-designed ones. The first consists of omission, which economists seem to do too often when they read anthropological definitions of culture. They neither notice nor account for the almost constant presence in the definitions of culture of the term “symbols.” Symbols are a technique to transmit, in a kind of secretive way, values and rules that describe behavior as it is and not as it should be. One lesson of human life seems to be that open, explicit transmissions of values and rules that conflict somehow with what moral, ideological, and political authority hold should be avoided.

7 Hofstede writes (2001:6) “The desired relates more to pragmatic issues; the desirable, to ideology” and quotes Levitin as stating that confounding the two kinds of value is a “positivistic fallacy.”8 de Jong (2009:8) concludes that “Finally, all definitions of culture refer to a humanly designed phenomenon which is transmitted from generation to generation.” Although Beugelsdijk and Maseland find one of the features of culture is that it is a human-made phenomenon (2011:11), on the next page they err in stating that “The concept of institutions, like culture, relates to ideational and behavioral structures that are created by humans and influence their decision-making.”

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The second consequence is the fact that economists do not properly understand expressions like “historically transmitted” or “traditional ideas” (Kluckhohn, 1951:86, and Geertz, 1993:89), which are also frequently present in anthropological definitions. Instead of emphasizing the fact that those traditions are transmitted by symbols, practices, and word of mouth, or by means that circumvent the open, public, explicit expression of values and rules, economists concentrate on the fact that cultures are very stable or invariable and as such, they say, inflexible, inadequate, or even irrational. This is the economists’ other serious error in understanding culture.

Stability of cultural values and rules through generations can entitle someone to equate it with inflexibility or inadequacy, unless it is caused by the stability of its causes or determinants. Yet to my knowledge economists like Guiso, Sapienza, and Zingales do not have a theory of culture formation or a general theory of preferences and values formation. The theory of culture formation I sketch later in this paper exactly reveals this great stability of its causal factors. Although there is a continuous change in world cultures, which is very slow but steady.9 A somewhat different approach to the way culture is handed down through generations is inspired by the same impressive stability and comes, for instance, from economists such as Beugelsdijk and Maseland (2011:8-9). Culture, they say, is a given to the next generations and as such it is not questioned by the individual members of a collectivity. It is not rationally chosen, although it is a component of rational choices.

All of these features and approaches to culture are derived from a lack of understanding of the process of culture formation. They are the product of minds that contain an image of culture that can only be a humanly designed fact. The reality is that culture has never been the result of an intentional rational choice and it will never be, because that is against its very nature. However, culture is an unintentional result of billions of ordinary or particular rational choices made by individuals pertaining to a collectivity. In such a sense culture is not “a given” but is always “in the making”10—although it is a “making” that, in short historical periods, produces no spectacular changes, and for us humans living relatively short lives, it seems like there is no change at all.

Out of all those features of culture orthodox economists have ignored because they do not make sense to the “science” of “economics,” the last is the capacity of culture to produce in social scholars what I called “culture blindness” (Fudulu, 2007). Cultural values and rules are so comprehensive and so basic that they fill in our entire horizon: In order to see something different something else has to be erased from that horizon, which is very difficult to do. The consequence is that culture programs what we see and what we do not see. Based on our own culture, that part which we do not see in other cultures is assumed to be the same and as such it is not questioned. Culture facilitates the confounding of social realities. In terms relevant to economists, Western culture, within which economic “science” was born, facilitated confounding its representative type of

9 Almost all of the seven great world religions I covered in my book on the economic decoding of religious dogmas have undertaken changes in dogmas that are compatible with a lower preference for the megaobjective relative power and a higher preference for the megaobjective absolute wealth, which seems to support the idea of the unidirectional movement of all world cultures.10 While the perspective I use in this study accounts for this “always in the making” interpretation of culture, it is no surprise that Beugelsdijk and Maseland find it only enters occasionally into “economics” (2011:10).

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personality11 with the many other representative types to all other cultures. The Western personality type was assumed to be general, with the consequence that the differences in behavior were looked at in the realm of ability to identify means and not in the realm of human ends. The scientific results have been disappointing: The effort to build up a general economic science without taking into account the nature of human ends that vary greatly across cultures has entailed low descriptive and predictive capacity and even pushed scholars to falsification.

This danger of culture blindness was, to my knowledge, especially emphasized by Hofstede (2001) and Vandenberghe (2003). Hofstede (2001:2) talks about the possibility that our mental constructs or models contain not only a description of reality but reflect our mental programming, within which culture is an important component. At the same time, Vandenberghe (2003:463) warns of our “culturally and historically determined deep symbolic forms that pre-structure our vision of the world and ourselves.” Both approaches to the phenomenon of culture blindness include suggestions about its cure. Hofstede suggests “pooling and integrating a variety of subjective points of view of different observers” (2001:2), while Vandenberghe (2003:463) hopes that “awareness and acceptance of multiple cultures induce a reflexive process of cultural self-relativisation and self-objectification.” Due to their confusion in understanding culture, economists seem to be the most vulnerable to culture blindness. Even to Hofstede this is a sure thing.12

4. The Cause of Confusion in Understanding Culture: Fundamental Failures of Orthodox Economic Theory

The inability of the orthodox economic approach to capture and model most of the fundamental features of the phenomenon of culture has deeply rooted causes which stem from an inability to grasp and model fundamental economic phenomena and processes. The reality is that Western economics cannot model cultural diversity and its accompanying features because it is fundamentally based on the implicit assumption of a universal cultural uniformity, which is based on one culture out of very many. And this implicitly assumed cultural uniformity of humanity precludes not only understanding culture but even understanding basic economic phenomena without which understanding culture is and will remain impossible.

First, a proper economic understanding of culture is precluded by the inexistence of a proper definition of ends, a proper taxonomy of ends, and a sound theory of ends formation. Second, because culture is about emerged values and rules, it is impossible to frame a theory of culture formation and evolution without correct theories of values or preferences and rules formation. Third, because cultures are simultaneously described by

11 Hofstede (2001:10) introduces the idea that culture is to a collectivity what personality is to an individual. As a consequence, culture is the representative type of personality for a human collectivity12 In a comment on the concept of culture blindness, which I had introduced in the manuscript of my paper on the nature of rules and institutions (published later, Fudulu, 2007), Hofstede wrote: “The term ‘culture blindness’ applies to most economists, and I don’t see many signs of change is this respect…. Economics is an (Anglo-)American discipline and it starts from Anglo-American cultural assumptions. This was just reconfirmed by the latest Nobel Prize which extended an endless list of culture-blind American winners (maybe except Joseph Stiglitz)” (Geert Hostede, October 12, 2005).

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values and rules, it is impossible to comprehensively describe and compare real cultures without a theory that grounds the conversion of rules into values and vice versa.

The need for a sound and adequate definition and taxonomy of ends is vital to an economic understanding of culture for two reasons. First, values and rules are ultimately about ranking human ends. Second, since economic science focuses especially on choices and their optimizing bundles, the ends to choose among must not only be assumed generally but also specifically. Unfortunately, in terms of human ends economic science has remained at a very primitive stage. von Mises (1949:92-93) and Robbins (1932:12) could not produce more than tautological definitions of ends that led nowhere, and Knight sealed the impossibility of solving the problem in stating that ends are “the most obstinate unknown of all unknowns” (2009:12).

In terms of values or preferences the state of economic theory is not any better positioned because the nature and formation of values are intimately connected to the formation of human ends. In fact, both are conditioned on a correct identification of the causal principle of the objective phenomenon of life, which to economists at least has retained an implicit mystical nature. For example, in his book Culture and Economics (2009), de Jong gives values nothing more than a definition framed by anthropologist Kluckhohn, which besides its tautological character cannot be used in any economic research.13 It was within this perspective that incorrect conclusions were drawn: Knight opposed reason to feelings and North went even further and stated that cultural heritage consisting of “myths, taboos, religions, and dogmas” defies scientific explanation and, consequently, hinders economic growth. Becker’s effort to circumvent the general problem of preferences formation by assuming stable and invariable fundamental preferences postponed a sound and lasting solution even longer, after Knight’s groundless idea that formation of values is not economists’ problem had discouraged any renewed effort.

The orthodox perspective on rules further explains economists’ flawed perspective on culture. Economists’ wishful thinking about a kind of culture that is humanly designed, debatable, and modifiable at will, or a culture that is wholly shaped consistently with the objective of economic growth, is mostly derived from a conception of rules (implicitly, institutions) that can only be humanly designed and enforced by a third party. There is no place and no logic within this orthodox perspective for emerged rules, and this situation precludes any possibility to correctly understand culture. But the orthodox perspective on rules not only erases the reality of the most fundamental type of rules and institutions. If thoroughly followed to its ultimate conclusion, it would imply erasing the notions of rules and institutions altogether. For if rules and institutions are ultimately about ranking alternative ends, a theory of rules and institutions that ultimately assumes only one external-component human megaobjective or megaend like “wealth”14

makes no sense, and is even logically impossible. As a consequence, the orthodox tautological definition of rules and institutions is the only kind of definition possible although it is essentially not a definition at all. And if there is no proper reason for rules

13 de Jong takes over Kluckhohn’s definition as cited by Hofstede (2001:5): “A value is a ‘broad tendency to prefer certain states of affairs over others.’”14 Definitions of institutions by North: “Institutions are a set of rules, compliance procedures, and moral and ethical behavioral norms designed to constrain the behavior of individuals in the interest of maximizing wealth or utility of principals” (1981:201) and “The behavioral postulate of wealth is the cornerstone of economic theory. It is also the cornerstone of this theory of institutions” (North, 1984:32).

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and institutions, there must be no proper reason for culture. The phenomenon of culture seems to be meddling in the economic world and prevailing economic theory.

5. The Basis for Economic Understanding of Culture: The Antientropic Formation of Ends, Preferences, and Rules

As I have already made clear, the basic cause of economists’ confusion in decoding and understanding the economic impact of the phenomenon of culture is the lack of understanding of fundamental phenomena and terms such as ends, preferences, and rules. This lack of understanding is not derived from the nature of those phenomena; rather, it is a consequence of a flawed general perspective taken by Western orthodox economics. The logical conclusion of such a diagnostic is the need for a different, proper general perspective. In this section of the study I outline the general power perspective I have been developing for more than two decades and present its implications in terms of defining and understanding fundamental correlations relative to ends, preferences, and rules. Then in the next and the last parts of the paper I use this new theoretical framework to develop a meaningful economic definition of culture and a theory of culture formation.

The starting point of the logical architecture of this different general perspective is the idea of the antientropic nature of life generally as suggested by physicist Schrodinger (1944) and already adopted by other solid scholars such as Georgescu-Roegen (1976). The reasons for doing so are simple: Schrodinger’s definition connects life in all its forms to the great causal principles of the universe and in this way it wipes out any trace of implicit mysticism, the paradoxical and agnostic nature of which seems to linger in the current orthodox economics. At the same time it is economically meaningful—unlike any other scientific description of life. Living beings, humans included, live by absorbing matter from their external reality, including other living beings of the same or other species,15 matter so structured or organized as to generate their capacity to temporarily stop the ever-entropic degradation. Instead of defying universal entropic degradation, in the end the antientropic direction of living matter speeds it up and thus is perfectly consist with it. In other words, life could be said to have an intrinsic maximizing nature: It makes the entropic degradation of the universe happen faster than it would have without living matter. This is done through pumping back into the external world high entropy or matter with a lower potential to move or do things. Thus the living world is tied to the general laws of the universe or is determined as is any other province of the universe and, consequently, the social sciences should consist of laws and regularities compatible with all other sciences.

In order to maximize the antientropic absorption humans must allocate their available general power resources, taking into account the efficiency and effectiveness offered by various external world components in terms of low entropy absorption. Human ends are primarily and fundamentally those components of our nonhuman and human external reality out of which we suck low entropy or the fuel of life. The antientropic nature of life imposes an overhaul of the role played by human ends in human lives. They are not things we live for but things we live on. We do not live to attain ends but attain ends in order to live. Sucking the fuel of life is done based on

15 The biological or socio-biological principle of the individual as the unit of selection and account leaves no doubt about that, and historical evidence wholly confirms this idea.

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components of our external world, and through anchoring human ends on that reality the prevailing confusion in classifying, selecting, and ranking ends is eliminated. Based on this fundamental perspective, a theory of human ends formation must cover not only conscientiously selected and ranked ends but also ends that manifest their existence and rankings through mental forms like passions and emerged preferences and rules.

The taxonomy revealed based on this perspective on human ends, and suggested here in Exhibit 1, singles out the existence of a substitute to the single orthodox megaend of absolute wealth: the megaend of relative power. Taking into account this megaend which is missing from the orthodox perspective, it is possible to create meaningful definitions for preferences, rules, and ultimately culture. The evolutionary separation of the two comprehensive sets of ordinary ends was imposed by their different nature and different consequences in terms of overall negentropy absorption or, in other words, in terms of social progress. While the megaend of absolute wealth consists of pro-cooperative ordinary ends, the set of ends I call relative power consists of antagonistic ordinary ends. It is the changing weights of the two megaends that has marked social and cultural evolution, and it is for this reason that the taxonomy thus developed is fundamental in defining and understanding the process of culture formation. Exhibits 2 and 3 show how this taxonomy of ends helps wipe out confusion in classifying passions16

and in understanding the origin of derived and sublimated ends that confuses so many social scholars.

16 As an example, in his book The Passions and the Interests, Hirschman (1997) uses the consecrated division of passions but never accounts for it, and later on this is the source of confusion in accounting for their evolving weights.

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Exhibit 1: The taxonomy of human ends based on the antientropic nature of life.

Exhibit 2: Passions and their relation to megaends.

Exhibit 3: From primary megaends to derived and sublimated ordinary ends.

To maximize the antientropic absorption humans must allocate their available resources, taking into account the efficiency and effectiveness in terms of low entropy absorption occasioned by the various components of their nonhuman and human external

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reality, upon which all human ends are anchored. The principle of maximizing the efficiency or effectiveness of antientropic absorption must guide both selecting and ranking human ends. Two kinds of instruments stand out in ranking human ends: (1) values or preferences and (2) rules and institutions. Both are of two kinds: consciously or intentionally made and enforced, and non-consciously or unintentionally produced or emerged. The nature and formation of values and rules are essential to understanding the nature and formation of culture.

6. An Economic Definition of Culture

Given the whole conceptual apparatus I have introduced above, the economic definition of culture I suggest is the following: The culture of a collectivity is its representative emerged preference or rule expressed in terms of the two all-inclusive megaends, absolute wealth and relative power. Figures 1 and 2 contain geometrical descriptions of Greek, Roman, and Christian European cultures as a preference and as a rule. Before checking to what degree this economic definition of culture confirms the main features of culture as revealed by anthropologists, a couple points need clarification and a couple important conclusions must be drawn.

Figure 1: Greek, Roman, and Christian cultures expressed in terms of preferences for the megaends absolute wealth (w) and relative power (r).

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Figure 2: Greek, Roman, and Christian cultures expressed as patterned opportunity costs (rules) for the megaends absolute wealth (w) and relative power (r).

First, the concept of culture should support understanding the characteristic behavior of various human collectivities, and this characteristic behavior is shaped by a specific mix of ends. Although we talk about behaviors of collectivities, the mental programs containing the various ranking of human ends that shape behavior exist only in human minds. As a consequence we cannot but account for behaviors of collectivities through or based on individuals’ behaviors. This is an exigency for this kind of research, but it is simultaneously a great support for using an economist’s conceptual framework to understand this specific phenomenon.

Hofstede stated that “Culture is to a human collectivity what personality is to an individual” (2001:10), but I would go even further. Culture is the representative type of human personality for a collectivity. Thus the emerged preference and rule in the definition suggested above describe the mental program of the representative personality of a specific collectivity. The representative type of personality is a statistical concept and does not assume any overlapping with any number of the members of a collectivity. It is a constructed type of personality to which most of the members of a collectivity converge. In this way culture exists through and as a property derived from various individual personalities and the behavior characteristic to a collectivity, which culture should predict, and is a result of individuals’ behaviors.

Second, although most of the anthropological definitions I am aware of and those presented in this paper do not use the concept of rules, the definition of culture I suggested contains that concept. This is because that the perspective I use in this paper reveals that rules and values are interchangeable. The same ranking of ends can be expressed both in terms of preferences and rules. In other words, rules can be converted into preferences and preferences into rules. They are inversely related: Each preference ranking has a correspondent opportunity cost ranking and they are perfectly equivalent.17

In fact, culture is a unique and representative (to a collectivity) ranking of human megaends, which can be expressed both in terms of preferences and opportunity costs.

17 In at least one instance Hofstede supports this idea. In describing the “Onion Diagram” that suggests manifestations of culture at different level of depth (2001:11) he implicitly uses norms and values interchangeably. Moreover, I do not know any behavioral aspect of a collectivity or social system which is described only by values.

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Taking into account this reality, one could also use the terms cultural preference or cultural value (described in Figure 8) and cultural rule or cultural opportunity costs (described in Figure 9).

The first conclusion to be drawn based on this definition of culture refers to what we can expect from studying and comparing various cultures. Since cultures ultimately rank human ends, their purpose must be traced back to the role of selecting and ranking ends in human life. Human ends are primarily the inert or living things we live on. The mix of ends we select and the ranking we conceive for them are solutions for life and are totally dependent on the various characteristics of individuals’ human and nonhuman external reality. These solutions are specific because they respond to specific situations and as such they must be compared with great caution. Their comparison for the purpose of using them as substitutes is ruled out, as there is no sense comparing specific solutions as solutions.

The second conclusion has paramount significance for the relation between culture and the objective of economic performance and must be surprising to the orthodox economist. In the most profound sense, the economic performance of various human collectivities is caused by the representative individuals’ effectiveness in terms of the megaobjective of absolute wealth. The ranking, the level of produced absolute wealth they choose, and the shares of total resources they allocated to its production are components of a larger solution. Leaving aside human errors, representative individuals’ various economic performances or economic performances sustained by various cultures are derived from rational choices, and they should be neither lamented nor applauded. Using consecrated terms, as a rule, the wealth and poverty of nations are wholly rationally chosen and cannot but be different for different countries.

Culture has been the specific field research of anthropologists and all economists should do is decode that knowledge in economically meaningful terms and adopt it. Since anthropologists characterize collectivities, including nations, their results should greatly support economists’ efforts in understanding differences in economic growth across countries. And because in terms of culture we economists cannot now bring in much new light (except with regard to the mechanism of culture formation) but only decode or translate, an economic perspective should be judged by its ability to capture or describe the fundamental features of culture as revealed by anthropologists. Exhibit 4 compares these abilities in terms of the orthodox perspective and the antientropic perspective. However cautious one might be, the poor descriptive capacity of the orthodox perspective seems clear.

Exhibit 4. The Comparative Ability of Capturing the Features of Culture

Features of Culture as Revealed by Anthropologists

Captured or Not by the Antientropic Perspective

Captured or Not by the Orthodox Economic Perspective

The essential core of culture consists of values

Captured explicitly by the definition of culture

Sporadically captured

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Embodied and transmitted in symbols or consisting of values as desired

Captured through emerged rules and preferences

Ignored

Comprehensiveness Captured by the all-inclusive megaends absolute wealth and relative power

Defied or ignored

Culture characterizes a collectivity

Captured explicitly Captured in a flawed way: As an end in and of itself

Culture is to a human collectivity what personality is to an individual

Captured through idea of culture as the representative type of human personality

Ignored

Culture produces culture blindness

Captured and dealt with by a variable representative type of human personality

Ignored and even unaware of

Culture was fundamentally and initially formed by climate or geography

Captured by a theory of culture formation (see the following part of the paper)

Ignored

7. An Economic Theory of Culture Formation and Its Impact on Economic Performance

Since the weight of importance attached to the megaend of absolute wealth is determined by culture, it predetermines the economic performance of a given collectivity. Because values or preferences are formed inversely related to opportunity costs, after the specific cultural value and cultural rule are formed, the equilibrium level of absolute wealth produced by the representative individual and, consequently, the level of economic performance of a collectivity is predetermined (see Figure 3). What is left to be accounted for is the process through which the specific opportunity cost of absolute wealth is determined. Such an idea has been only rarely and vaguely expressed in economic literature and with a weak theoretical underpinning. Weber’s idea about the causal relation between the spirit of capitalism―which in a different description is called the preference for absolute wealth―and formation of capital is one of the rare articulations of the idea of the predetermination of economic performance by culture.18

18 “And, what is most important in this connection, it is not generally in such cases a stream of new money invested in the industry which brought about this revolution―in several cases known to me the whole revolutionary process was set in motion with a few thousands of capital borrowed from relations―but the new spirit of modern capitalism, had set to work. The question of the motive sources in the expansion of modern capitalism is not in the first instance a question of the origin of the capital sums which were available for capitalistic uses, but, above all, of the development of the spirit of capitalism. Where it

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The level of available resources is itself historically determined by culture and a theory of economic growth, meaning the causal factor relative to economic growth cannot but be tautological.

Figure 3: Cultural predetermination of economic performance.

The main objective of this final part of the paper is to sketch an economic theory of culture formation. Although the logic is economic and uses correlations revealed only by the particular perspective of this paper, I start from results derived from anthropologists’ field research, especially Hofstede’s work (2001). They are presented in Exhibit 5 and seem to be agreed upon unanimously. The most remarkable discovery of Hofstede’s study of culture (1984, 2001) is that different collectivities or countries are characterized by different inequalities in terms of what in my model is their individual relative power,19 which are positively correlated with preferences for these inequalities and negatively with economic performance (GDP per capita). So, the higher the inequalities in terms of relative power among individuals making up a collectivity, the higher their preferences for inequality in terms of relative power and the lower the economic performance of that collectivity.

Exhibit 5: Correlations among climate, level of relative power and economic performance.

Climate Level of relative powerLevel of economic

performance

Cold Low High

WarmHigh Low

appears and is able to work itself out, it produces its own capital and monetary supplies as the means to its ends, but the reverse is not true” (Weber, 1985:68).19 Roughly, his term “power distance” overlaps with my term “level of relative power,” while his term “power distance” overlaps with my term “preference for relative power.”

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Drawing on the relevant literature, Hofstede (1884) presented an explanation (which he himself calls “educated speculation”) of those correlations that defies economic logic. The explanation runs like this:

In colder climates, because of the hardship of nature, survival requires that man becomes a higher performer and, as such, he needs more technology. This is not the case in warmer climates where man can perform less (although he could perform as well as in colder climates) and the need for technology is lesser. Further on, higher technology calls for better educated and also better paid lower and middle strata. For this reason, “wealth will be more equally distributed and power will also be more equally distributed” (Hofstede, 1984: 95, 98).

There are two reasons such an explanation is highly questionable to an economist:(1) If an individual is modeled as a maximizer, there is no reason someone

living in a more generous climate does not need comparatively more technology. On the contrary, instead of being content, he should take advantage of a better climate and produce more. Then the relationship between climate and wealth should be, ceteris paribus, with a positive sign (which is not true): People should be wealthier as we move from cold to warm climates.

(2) Assume that all individuals, irrespective of the climate they live in, have some common standard in terms of absolute wealth and, consequently, those living in colder climates have to be better performers because of the hardship of nature. But a better performance in terms of absolute wealth is not achieved by a more equal distribution of absolute wealth or income. On the contrary, what has to be enforced is the principle of distribution according to the marginal productivity of different individuals. Then there will be more equal distribution of absolute wealth and relative power only if differences in abilities are narrower. In other words, increasing the level of absolute wealth or income does not entail changing the individual relative power structure that already exists in colder climates and, consequently, the differences in individual relative power inequalities between colder and warmer climates cannot be accounted for in this way.

Now let me focus on finding an explanation of the inverse relationship between the hardship of nature and inequalities in terms of relative power based on one of the fundamental correlations revealed by the different perspective of this paper: In order to account for the differences in preferences for relative power we should try to find out how the opportunity cost of individual relative power is changed by the climate. More precisely, the question to be answered is: In what way does a colder climate lower individual relative powers and then make their opportunity costs higher, which further on entails relatively lower preferences for relative power?

Assume a collectivity of n individuals whose available (maximum) absolute wealth levels vary equally by a between w for the strongest one or individual s and w-a(n-1) for the weakest one or individual e. Assume further that this collectivity has to sequentially20 confront two different climates: a warm (generous) one in the beginning,

20 This sequence—a warm climate in the beginning and then a colder one—seems to fit the history of humanity which, initially from an African origin, dispersed to colder climates (Landes, 1998:6).

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which allows all to survive, and then a colder one, say two times more severe, which causes half of them (the weaker ones) to pass away and a corresponding decrease in the variation in individual abilities.21 The available relative power of each surviving individual, for convenience we will say the strongest s, which can be exercised in the two situations, is calculated by the formula22:

,

where stands for the available relative power, stands for available absolute wealth23.

The available relative powers of the individual s in the two different climates, the

warm one and the cold one, are and, respectively, (in passing

to a two times colder climate, the number of individuals or the general power scale length is halved and the variation in absolute wealth or the relative power of each individual is halved as well). Consequently, after the change in climate the newly emerged population becomes more equal and also more resourceful. de Tocqueville (1945), for whom there is no doubt that America exceled in de facto equality,24 also noted the relatively larger capacity, greater average mobility, and the greater level of activity of its population.

An even more important consequence of passing from a warm climate to a two times colder one is the increase in the opportunity cost in individual s’s relative power

from to . In terms of Figure 4, the general power possibility curve

(gp) not only shifts inward (from gp1 to gp2) but its slope increases from tgα to tgβ=2 tgα.

21 This levelling of the abilities that is caused by a severe climate is highlighted by Umbeck (1981), when he explained the reduction of the variance in the abilities of gold miners during the gold rush in California: “In fact, just the rigors of the voyage to California, whether by boat or by foot, killed many potential miners before they reached the gold fields, eliminating all but the strongest. When combined with a relatively simple mining technology, hard work and disease had the effect of reducing the variance in the abilities of the individuals to mine gold” (52).22 This formula is consistent with Franch and Raven, 1978. 23 The sum of absolute wealth and relative power makes up what I call general power (gp).24 “America, then, exhibits in her social state an extraordinary phenomenon. Never are there seen on a greater equality in point of fortune and intellect, or, in other words, more equal in strength, than in any other country of the world, or in any age of which history has preserved the remembrance” (de Tocqueville, 1945: 443).

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Figure 4: The alteration of cultural opportunity costs by climate.

This is enough to put into motion a process that explains the whole difference in terms of de facto inequalities, cultural values, and economic performance of various collectivities or countries: Those collectivities living in cold climates will form higher opportunity costs for relative power and, according to one fundamental idea of the perspective of this paper, lower preferences for relative power and higher preferences for absolute wealth, and the result will be the choice of higher equilibrium absolute wealth levels, which further on allows more accumulated absolute wealth and faster economic growth. In Figure 4, the combined effect of the higher slope of the general power possibility curve gp2 and the lower slope of the new cultural indifference curve H results in a higher equilibrium absolute wealth ( ). Of course, this theory of culture formation accounts only for the formation of cultures in an initial stage of social evolution, or ignoring the pressure which collectivities having different cultures can exercise upon each other.

8. Conclusions

The economic understanding of the phenomenon of culture is crucial to solving fundamental problems like the unequal economic growth of collectivities and countries because it is about their characteristic behavior. Culture has been studied by anthropologists (especially based on field research) and all economists have to do is to decode, adopt, and place that knowledge at the core of their models. Unfortunately, current orthodox economic theory is not able to capture the nature and features of culture. This study did not even find attempts to decode the fundamental anthropological terms

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used in the definitions in meaningful economic terms. Moreover, this study found that out of seven features of culture identified by anthropologists economists ignored five, one was sporadically captured, and one was only captured in a flawed way.

The root cause of this inability is derived from the failure to understand fundamental phenomena like the nature and formation of ends, preferences or values, rules and institutions, especially the emerged or non-designed ones—all of which are fundamental in understanding culture. The economic study of those phenomena has been either abandoned (in the case of ends) or performed from a Western culture perspective that cannot capture cultural variations. Consequently, what was needed was a different transcultural perspective that would make it possible to understand the nature of and correlations specific to fundamental phenomena like ends, preferences, rules and institutions—an area where culture itself is located. This study uses the transcultural perspective of general power that draws on the antientropic nature of life. From an economic perspective, this is the most meaningful definition of life and connects social and economic principles to the great universal causal principles. It ends the agnostic stance and temptation to frequently find excuses for theoretical failures in the assumed paradoxical quality of human nature.

In brief, within the transcultural perspective I use in this study, human ends are primarily components of individuals’ external reality out which they suck low entropy, negentropy or the fuel of life. All ordinary derived and sublimated ends have to be traced back to these external components. It is in this way that the confusion in classifying ends is over, and a long-missing sound taxonomy of ends is conceived. Identifying and ranking human ends is guided by the principle of maximizing antientropic control. Ends are not things we live for but things we live on. The main techniques for expressing the maximizing ranking of human ends consist of preferences (values) and rules (institutions). Because culture consists of a special kind of preferences and rules, its formation is guided by the same principle of maximizing the antientropic control. The power of my theory of rules and preferences formation consists mainly in its ability to account for the emerged rules and preferences—and it is this very kind of rules and preferences of which culture consists. Against all odds, the formation of culture as much as the formation of values and rules are economic problems. This study sketches a theory of culture formation that takes into account specific correlations as revealed by anthropologists and accounts for the variation in economic performance across climates.

The conclusions of this paper regarding the effect of culture on economic performance and economic theory must be very surprising to those economists taking an orthodox stance. According to my perspective, culture is the emerged rule or preference that is representative of a collectivity and is expressed in terms of the two all-inclusive megaends absolute wealth and relative power. Since the in-depth meaning of economic performance is the effectiveness in terms of absolute wealth, various cultures equal various weights attached to economic performance. Thus culture predetermines the economic performance of a collectivity. The optimum level of economic performance is derived from a larger maximizing problem. The consequence is that a good economic performance is judged by variable standards. Further, none of economic performances of various countries should be applauded or lamented because all are rationally determined.

Regarding economic theory, conclusions are equally surprising. Because cultures differently rank the two different-in-nature megaends, the maximizing principles and,

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consequently, the economic or maximizing behaviors are particular to particular cultures. As a consequence, there is no such thing as a generally valid economic theory that can explain human behavior without taking into account culture variation. And the reason for this is that maximizing principles are determined by the nature of the human megaends to be maximized. A different culture means a different mix of human megaends having different natures, and this implies variable maximizing principles. Knight, then, was flat wrong when he assumed that economics is not dependent on culture (as is the case with mathematical principles). In fact, if we take into account that he declined the descriptive capacity of economic science, the two stances are not so incompatible.

A last general conclusion: Culture is a local solution to a general maximizing problem. Cultural solutions are not interchangeable and comparisons of cultures must be made with great caution. In no way can a culture be ranked or valued using criteria derived from other cultures. Nor should cultures be compared with the aim of changing them: They are the best solutions for the members of those collectivities. If in need of change, they will change. And, in fact, they do continuously change. The culture of a collectivity is continuously shaped by billions of daily ordinary choices by its members. Culture is an emerged phenomenon which continuously adapts itself.

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