In: Economics
What public policy to further this revolution? As little as is prudent. As Adam Smith said, “it is the highest impertinence…in kings and ministers to pretend to watch over the economy of private people.” We certainly can tax ourselves to give a hand up to the poor. Smith himself gave to the poor with a liberal hand. The liberalism of a Christian, or for that matter of a Jew, Muslim or Hindu, recommends it. But note, too, that 95% of the enrichment of the poor since 1800 has come not from charity but from a more productive economy.
Rep. Thomas Massie, a Republican from Kentucky, had the right idea in what he said to Reason magazine last year: “When people ask, ‘Will our children be better off than we are?’ I reply, ‘Yes, but it’s not going to be due to the politicians, but the engineers.’ ”
I would supplement his remark. It will also come from the businessperson who buys low to sell high, the hairdresser who spots an opportunity for a new shop, the oil roughneck who moves to and from North Dakota with alacrity and all the other commoners who agree to the basic bourgeois deal: Let me seize an opportunity for economic betterment, tested in trade, and I’ll make us all rich.
What does Ms. McCloskey believe is responsible for the vast wealth in the U.S? Do you agree?
Do you believe your children will be better off than you are? Why are we so rich?3
The big economic story of our times is not the Great Recession.
It is how China and India began to embrace neoliberal ideas of
economics and attributed a sense of dignity and liberty to the
bourgeoisie they had denied for so long. The result was an
explosion in economic growth and proof that economic change depends
less on foreign trade, investment, or material causes, and a whole
lot more on ideas and what people believe.
Or so says Deirdre N. McCloskey in Bourgeois Dignity, a
fiercely contrarian history that wages a similar argument about
economics in the West. Here she turns her attention to seventeenth-
and eighteenth-century Europe to reconsider the birth of the
industrial revolution and the rise of capitalism. According to
McCloskey, our modern world was not the product of new markets and
innovations, but rather the result of shifting opinions about them.
During this time, talk of private property, commerce, and even the
bourgeoisie itself radically altered, becoming far more approving
and flying in the face of prejudices several millennia old. The
wealth of nations, then, didn’t grow so dramatically because of
economic factors: it grew because rhetoric about markets and free
enterprise finally became enthusiastic and encouraging of their
inherent dignity.
An utterly fascinating sequel to her critically acclaimed book
The Bourgeois Virtues, Bourgeois Dignity is a feast of
intellectual riches from one of our most spirited and ambitious
historians—a work that will forever change our understanding of how
the power of persuasion shapes our economic lives.
MY VIEWS
Since 1700, the GDP per capita in places like the US has risen, in real terms, over 40 fold. This is a real increase in total wealth, created by the human mind. And it was unleashed because the world began to change in some fundamental ways around 1700 that allowed the human mind to truly flourish. Among these changes, I will focus on two:
So today's wealth, and everything that goes with it (from shorter work hours to longer life spans) is the result of more people using their minds more freely.
At the time, perhaps to my shame, I had never even heard of Deirdre McCloskey nor her work that has been published in three volumes called the Bourgeois Era explaining what she calls the "great enrichening" (which I am slowly plowing through). My thinking when I wrote this seems reasonably consistent with her conclusions, though she has obviously been a lot more systematic in thinking about it. This exchange with Gregory Waymire is a short but quite readable window on her thinking. She writes in part:
You're adopting a conventional and somewhat silly view that the bourgeoisie were especially diligent, when it is not true as fact and is anyway not the character of the bourgeoisie that mattered to the Great Enrichment (which by the way was a factor of 30 per capita in countries that fully adopted economic liberalism, not the factor of 10 you quote: look at the passage again, and read slower and longer). Weber sometimes got this right, sometimes wrong. But people tend to read him as saying that higher savings and more diligence, Ben Franklin style (and even Ben did not actually do it), is what made us rich.
One trouble which such a conventional argument is an economic one that Solow-type models (and Smith- and Marx- and Weber- type models) that reduce growth to savings and labor effort are radically mistaken. What matters is human creativity released from ancient trammels....
What made us rich, I argue at no doubt tedious and unreadable length in the Bourgeois Era trilogy, is imagination, ingenuity, radical ideas released. They were released in turn by liberalism, Smith's "liberal plan of [social] equality, [economic] liberty, and legal [justice]."