Daily Archives: April 17, 2007

Notes to be distributed for the draft of Bourgeois Towns

No. CX, Prudentia
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Pp. 224-5 from Charles Hoole’s English translation of Comenius’ Orbis Sensualium Pictus , published in 1659

The English-language gloss reads:
Prudence , 1. looketh upon all things as a Serpent , 2. and doeth, speaketh, or thinketh nothing in vain.
She looks backward , 3 as into a looking glass , 4. to things past ; and seeth before her, 5. as with a Perspective-glass , 7. things to come, or the end ; 6. and so she perceiveth what she hath done, and what remaineth to be done.
She proposeth an Honest, Profitable , and withal, if it may be done, a pleasant End to her actions.
Having foreseen the End , she looketh out Means, as a Way, 8. as leadeth to the end; but such as are certain and easie, and fewer rather than more, lest anything should hinder.
She watcheth Opporrtunity , 9. (which having a bushy forehead , 10. & being bald-pated , 11. and moreover having wings , 12. doth quickly slip away) and catcheth it.
She goeth on her way warily, for fear she should stumble or go amiss.

How to explain China’s backwardness? Kenneth Pomerantz argues for the accident in Europe, especially in Britain, of cheap coal close to industrial sites. China’s coal was far away from the Yangzi Valley, a place in other ways comparable to Britain in wealth until the 19th century, where the demanders of coal and in particular the skilled craftsmen were. China’s coal was inland, with no cheap water routes like London’s “sea coal” from Newcastle, heating the city from the 16th century on [check exact dates]. China also lacked, Pomerantz argues, easily colonized land to provide raw materials like cotton.

One might object that a more vigorous proto-capitalism would have moved the industry to, say, Manchuria, or at any rate to some other coal-bearing lands of the Central Kingdom, exporting the finished products instead of the raw coal. Eventually China did just this, as on a smaller scale the British did in the (newly) industrial northwest and northeast, or the Germans in Silesia [check], or on a larger scale the Europeans did in exporting finished products to the world. You do not have to move coal, even before the railway made moving it cheap. You can move people and move finished goods.

And though it is true that European colonization was easy in the Americas because the conquistadors and the Pilgrims brought measles and smallpox in their baggage, it was not easy, at least on account of the disease gradient, in, say, India, or Indonesia — which were of course much closer to China than to Portugal, France, Britain, or the United Netherlands. Spain conquered the Philippines, just south of Taiwan. And this same more vigorous protocapitalism would have found the land for the cotton, too: indeed, as Pomerantz points out, in 1750 Ghangzhou [?wrong: fix] province was probably the largest source of cotton in the world. He argues that there was in China no political alliance in favor of foreign trade. But this was in part a consequence of the hostile attitude towards all merchants — the foreigners confined to the port of Ghangzhou (modern Canton) in the south and Kyakhta in the northern inland, on the border with Russia, some 2500 miles away. It would be as though the inlets to European trade were confined to ….. [Cadiz?: Philip's big port for the Indies?] in the south and [some port 2500 miles away: Archangel? St. Petersburg?]

As a factor in China’s failure to converge on the Western standard in the 19th century Pomerantz explicitly rejects the low status in Confucian theory of merchants. But wait. Until China began seriously to honor and protect entrepreneurs — namely, under the neo-Communists of the 1980s — China’s growth was modest. Give statistics from Maddison. A hundred years earlier the Japanese began to honor and protect entrepreneurs, albeit with a heavy hand of government. As I have argued before, the Japanese were starting to make the adjustment to a pro-bourgeois social theory, at any rate in merchant circles, as early as the late 17th century. Japanese growth commenced in EXACT DATE to explode. A theory of convergence needs to explain why the coal-poor and colony-poor Japanese — at any rate coal- and colony-poor until they commenced conquering places like Manchuria on the grounds of just such a resources-theory of international relations — converged smartly in the late 19th century. When after World War II they were compelled to abandon their militaristic and resource-based dreams of glory they attained in short order European standards of living.

Smith admired honesty, sincerity, candor in a way quite foreign to Shakespearean England, and bordering on the wild enthusiasm for such Romantic qualities of faithfulness to the Self in Wordsworthian England. In the Theory of Moral Sentiments (1759, 1790) he writes:

Frankness and openness conciliate confidence. We trust the man who seems willing to trust us. . . . The great pleasure of conversation and society . . . arises from . . . a certain harmony of minds, which like so many musical instruments cannot be obtained unless there is a free communication of sentiments and opinions. . . . The man who indulges us in this natural passion, who invites us into his heart, who, as it were, sets open the gates of his breast to us, seems to exercise a species of hospitality more delightful than any other.
TMS , VII.iv.28, p. 337

An Othello or an Hamlet who opened the gates of his breast would invite a fatal wound, and even in the comedies it was prudent to dissimulate.

The native-Chinese search engine Baidu had by 2006 had more success in China than Google because it encouraged companies to buy rankings in the search. Americans, from a society that sharply separates the profane from the sacred, are scandalized by such a practice. Money corrupts, they say. Therefore Google will not accept payment for higher ranking. To do so in the United States would undermine belief in the usefulness of the rankings. But ordinary Chinese, with a stronger faith in prudence-only than the Americans, regard willingness-to-pay as itself a certification of excellence. Of course Americans sometimes follow the same reasoning, as when they call the company in the Yellow Pages with the largest advertisement.

Has business is fact become ethical? The propositions seems laughable in an economy of grotesquely high pay for CEOs. An obscure Norwegian-American professor of finance at the University of Iowa’s Tippie School of Business named Erik Lie (pronounced, it should be noted, “Lee”) in …… [his first paper?] looked into options on company stock. The option to buy at the $10-a-share price the stock was selling for on June 1, 1995 is of course quite valuable if a virtuous CEO by hard work and tacit knowledge can bring the company to profitability, and the share a year later to $20. That’s the justification for stock options. It’s a good one. Everyone is made better off if companies are run well. What Professor Lie discovered, however, is that management was sweetening the deal by routinely lying about when the option was dated. Suppose the CEO in fact from his incompetence has a year after June 1, 1995 driven down the price of the stock, to $9 a share. How to still make him rich when he leaves? Ah hah: backdate the option, that is, claim that he actually got the option on December 1, 1994, when the stock was languishing at $5 a share. By lying (with apologies to Professor Lie), the management assures its own enrichment. Lie found that thousands of companies were doing this, not just a few bad apples — in late 2006 even the sainted Apple computer company was caught doing it.

The argument for free rhetoric as cause of IR. By elimination of the alternatives. Athens. Florence. England after Shakespeare. Gouden Eeuw Nederland.

If you are going to talk about the ethics of business you are going to have to come to the virtues. To rely on contractarianism or Kantianism or utilitarianism or natural rights doesn’t answer the question you started with: How Good?

As perhaps a magical charm against criticism from the left, he says that “my assumption is not that the market elevates morality.” But then he takes it back: “the form of life fostered by the market may entail the heightened sense of agency.” Just so. Surely commerce, with 17th-century science, heightened the sense of agency. Earlier in the essay Haskell had attributed the “escalating” sense to So the market does elevate morality.

Be careful: I am used to claiming that the mkt always existed. If so, why not always sense of responsibility? So it’s not The Mkt tout court. People were involved in markets from the Dark Ages on. It was a new sense of . . . what? Adventure? Projectors? Maybe a new sense that it was all right to be a market person, or an acceptance of market outcomes as just. Some societies, and certainly big parts of many societies, were dominated by mercantile values: one thinks of the Phoenecians or their offshoot Carthage; the overseas Chinese, or indeed the overseas Japanese before they were forbidden to return; or Jews such as Jesus of Nazareth, with his parables of merchants and makers. There’s something new in Holland c. 1600 and especially in England c. 1700 and Scotland and British North America c. 1750 and Belgium c. 1800.

The engineers and physical scientists were commonly more optimistic about this-worldly progress than were the economists. In the words of the chemist and preacher Joseph Priestley (DATES), “Nature, including both its materials and its laws, will be more at our command; men will make their situation in this world abundantly more easy and comfortable, they will prolong their existence in it and grow daily more happy. . .Thus whatever the beginning of the world the end will be glorious and paradisiacal beyond that our imaginations can now conceive.” Quoted in Niebuhr, The Irony of American History (1952), Chap. 3, introduction. This is not the way the economists at the time were talking, not at all.

Christian asceticism : The Epistle of Clement, of the 2nd century, asserted that “this age and the future are two enemies . . we cannot therefore be friends of the two but must bid farewell to the one and hold companionship with the other.” (Niebuhr 1952, Chap. 3, introduction)

Niebuhr quotes Hegel (Friedrich von Hegel, Eternal Life , p. 255) that the goal of religion is

“a sufficient otherworldliness without fanaticism and a sufficient this-worldliness without Philistinism.” (Niebuhr 1952, Chp. 3, introduction)

Contrary to Weber, Reinhold Niebuhr wrote in 1952, “Prosperity was not, according to the Puritan creed, a primary proof or fruit of virtue. ‘When men do not see and own God,’ declared Urian Oakes (1631), ‘but attribute success to the sufficiency of instruments it is time for God to maintain his own right and to show that He gives and denies success according to His own good pleasure’” (Niebuhr 1952, Chap. 3, Sec. 1). But Niebuhr sees “the descent from Puritanism to Yankee in America . . . [as] a fairly rapid one. Prosperity which had been sought in the service of God was now sought for its own sake. The Yankees were very appreciative of the promise in Deuteronomy: ‘And thou shalt do that which is right and good in the sight of the Lord: that it may be well with thee, and that thou mayest go in and possess the good land which the lord sware unto thy fathers’” (6: 18). (Chap 3, sec. 1) “According to the Jeffersonians,” Niebuhr contnues, “prosperity and well-being should be sought as the basis of virtue. They believed that if each citizen found contentment in a justly and richly rewarded toil he would not be disposed to take advantage of his neighbor. The Puritans regarded virtue as the basis of prosperity, rather than prosperity as the basis of virtue. But in any case the fusion of these two forces created a preoccupation with the material circumstances of life which expressed a more consistent bourgeois ethos than that of even the most advanced nations of Europe.” Niebuhr 1952, Chap. 3, Sec. 1)

Chapter 31
Bourgeois Europe

The Outcome c. 1840

Despite the continuing strength of other forces, such as the aristocracy in England and the bureaucracy in France and the army in Germany. This allowed economic growth to continue. The natural corruptions this time usually worked in growth-favoring directions. {But the ethical link was severed: next volume; but do not anticipate much; just a teaser at the very end}

The present moment [1830] is one of great distress. . . . Yet is the country poorer than in 1790? . . . . A single breaker may recede; but the tide is evidently coming in. If we were to prophesy that in the year 1930 a population of fifty millions, better fed, clad, and lodged than the English of our time, will cover these islands; that Sussex and Huntingdonshire will be wealthier than the wealthiest parts of the West Riding of Yorkshire now are, . . . that machines constructed on principles yet undiscovered will be in every house . . . many people would think us insane. . . . If any person had told the Parliament met in perplexity and terror after the crash in 1720 that in 1830 the wealth of England would surpass all their wildest dreams, . . . that London would be twice as large and twice as populous, and that nevertheless the rate of mortality would have diminished to one half of what it was then, . . . that stage coaches would run from London to York in twenty-four hours, that men would be in the habit of sailing without wind, and would be beginning to ride without horses, our ancestors would have given as much credit to the prediction as they gave to Gulliver’s Travels. Yet the prediction would have been true . . . . We cannot absolutely prove that those are in error who tell us that society has reached a turning point, that we have seen our best days. But so said all who came before us, and with just as much apparent reason. . . . On what principle is it that, when we see nothing but improvement behind us, we are to expect nothing but deterioration before us?

Macaulay, “Southey’s Colloquies on Society” (1830)

The bourgeoisie . . . has put an end to all feudal, patriarchal, idyllic relations. . . . It has been the first to show what man’s activity can bring about. It has accomplished wonders far surpassing Egyptian pyramids, Roman aqueducts, and Gothic cathedrals; it has conducted expeditions that put in the shade all forms of Exoduses of nations and crusades. . . . National one-sidedness and narrow-mindedness become more and more impossible. . . . The bourgeoisie . . . draws all, even the most barbarian, nations into civilization . . . . The bourgeoisie has . . . rescued a considerable part of the population from the idiocy of rural life. . . . The bourgeoisie, during its rule of scarce one hundred years, has created more massive and more colossal productive forces than have all preceding generations together. . . . [W]hat earlier century had even a presentiment that such productive forces slumbered in the lap of social labor?

Marx and Engels The Communist Manifesto, 1848, Part I F. L. Bender, ed., Norton Critical Edition, W. W. Norton, NY, 1988, pp. 57-59

If it’s freedom one should be able to measure the difference between Japan and England. Foreign trade is utterly trivial in Japan, some 1 or 2 % of national income. My integration project is the economic trace of freedom. When the price structure is the same in two countries they are in trade, and restrictions are not effective. Also samurai’s rice allotment was quite large, and the class was, too — more like Eastern than Western Europe.
Nice example of prinsoner’s dilemma: Engels to Joseph Bloch, Sept 21, 22, 1890, quoted in Keller 1990, p. 18: “What every person wants is prevented by everyone else, and the result is something that no one wanted.”

“entry into the market obliges sellers to become to an important degree other-regarding”, p. 106, Novak 1989 Free.

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Christopher Berry, 1992, p. 76: “What is necessary [in Smith] for social existence is not beneficence, since a company of merchants can subsist without it (TMS, 86), but justice. Society cannot subsist at all among individuals who are ready to injure each other” [bring in Field]. Further, Smith wrote, “we may often fulfill all the rules of justice by sitting still and doing nothing” (TMS, p. 82). Justice in modern freedom is laissez faire, quite contrary to the civic action of ancient freedom.

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How to solve the problem of fitting individual morality into social:

The Classical Republican Problem

Steinbeck faces a problem faced by all observers of society — economists and anthropologists, lawyers and novelists, poets and rock lyricists. It is to capture the “eighth-floor” view and the street-level view, both, and to show what they have to do with each other. Both are true. It is true that 20 cents an hour is rotten pay; it is also true that quantity supplied of labor must equal quantity demanded. Steinbeck uses various novelistic devices to pull off the double view. But in the end he is limited by his lack of understanding of the economy (i.e., an eighth-floor view). He has no credible theory of why things happen, and so The Economy becomes a natural force like the rain or a personified, ethical force like the cop beating a striker. The Joads are seen as victims. Surely in many senses they are. But a victim does not from the eighth-floor view imply a perpetrator. The growers, the police, the rest of the society are in Steinbeck’s view simply bad: that, he says in the end, is the source of victimhood. His success at evoking the sadness of being a Joad implies — because his eighth-floor view is inadequate — an oversimple analysis of What Is To Be Done: oh bosses, he says, be good, and all will be well. Like Dickens, Steinbeck adopts a conservative view — though Dickens’ Hard Timesand Steinbeck’s The Grapes of Wrath made many a radical, a youthful D. N. McCloskey among them. Steinbeck’s success in the small makes it impossible for him to make a persuasive criticism of the system — the system of capitalism, perhaps, or the system of imperfect capitalism raised by the conspiracy or growers and the local monopoly of banks.

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The market spreads American habits of cooperation with strangers. In America, noted Santayana, “co-operation is taken for granted, as something that no one would be so mean or short-sighted as to refuse” (p. 196), and it is “private interests which are the factors in any co-operation” (p. 226). He does not here mean that Prudence Only makes for cooperation: “When interests are fully articulated and fixed, co-operation is a sort of mathematical problem,” in the manner of Hobbes; but Santayana saw much more arising from “a balance of faculties.”

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The effect of the French Revolution on the Scottish Enlightenment was similar to the effect of the Cold War on American progressivism. As Dwyer notes (p. 190), the inauguration of the Edinburgh Review in 1802 “hammered the nails in its coffin”: a spirit of party took hold, exactly as in the Cold War.

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The education system of Scotland was superb, much better than England’s from the local school dominie [??] to Adam Smith, Professor of Moral Philosophy. Edinburgh University (as it was called) alone had in 1780 about 1000 students including English dissenters (Smout, p. 354), which was two or three times that in Oxford and Cambridge combined. The universities were independent of religion, after a struggle early in the 18th century, and thus secular philosophy flourished as it could not possibly at Oxbridge, where all instructors had to take holy orders. Further, the teaching was superb. Why? Because the students paid to professors directly (Adam Smith makes much of this). Law was the standard way to get rid of younger son of a laird-not advance as a poor man, or even a merchant’s son. The law was Continental, and commonly entailed therefore a Continental education.

Edinburgh has about the population of Iowa City (thus, too Athens and Florence). The little towns modeled themselves after one or the other, mad for learning or for enterprise (Smout 1969, p. 342). Edinburgh was the home and model of Bildungsbürgertum, Glasgow of commercial middle class. Smout quotes Hugo Arnot in 1779: dependent “chiefly upon the college of justice, the seminaries of education and the inducement which as a capital it afford to genteel people to reside in it” (Smout p. 355). Riotous, like London-yet as it was said, “a part of the state” (Chambers, quoted in Smout, p. 345). Only 2 people died in the eight major riots between 1740 and 1791.

James Stuart, Critical Observations on the Buildings and Improvements of London, pp. 41,42,47, cited in (Langford, p. 425): virtue in cities greater. Langford argues that “the pursuit of genteel status and the acquisition of polite manners in some measure united a class which in other respects appeared diverse and divided” (Langford, p. 59). “Gentility was the most prized of all possessions in eighteenth-century Britain” (Langford, p. 329). Joseph Massie’s table of 1759: Annual family income above L40 = 2/5 of the population, by Massie’s table and Lindert/Williamson revisions (EEH 1982: 395-408). Earning L50 and above, about 1/5 or a little less. Per capital income at about L10 a head. About L20 was subsistence for a family. “The apparently limitless appetite of the middling ranks for social status, as powerful a motive to enterprise and industry as the lust for worldly goods” (Langford, p. 65). (Langford, p. 71 claims there were manuals of advice for middling folk. Find them.

The “sentimental revolution” of the 1760s and 1770s expressed “the middle-class need for a code of manners which challenged aristocratic ideals and fashions” (Langford, p. 461). A bourgeois audience led to the sentimental revolution, which led in turn to personal ethics [ethics rather than morality], which supported Romanticism. “The English contribution to the use of sentiment was to turn it into a tool of piety rather than paganism” (Langford, p. 467). Hume remarked testily of the English that they were “relapsing into the deepest stupidity, Christianity and ignorance.”

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Respectability: with it came religious tolerance. It became gradually vulgar to be anti-Catholic.

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Smith’s assertion that freedom required exchange, not beggary, like Thomas Jefferson’s land-owning in aid of independence-Self-Help, as Samuel Smiles put it-revives an ancient, and even conservative, program of dignity. The great popularizer of classical political economy, Harriet Martineau, wrote of financial independence that it made possible an attitude of “Here I stand, and I defy anyone to despise me.” Luther’s faith or the businessman’s treasure or the freeholder’s farm made independence possible.

Reproduce here the odd Dutch painting of a bourgeois and his daughter in the presence of paupers.

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Smith’s moral sentiments can be brought into U-Max in various ways. One is minimization of regret, “regret” being a discounted future sum of deviations from desirable behavior-which may be simply pleasurable, which is the utilitarian case, or adhering to a desirable character. The “desirable character” could be defined in a religious way, as adherence to The Law, or to the Life of Christ. Smith secularizes it as the sentiments of the “Impartial Observer”-which is an intellectual tactic common to the 18th century, as in Kant’s Reason; or indeed in Hume and Bentham’s Utility. But in any case a regret depends on memory, and therefore on culture and morality. One contemplates not doing the right thing, by whatever standards one adheres to, and reflects on a life of regret. Lord Jim in Conrad’s novel betrays his duty as chief mate of the Patna, bound for Mecca with pilgrims aboard. He regrets all his life his impulsive act of abandoning ship.

The notion of regret brings society into maximization. The Impartial Observer views some patterns of consumption and production as better: among other virtues expressed in consumption, a pattern with room for charity and great-heartedness; and among those expressed in production, for enterprise and prudence. The economist asks whether the patterns can be reduced to the shape of the utility function-in which case nothing is gained over rude utilitarianism. Or, better, he asked whether the patterns contain empirical content. They do. To bury the Impartial Observer in the head of an isolated consumer, and treat it therefore as economists do as an unanalyzed datum, “taste,” is a scientific mistake. Smith offers hundreds of empirical regularities concerning the Observer: for example, that the Observer takes a dim view of anger (pp. 35-38) but a bright view of benevolence (p. 38ff).

Ambition was linked in Smith of course with avarice, p. 50; but with spirit, too, in a good sense, p. 55); though on the whole a “passion” and dangerous: “And thus, place, that great object which divides the wives of aldermen, is the end of half the labors of human life; and is the cause of all the tumult and bustle, all the rapine and injustice, which avarice and ambition have introduced into this world.”

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Smith wrote a three-page encomium on bourgeois virtues: The “private man,” as against “the man of rank and distinction,” “has no other fund to pay [for followers], but the labor of his body, and the activity of his mind. He must cultivate these therefore; he must acquire superior knowledge in his profession, and superior industry in the exercise of it. He must be patient in labor, resolute in danger, and firm in distress.”

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The bourgeois man on the Rialto must moderate his passions to a level that strangers will feel sympathy for. But then the sympathy expressed will be comforting. On both counts, the moderation and the comfort, he is made tranquil. “Society and conversation, therefore, are the most powerful remedies for restoring the mind to its tranquility. . . . Men of retirement . . . seldom possess that equality of temper which is so common among men of the world” (I.i.4.10, p. 23). This is not a portrait of an aristocrat (pure self-control, without social contact) or of a peasant (pure love, again without regard to the audience-the rhetoric-in the situation). It is a portrait of a bourgeois. Smith’s theory is therefore highly rhetorical. Smith had a conjective theory of ethics. Smith was directly and vividly aware of the Problem of the Two Virtues, peasant and aristocratic. Stewart speaks explicitly of “two different sets of virtues” (Stewart, “Account,” p. 282, sec. II. 16.5): the two being Christian and Stoic, love and self-command. “The man of the most perfect virtue . . . is he who joins, to the most perfect command of his own original and selfish feelings, the most exquisite sensibility both to the original and sympathetic feelings of others. The man who, to all the soft, the amiable, and the gentle virtues, joins all the great, the awful, and the respectable, must surely be the natural and proper object of our highest love and admiration” (TMS III.3.35, p. 152). Smith’s theory of sympathy runs parallel with his theory of rhetoric. The speaker, the “person principally involved,” is aristocratic, the audience of “spectators” is peasant-like. The attempts to communicate establish a leveling of sympathy, a republic of virtue.

As Stewart describes it, “our moral judgments with respect to our own conduct are only applications to ourselves of decisions which we have already passed on the conduct of our neighbor.” (Stewart, “Account,” p. 280, sec. II.7) The Spectator adjusts to the play. {Cf. Billig.} To the extent that moral sentiment is an argument, taking place among equals, it is rhetorical and bourgeois. He draws the moral immediately, contrasting the “amiable” virtue of “the spectator to enter into the sentiments of the person principally involved” and the “respectable” virtue of moderating the passions as “the person principally involved,” the actor (p. 23, I.i.5.1). This he brings under one theory: “to restrain our selfish, and to indulge our benevolent actions, constitutes the perfection of human nature” (I.i.5.5, p. 25). “As to love our neighbor as we love ourselves is the great law of Christianity, so it is the great precept of [pagan and Stoic] nature to love ourselves only as we love our neighbor,” that is, with restraint (same).

For example his discussion of anger, which is directed to how the passion plays to an audience. Anger can have utility in frightening the person provoking it, but must be expressed to the Impartial Spectator with caution. Anger, resentment, hatred have utility to the individual “by rendering it dangerous to insult or injure him.” But “though their utility to the public, as the guardians of justice, and of the equality of its administration, be not less considerable,” “yet there is still something disagreeable in the passions themselves. . . . It is the remote effect of these passions which are agreeable; the immediate effects are mischief to the person against whom they are directed. But it is the immediate, and not the remote effects of objects which render them agreeable or disagreeable to the imagination.” ( “Mere expressions of spite inspire it against nobody, but the man who uses them.” “Smaller offenses are always better neglected.” (p. 38) “It must appear, in short, from our whole manner . . . that if we yield to the dictates of revenge, it is with reluctance, from necessity, and in consequence of great and repeated provocations.” It must appear, says Smith repeatedly. His is a theory of efficacious performances.

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Smith distinguishes “virtue” and “propriety.” “Virtue is excellence, something uncommonly great and beautiful.”
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A Sense of Duty is a set of rules of thumb, saving us the trouble of working out the opinion of the Impartial Spectator every time.

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The new dispensation was protected by the accident that it led at length to military superiority for Western liberal regimes. There was nothing automatic about this. Being bourgeois does not automatically make you militarily formidable. More like the contrary. Economic superiority in the end did not help the bourgeois Carthaginians against the less commercial but more faithful Romans. In Europe the commercial superiority of the Hanseatic League stretching in N clusters of bourgeois from Bergen to Deventer did not protect it against nationalism. Russia was a European power even though it was painfully incompetent at the bourgeois arts. Unlike the Pope, Russia had many divisions of soldiers.

Imagine a Europe around 1450 failing by some miracle to adopt Chinese-invented gunpowder or the North-Sea-invented ocean-going ship. In such a case, of course, European imperialism would not have happened. But imperialism, left and right to the contrary, was not crucial to Europe’s success. What was crucial, and what made the gunpowder and the ship crucial, was protecting a bourgeois Europe from aggressions from the Steppe far to the East, and more importantly from the European castle itself down the road. Without the military revolution of the 16th century the aristocratic and reactionary powers would have smothered innovation. How do I know? They always had before. Compared at least with knightly armor or slave-propelled galleys, the gun and the frigate were democratizing technologies.

Indeed, this connects with Imperial College’s idea of Britain as a militaristic power. The nationalism of Britain here connects with the success of BV worldwide. It required, however, as contemporaries well understood, a balance between protecting the bourgeoisie by military superiority from aristocratic/Christian reaction on the one hand and on the other the danger of ruining the bourgeoisie and the economy by adopting for military reasons the very aristocratic/Christian values standing against the bourgeoisie. The City of London’s opposition to the divine right of kings, the fear of standing armies, the modest push-back to imperialism, . . . . . A military-industrial complex that embraces the modern and bourgeois world is certainly irritating in its country-club values and its proud display. We have seen the worst of it in an imperial America. Yet even if it is moderately corrupt (gigantically corrupt is another matter), it is not all that dangerous. By contrast, military-industrial-faithful complexes that reject the modern and bourgeois world have tried repeatedly and with great initial success to end the bourgeoisie — or, better, to transcend it. Thus the secularized Christianity of 19th-century socialism, the Germany of the Kaiser and then of Hitler, Wahabi Islam. Read McNeill on military-industrial complex.

Chapter 30 (beginnings of)
The Bourgeois Revolutions and a Certain Freedom

And capitalism made people free, for one thing by spreading ownership, as Jefferson and others argued (but this is the lesser reason, for it also corrupts, as in Jefferson’s ownership of slaves, for example, or as in the selfishness of manufacturers for their own interests, as Smith noted). The greater reason is the substitution of contract for status, and the spread of radical egalitarianism of a Protestant sort.

it is easy to understand the affection people have for living in liberty, for experience shows that no cities have ever grown in power or wealth except those that have been established as free states.

Machiavelli, Discourses on the First Ten Books of Livy (1513-17),
Trans. Q. Skinner 1990b, p. 301.

It’s an old-fashioned analysis but correct that bourgeois concerns prepared for freedom as much as for economic growth.

Tacitus observed somewhere (find), “rare is the felicity of the times when you can think what you like and speak what you think.” Rare indeed. Why did Japan not grow? Why did Rome not? Not free speech.

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{Show this Whig point. Abolition is an example. The first religious body to speak against slavery in the New World was the Germantown meeting of Quakers in 1688. Quakers were early against it, and they early were for the strictest spiritual equality between men and women. The first place to outlaw slavery was the state of Vermont, in 1777. David Brian Davis wrotes that “the spontaneous upsurge of antslavery movements that began in Britain in the late 1780s was truly unique. . . . It drew on . . . religious developments that qwbt back to the civil wars of the mid-seventeenth century.”

In practical terms, ever triumphant; the size of the bourgeoisie in Northwestern Europe was larger and larger, with political weight if not always direct political power.

It is easy to confuse the commercial middle classes with the Bildungsbürgertum, that is, the state bureaucrats and lawyers and professors. The confusion has political dangers, as evinced in the catastrophe’s of a rent-seeking “middle class” in Africa. Education is the path to bourgeois life, especially after the Second World War. As I’ve said, the bourgeois is becoming the universal class.

  • But I am not suggesting a reduction to electoral determinism: the particular forms of “bourgeois” policies were unpredictable. Politics that retained aristocratic/peasant elements survived late in Europe. In Britain and parts of Germany the survivals were plainly because there had been no French Revolution.
  • Peace and justice have always been claimed as essential for bourgeois society.
  • Freedom was a cause and a consequence.

&

The Episcopal Bishop of Massachusetts, William Lawrence, asked in 1901 whether the rise of income in the previous decade “favorable or unfavorable to the morality of the people.” He answered, yes, on the whole. The rich man is led to “the privilege of grateful service.” And the poor “discovers one bond which is essential to the social unity in this commercial age — the bond of faith in other men. . . . And when a man has reached this point, he has indeed reached one of the high plateaus of character: from this rise the higher mountain of Christian grace, but here he is on the standing-ground of the higher civilization.”

&

“How useful it would be from time to time to set up all the most common political and cultural terms in a row for reappraisal and disinfection. . . . For instance, liberal would be restored to its original significance and freed of all the emotional overtones that a century of party conflict has attached to it, to stand once again for ‘worthy of a free man’.”

&

Jack Goldstone (at length) on the Early Modern, draft of The Problem of the `Early Modern’ World

What mattered is that in some nations, the world-wide revolts and rebellions of the 17th century, due to particular cultural frameworks prevailing among certain elites, produced liberalizing regimes, overturning the grip of government and religion on society and breaking the monopoly on power of traditional elites. . . . During these centuries Asian civilizations underwent major growth and extension of their market networks, developed new technologies for the production of cotton and ceramics, and greatly expanded the size of their populations and economies. . . . China and India had great concentrations of capital in the hands of merchants; both had substantial accomplishments in science and technology; both had extensive markets. Eighteenth century China and Japan had agricultural productivity and standards of living equal or greater than that of contemporary European nations. As to excesses of population, Japan clearly controlled its population, as (we now know) did China. . . . Government regulation and interference in the economy was modest in Asia, for the simple reason that most economic activity took place in free markets run by merchants and local communities, and was beyond the reach of the limited government bureaucracies of advanced organic societies to regulate in detail. Cultural conservatism did keep economic activities in these societies on familiar paths, but those paths allowed of considerable incremental innovation and long-term economic growth. . . . Toward the end of the 1500-1800 period [Northwestern Europe,] relatively small . . . parts of “Europe” or the “world”-become liberalizing advanced organic societies, and then, taking what is by world standards an extremely peculiar path, lead the way to modernization in the following centuries.

Chapter 27
Bourgeois Speech Acts

The syllogism: Capitalism is cooperation, not mainly competition. After all, mercantilist republics and ancient empires competed economically with each other, often to war and conquest. (Athenian ideas of empire in Thucyd.) These are zero sum. But what is notable about capitalism is that it is positive sum. Cooperation depends on sweet talk, not coercion. Therefore, the amount of sweet talk is an index of cooperation. Thus Smith to Hayek. The creativity of talk: find deals (minor part), find new ideas together, and habits of such talk carries over to individual thinking, dialogic and non-authoritarian.

In 18th century Scotland, John Dwyer and Joan Tronto have argued, the perception of increasing social distance worried the philosophers. That the “breakdown of community” fit with ancient traditions of the pastoral made it easier to believe. The increasing anonymity of a commercial society was supposed to erode solidarity. People have been saying this ever since-it is the heart of both the Durkheimian and the Weberian analysis of European life c. 1900. Long-distance trade grew in the 18th century and then exploded in the 19th-of this there is no doubt. But did the long-distance trade make people less connected? Did social distance actually increase with the spread of commerce?

Recent analogies suggests where the notion of increasing social distance might go wrong. When e-mail on the worldwide web first got into its stride we all talked about the increasing social distance it would bring. The press was filled with confident predictions that e-mail would break solidarity. One can still find such Chicken-Little talk about the end of community by electronic death, though less and less as the evidence accumulates. People would sit in their lonely rooms, we said, “talking” to imagined characters, neglecting the forum of civic republicanism. The social world would dissolve into a science-fiction nightmare. No one would show up for coffee.

What actually happened, of course, is that e-mail widened rather than narrowed social contacts, and deepened rather than drained the content of friendship. People had more to talk about. The bulletin board on the sport of cricket has over 500 messages a day, with enthusiasts from Boston to Bangalore chatting, denouncing, informing, quarreling, joking, viewing with alarm-in other words, being human (and mainly in this case male). Letters to the editor, with month-long delays in the magazines, are a poor substitute when a man wants urgently to complain about body-line bowling in the latest test series-though the round-robin letter such as the Beecher family (Harriet Beecher Stowe’s, that is) used to circulate sound like a mid-19th-century version of e-mail.

Likewise television. The baby boomers, especially the elder-boomers born in the 1940s who grew up before Leave It to Beaver, view the TV-saturated socializing of their generation X children with horror: “Come on kids, go down to the local soda fountain and really get to know each other.” The elder-boomers see their children’s fixation on TV as similar to the giant screens in every house described by Ray Bradbury in Fahrenheit 451 (1953), enticing the population into soap operas crowding out real lives.

But that’s not what happens. The TV culture is used by the kids for the same social purposes as shopping in the local marketplace or gossiping at the well or hanging out at the soda fountain was used by earlier generations. Generations X-ers and their younger siblings the Slackers live and love with the TV blaring, make jokes at the expense of the advertisers, use the medium. People do. The medium is the message, to be sure, but people are not therefore passive in its grip. (Notice that it’s always other people who are passively in the grip of rhetors. We intellectuals know.) Seventy years of communist propaganda in Russia damaged Russians, but not in the way the commissars had hoped. In Poland forty years of the same message left hardly a scratch on the Polish mind.

The scandalized old folks resemble the monks writing about Irish women in the middle ages, as XXX describes it. Real social life, said the monks indignantly, is something that happens in courts and battlefields among men. This womanly gossip while washing at the river or selling at the fair undermines male authority, and is the Devil’s forum. Keep the women at home, isolated from other women, lest they conspire against us. So too say the parents of e-mailers.

It’s easy to believe, surely, that getting out of the family and village into a world of ocean-crossing ships, then telegraphs, then telephone, then airplanes, then e-mail was in fact liberating. It has been long established that in England at any rate the vision of villagers as confined to one place is wrong, as early as we can know [McFarlane]. English people were in 1300 always already “individualists,” mobile from place to place [Raftis]. The issue is, was individualism alienating? Did it produce anomie? That is, did people lose connection-a society of love-in accepting autonomy-a society of courage?

The speaking ability is quantitatively important in various bourgeois societies.

Commerce contains every sort of dealing in the purchase, sale, and exchange of domestic or foreign goods. This art is beyond all doubt a peculiar sort of rhetoric — strictly of its own kind — for eloquence is in the highest degree necessary to it. Thus the man who excels others in fluency of speech is called a Mercurius, or Mercury, as being a mercatorum kirrius (= kyrios) — a very lord among merchants

“Commerce” (thus half of the chapter), Hugh of St. Victor (c. 1078-1141), Didascalicon de Studio Legendi, book 2, chapter 23 (trans. Jerome Taylor)

In some cases oratory and action are one. An offer to buy hamburger at $3.00 a pound is a “speech act” in the sense linguists and philosophers use the phrase, namely in that it produces results in the very act of speaking. Saying “I thee wed” is a mere form of words, which children can use in make-believe. But in the right circumstances the form of words does a deed. So does saying “I offer $3.00,” when followed by the reply, “Sold.” An unusually high price for beef “says” that more cattle should be raised. The eaters of beef converse with ranchers, telling them of their great hunger for steaks and hamburgers, backed by willingness to pay. The ranchers reply, “We shall be glad to give you more, but you must understand that we have expenses, too.” It is a passing of information.

But there is more to speech acts than passing information. An economist can understand a conversation as a game, in the technical sense. In Austin’s vocabulary, one must distinguish in such a game between the mere locution (“Let’s make a deal to fix prices” viewed merely linguistically) and the accompanying “illocution,” which is to say, the skillful social act that intends to persuade, say, some other oligopolists to form a monopoly. Illocutions are about intended persuasion. That is, they intend to change other people’s behavior or speech. An incompetent rhetor will say “I thee wed” on his first date or “Let’s make a deal” in the presence of lawyers from the Antitrust Division of the Department of Justice. Game theoretically speaking the illocutions are the moves of Mr. Column. The moves of Mr. Row are those of the audience for the illocutions. What the audience then does in response is called by Austin a “perlocution” (primary accent on the “per”). A linguist would want to go back to the locutions; an economist would like to rush on to the perlocutions. But, as Sandy Petrey explains, the key to bringing language and the economy together is to stick with the middle term, the illocutions, those skillful or clumsy, felicitous or infelicitous acts of sweet persuasion that take up one quarter of national income.

Look for example at the vexed theory of the entrepreneur. As Metin Cosgel and Arjo Klamer have argued, the entrepreneur is above all a persuader, in the classical word a “rhetor,” exercising the characteristic faculty of human nature for pay. Take the egregious Donald Trump . . . please. Trump offends. But for all the jealous anger he has provoked he is not a thief. He did not get his billions from aristocratic cattle raids, acclaimed in bardic glory. He did not use a broadsword or a tommy gun to get people to agree. He made, as he puts it, deals, described from his point of view in his book, Trump: The Art of the Deal. He bought the Commodore Hotel in New York low and sold it high. Penn Central, Hyatt Hotels, and the New York Board of Estimates valued the old hotel low; the customers valued the new place, suitably trumped up, high. Trump earned his entrepreneurial profit for noticing that a hotel in a low-valued use could be moved into a high-valued use. An omniscient central planner would have ordered exactly the same reallocation.

Crucially, Trump had the power of persuasion to close the deals, the art of felicitous speech acts. As he puts it, “you have to convince the other guy it’s in his interest to make the deal.” Persuasion was the main way he transformed the Commodore Hotel into the Grand Hotel: “First, I had to keep [the owners of the hotel] believing [such and such]. . . . At the same time, I had to convince an experienced hotel operator to [do so and so). . . . I also had to persuade city officials [thus and such] . . . . That [persuasion] . . . would make it far easier to prove to the banks that [so and such].”

Though featured on the front page of the business section daily, the point is ancient. A Sanskrit poet complained of the skilled persuader, as people do: “I have not skill to place my lips / upon another’s ear / nor can deceive a master’s heart / by inventing false adventures. / Too stupid as I to have learned / to speak words false but sweet; / what have I then to recommend me / to be a rich man’s friend?” Thomas Buddenbrooks did deals. His partner, Herr Marcus, the former confidential clerk, a hired manager, “was incapable of that sort of thing.” Shih-Yen Wu has pointed out that the entrepreneur is precisely the unhired, unroutine character in the story of capitalism, the last and never to enter the market. The very meaning of the entrepreneur, he argues, is his unmarketed residuality. What then is in the residual? The Austrian economist Israel Kirzner, I noted, has argued that entrepreneurial profits are a reward for “alertness.” Calculative rationality, however, cannot make much of entrepreneurs.

Technological change can be viewed from this perspective. The systematic search for inventions can be expected in the end to earn only as much as its cost. It is hard work, merely. The routine inventor is an honest workman, but is worthy therefore only of his hire-and ceases in Wu’s terms to be an entrepreneur at all. The costs of routine improvements in the steam engine of 1800 ate up the profit. They had better have, or else the improvements were not routine. Routine improvements are not free lunches. As the economic historian Joel Mokyr put it, “The cold and calculating minds of Research-and-Development engineers in white lab coats worn over three-piece suits” created some of the improvements. But only some.

Nor, on the other hand, is it reasonable to hand technological history over to mere chance, the other end of Kirzner’s spectrum. Mokyr shows this from the records of invention. What was required was something between dull effort and heedless luck, namely, a bird-like alertness, ready to get the worm. The alertness explains why entrepreneurs are worthy of their hire.

But the Trump story suggests that something is missing in the metaphor of “alertness,” needed to complete the theory. From an economic point of view, alertness by itself is academic, in both the good and the bad sense. It is both intellectual and ineffectual, the occupation of the spectator, as Addison put it, who is “very well versed in the theory of a husband or a father, and can discern the errors of the economy, business, and diversion of others better than those engaged in them.”

If his observation is to be effectual, however, the spectator has to persuade a banker. Even if he is himself the banker he has to persuade himself, in the councils of his own mind. What is missing, then, from the Austrian theory of entrepreneurship and technological change is persuasion. Between the conception and the creation, between the invention and the innovation, falls the shadow. Power runs between the two, and power is evoked with persuasive words. An idea without the persuasive words is just an idea. “A man may know the remedy, / But if he has not money, what’s the use? / He is like one sitting without a goad / on the head of must [lust intoxicated] elephant.” This is as true of literary or scientific opportunity as it is of technological invention. Until he won the Goncourt Prize in 1919, Proust was not much considered. The Prize persuaded the French public to take him seriously. Until Saul Bellow put his imprimatur on his books, William Kennedy (Ironweed and other Albany novels) worked unknown as a reporter on the local newspaper. Intellectual bankers need to be persuaded as much as financial ones. The same is true of science. Scientists pursue certification as much as they pursue knowledge, because knowledge without persuasion of an audience is useless, the curse of Cassandra, to know all but to be able to persuade nobody.

What makes alertness work, and gets it power, then, is persuasion. At the root of technological progress is a rhetorical environment that makes it possible for inventors to be heard. Or as Lawrence Berger has argued, the “attention” of the entrepreneurs may be alerted. The environment of persuasion or attention affected technological change, especially the great technological changes. The Industrial Revolution, one might venture as a hypothesis to be examined, was rhetorical (as Wu 1989 has argued, too). The division of labor, in short, is limited by the extent of the talk. The more specialized is the economy, the more divided is the airplane into special makers or the distribution of meat into special merchants, the more talk is necessary to establish trust among the cooperators. Trust is part of an economics of talk.

The observation that small communities talk to each other more easily than do large communities is of course a sociological cliché. Knowledge of a bad deal will fill a small town but is lost in the din of a metropolis. Plato said in the Laws (V, 737e) that the optimal city state had 5040 citizens, on the strange grounds that this number is evenly divisible by every number from 1 to 10, the better to form exactly equal-sized groups for political or military purposes. Aristotle on characteristically more sensible grounds said that “the citizens of a state must know one another’s characters” (Politics VII. iv, 13). The extreme case of a small town is a two-person society, in which Robinson Crusoe knows every defection by Friday, and vice versa. Furthermore, in this case Crusoe and Friday do all their business with each other. In a world of strangers, by contrast, a new sucker arrives every minute. It is good business to establish friendships with your suppliers and customers and even with your competitors (who may be employing you next year). The dealings of strangers are subject to defection from social norms. In a world of Hobbesian asocial monads the next stranger you meet would just as soon shoot you as shake your hand (Field). That is why the airlines are crowded with business travelers, on their way to making friends.

The economic point of friendship and other supergames is to establish rules of interpretation that cannot be broken cheaply. The literary critic Wayne Booth speaks of “stable irony,” which is to say irony in such a context that it can be reliably interpreted. A similar point was made by the philosopher Grice, noting “conversational implicatures,” the rules by which a conversation lives. One “maxim of conversation,” we have seen, is “the maxim of Quality,” that is, to state only what you believe to be true. A conversation of liars would end in paradox.

What is economically suggestive about the linguistic idea is that such maxims are implicated by the very act of conversation. Grice argues that they are not conventional, in the sense that different cultures could have different maxims, but are implied by the setting of any talk. In other words, they are dominant strategies of talk (Green 1989, p. 96 makes a good case that the anthropological evidence supports Grice). False, perverse, prolix, laconic, irrelevant, disordered, obscure talk does not serve the purposes of straight talk. As soon as it is recognized as aberrant it will be broken off, or else reinterpreted as crooked talk to some purpose. If a banker says falsely “Business is fine” in circumstances-such as a bank examiner’s visit-in which he is expected to be candid he will continue the conversation in jail. On the other hand, the examiner, seeing the books are $1,000,000 short, and knowing that the banker knows he knows, may take the remark as proper irony about the malfeasance of a former vice president, now a resident of Brazil.

And it is obvious, to give another example of the saliency of talk, that cooperation inside the firm depends on speech. Persuasion through speech is necessary for teamwork, from a coxswain pounding out the strokes per minute to Colonel Joshua L. Chamberlain (a professor of rhetoric in civilian life) persuading the 20th Maine to make a bayonet charge down Little Round Top at the Battle of Gettysburg. David Lodge’s novel, Nice Work, shows an English professor, Robyn Penrose, seeing that the businessman she was assigned to watch was first a persuader:

[I]t did strike [her] that Vic Wilcox stood to his subordinates in the relation of teacher to pupils. . . . [S]he could see that he was trying to teach the other men, to coax and persuade them to look at the factory’s operations in a new way. He would have been surprised to be told it, but he used the Socratic method: he prompted the other directors and middle managers and even the foremen to identify the problems themselves and to reach by their own reasoning the solutions he had himself already determined upon. It was so deftly done that she had sometimes to temper her admiration by reminding herself that it was all directed by the profit-motive.

Lodge 1988 (1990), p. 219.

The point is this: the Prudence-only search for a selfish models of efficiency wages, agency costs, insider-outsider deals, and the like will be half successful. Motivating people by deals will work only if the deals convey to them the right story of their own lives. The earning of profit, for example, can be justified on moral and on utilitarian grounds. But it can also be justified as something we bourgeois Westerners (or Easterners) do, a practice of ours, a habit that makes us what we are. The score-keeping in business is otherwise hard to understand. People rich beyond the dreams of avarice continue to play a game of entrepreneurship.

* * * *

And so it is unsurprising to find experts in talk as theorists of bourgeois virtues virtue in the 19th century. The experts were common-law lawyers. The Man of Contracts and Torts, the “reasonable man,” imagined most systematically in the 19th century was the ideal bourgeois character. Is in fact of contract law a bourgeois-as against aristocratic or peasant-character? Perhaps the common law has always been a stalking horse for bourgeois virtues.

Patrick Atiyah outlines the mid-19th-century contract law, “suited to the free market,” in terms that are on every point hostile to aristocratic or peasant/proletarian values). The parties deal with each other “at arm’s length. . . . Neither owes any fiduciary obligation to another,” which is to say that only equals unbound by loyalty, not master and man in a feudal society, could make a contract. “Neither party owes an duty to the other until a deal is struck.” No solidarity in an imagined village or neighborhood intervenes. “[N]either party is . . . entitled to rely on the other except within the narrowest possible limits.” These are independent actors. “[O]nly abnormal pressures, wholly exceptional pressures, which can be said to affect a party’s free consent or free will . . . [can] relieve him of his obligations.” A man of the market in bound by his word, but a word given in contract, not assumed in status. “Finally, this bindingness is . . . a matter of pecuniary calculation. . . . [H]e must therefore perform, or pay damages.” He who lives by the coin dies by the coin.

Now of course this is not a portrait of actual bourgeois societies. Contract theory was abstractions the way classical economics was, and in the same spirit: Prudence Only mattered. Real bourgeois societies cannot function with skeletal rules based on the notion that no one cares for anyone else-for one thing, no bourgeois child would survive childhood under such a dispensation (see David Copperfield, Oliver Twist, Hard Times, and indeed every novel by Dickens ).

As Lawrence Friedman (quoted with approval in Atiyah) expressed the situation in America:

“Pure” contract is blind to details of subject matter and person. . . . In the law of contract it does not matter if either party is a woman, a man, an Armenian-American, a corporation . . . . [A]s soon as it does matter — if the party is a minor, or if . . . a small auto company sells out to General Motors . . . — we are no longer talking pure contract.

Thus before the 19th century a common carrier (a taxicab, say) or an hotelier was bound by who he was, not by a presumed contract. During the 19th century, Atiyah explains, the English courts (as in Boorman v. Brown 1844 and especially Morgan v. Ravey 1861) “blurred the line, drawn by [David] Hume a century before, between two parties doing an act in agreement with each other [as a serf would with respect to his lord], and their making an agreement. ” If you step into a cab you and the driver, the courts held, are entering into a sort of contract. You are not lord and serf but free people bargaining.

The Great Conversion against such economistic reasoning took place after 1870 in the law of contract as elsewhere in bourgeois societies. Atiyah notes that relations between citizens and a vastly larger state will naturally follow not contract law but administrative law-with such leading principles as that a state is reckoned an idiot at law, unable to bind itself by its promises. Tort law, growing as Lawrence Friedman notes with the railway, was at first chiefly concerned to protect corporations, and therefore economic growth, though it, too, fell under the Great Conversion late in the 19th century. Tort law is of course about victims, and does not therefore comport well with the bourgeois notion that we are all free, independent, contract-making, and unattached men. The point of tort is that we are all pieces of the continent, part of the main, most particularly in an industrial society.

Chapter 26: Sweet Talk is How We Work

Under the heading of:

The Consequences of Bourgeois Virtues:
B. The Spiritual Good of the Bourgeoisie

And the other direction of causation is equally important: that commerce sweetened people. Cooperation, not alienation, is the usual result of commerce. Not diminishing social contact but increase. Speech dominates bourgeois society. Show the historical/sociological evidence of this. Coffee house, long-distance deals. Contrast with geniza, e.g.

It makes a difference whether people don’t speak or speak.

Paul Goodman (1971 [1972], p. 3).

About Brindley the canal digger: “As plain a looking man as one of the boors of the Peake, or one of his own carters; but when he speaks, all ears listen, and every mind is filled with wonder, at the things he pronounces to be practicable”

T. Bentley The History of Inland Navigations, 1769, p. 101, quoted in (Langford, p. 416)).

A potent source of bourgeois virtues and a check on bourgeois vice is the premium that a bourgeois society puts on discourse. The bourgeois must talk. The aristocrat gives a speech; the peasant tells a tale. But the bourgeois must in the bulk of his transactions talk to an equal. “I will buy with you, sell with you, talk with you, walk with you, and so following.” It is wrong to imagine, as modern economics does, that the market is a field of silence. (Or at least it is wrong in anything but wholly perfect competition, and in such conditions, as has been realized for a century, there is a paradox of silence, solved on the blackboard by such talking constructs as the Walrasian auctioneer.)

For one thing, talk defines business reputation. A market economy looks forward and depends therefore on trust. The persuasive talk that establishes trust is of course necessary for doing much business. This is why co-religionists or co-ethnics deal so profitably with each other. Avner Greif has explored the business dealings of Mediterranean Jews in the Middle Ages, accumulating evidence for a reputational conversation: in 1055 one Abun ben Zedaka of Jerusalem, for example, “was accused (though not charged in court) of embezzling the money of a Maghribi trader. When word of this accusation reached other Maghribi traders, merchants as far away Sicily canceled their agency relations with him.” A letter from Palermo to an Alexandrian merchant who had disappointed the writer said, “Had I listened to what people say, I never would have entered into a partnership with you.” Reputational gossip, Greif notes, was cheap, “a by-product of the commercial activity [itself] and passed along with other commercial correspondence.” With such information, cheating was profitless within the community, though sometimes not so profitless outside it.

Old Believers in Russia during the eighteenth and nineteenth centuries held a similar position. The Old Believers refused to adopt the late seventeenth-century reforms in the Russian church, and were in other ways far from progressive. Yet because of their peculiarity they were able to establish a speech community within the larger society. Old Believers on the northern River Vyg, for example, were able in the early eighteenth century to become major grain merchants to the new St. Petersburg “by utilizing their connections with the other Old Believers’ communities in the southern parts of the country.” Sir William Petty observed at the time that “trade is not fixed to any species of religion as such, but rather to the heterodox part of the whole.” Any distinction will suffice. Thus Mennonites dominated the Dutch grain trade in the Golden Age and after. Quakers were great merchants in eighteenth-century England. The overseas Chinese, segregated from the rest of the population (and therefore able to talk inexpensively with each other about breaches of contract among their own), are more successful in trade than their cousins at home.

Defoe (Complete English Tradesman, 1726) notes that the Quakers were the originators of the fixed price offer usual now in rich countries, though he claims that “they by degrees came to ask, and abate [that is, bargain], just as other honest tradesmen do.” “These are, as I call them, ‘trading lies’ . . . [T]he honest tradesman does avoid them as much as possible.” But he sees it as silly to “pretend to go back to the literal sense,” which would make “it impossible for tradesmen to be Christians.” A trader who intends to pay at the end of the week and finds herself sometimes embarrassed, yet at length pays, is not a liar, but merely in business in a world without certitude. The “lie,” Defoe avers, is no more serious than what he calls “table-lies” (“Your pie, Granny, is the best I’ve ever tasted”) or “salutation-lies” (“What a lovely outfit!”).

The aristocrat does not deign to bargain. Hector tries to, but Achilles replies: “argue me no agreements. I cannot forgive you./ As there are no trustworthy oaths between men and lions,/ Nor wolves and lambs have spirit that can be brought into agreement.” The Duke of Ferrara speaks of his last duchess there upon the wall looking as if she were alive, “Even had you skill/ In speech–(which I have not)–to make your will/ Quite clear to such an one . . . . / –E’en then would be some stooping; and I choose/ Never to stoop.” The aristocrat never stoops; the peasant stoops to harvest or to run the machine; the bourgeois stoops daily to make his will quite clear, and to know the will and reasons of the other. The aristocrat’s speech is declamation, imitated by the professoriate. The aristocrat’s proofs are like commands, which is perhaps why Plato the aristocrat loved them so. Plato, it needs to be remembered, was a conspirator against democracy, a disdainer of law courts, a hater of poets, a friend of tyrants, a designer of closed societies. His proofs modeled on the new Greek mathematics convince, [give the Greek here to be persuasive. Go to his fattest statements in Gorgias or whatever and get the two Greek words he uses!], vincere, conquer. The bourgeois by contrast must persuade, sweetly, suadeo, from the same Indo-European root as “sweet.” As Plato does, of course, every time we pick him up and read.

The bourgeois goes at it with a will. About a quarter of national income is earned from merely bourgeois and feminine persuasion: not orders or information but persuasion, “sweet talk.” One thinks immediately of advertising, but in fact advertising is a tiny part of the total. Take the detailed categories of employment and make a guess as to the percentage of the time in each category spent on persuasion. Out of the 115 million civilian employment it seems reasonable to assign 100 percent of the time of the 760,000 lawyers and judges to persuasion; and likewise all the public relations specialists and actors and directors. Perhaps 75 percent of the time of the 14.2 million executive, administrative, and managerial employees is spent on persuasion, and a similar share of the time of the 4.8 million teachers and the 11.2 million salespeople (excluding cashiers). Half of the effort of police, writers, and health workers, one might guess, is spent on persuasion. And so forth. The calculation could be improved with more factual and economic detail; for instance, the workers could be weighted by salaries; the marginal product of persuasion could be considered in more detail; the occupational categories could be subdivided; the premium to better persuasion could be estimated from sales commissions: we intend here only to raise the scientific issue, not to settle it). The preliminary result is notable:

[Table next page]

Weighted sums yield 28.2 million out of 115 million civilian employment, or about a quarter of the labor force, devoted to persuasion.

The result can be checked with other measures. John Wallis and Douglass North measure fifty percent of national income as transaction costs, the costs of persuasion being part of these (1986). Expenditures to negotiate and enforce contract rose from a quarter of national income in 1870 to over half of national income in 1970 (Wallis and North 1986, Table 3.13). Their measurement is a model of how to make such calculations, and suggestive of the importance of talk in the economy. It is not precisely the measurement wanted here. Transactions costs include, for example, “protective services,” such as police and prisons, which “talk” only in an extended sense. Literal talk is special — in particular it is cheap, as police and prisons are not — in a way that makes it analytically separate from the rest of transaction costs.

Not all the half of American workers who are white-collar talk for a living, but in an extended sense many do, as for that matter do many blue-collar workers persuading each other to handle the cargo just so and especially pink collar workers dealing all day with talking people. And of the talkers a good percentage are persuaders. The secretary shepherding a document through the company bureaucracy is often called on to exercise sweet talk and veiled threats. The bureaucrats and professionals who constitute most of the white-collar workforce are not themselves merchants, but they do a merchant’s business inside and outside their companies. Note the persuasion exercised the next time you buy a suit. Specialty clothing stores charge more than discount stores not staffed with rhetoricians. The differential pays for the persuasion: “It’s you, my dear” or “The fish tie makes a statement.” As Smith says “everyone is practicing oratory Not everyone, perhaps, but in Smith’s time a substantial percentage and in modern times fully twenty-five percent.

The same point can be made from the other side of the national accounts, the product side. The more obviously talkie parts of production amount to a third of the total, and much of these must have been persuasion rather than information or command. Out of an American domestic product of $2360 billion in 1981 (note the change of year; there is nothing special about this year or that; Statistical Abstract, series 701, p. 424) the sum of Wholesale and Retail Trade ($353 billion by itself), Paper and Allied Products ($22.2 billion, producing memoranda for the circular file), Legal Services ($23.4 billion), Educational Services ($17.0 billion), Social Services ($10.7 billion), perhaps two-thirds of Government and Governmental Enterprises ($224 billion), and perhaps half each of Finance, Insurance, and Real Estate ($162 billion), of Hotels ($8.15 billion), and of Air Transport ($7.20 billion) amount to $828 billion, or about 35 percent of national product. Adjust it down if you will. The figure squares with the income side. Persuasion is about a quarter of national product and national income.

It is probably increasing in size. Jobs for peasants, proletarians, and aristocrats are disappearing, and jobs for the talkative bourgeoisie are what remain. The production of things has become and will continue to become cheaper relative to persuasion. I’ve noted that a piece of cotton cloth that sold for 70 or 80 shillings in the 1780s sold in the 1850s for 5 shillings. The cheapening of things first led peasants off the land: three-quarters of American workers in 1800 worked on farms; forty percent in 1900; eight percent in 1960; two-and-a-half percent in 1990. The two-and-a-half percent produced 800 times more than the three-quarters had. A lawyer or professor was not much more productive in 1990 than in 1800. But a farmer was more productive by a factor of 36. The making of things in factories will go the same way as the preparing of food in kitchens and the growing of crops on farms. The calculating power-adding, multiplying, and carrying-that sold for $400 in 1970 sold for $4 in 1990 and 4 cents in 2000. The proletarian labor required to make a radio, a window pane, or an automobile is dropping towards zero. Workers on the line in manufacturing peaked at about a fifth of the labor force after World War II and have since been falling, at first slowly and now quickly. In 2003 2 percent of the civilian labor force was in agriculture, 10 percent in manufacturing. What is left is hamburger flipping and secretarial work on the one side and bourgeois occupations, largely persuasive, on the other. In fifty years a maker of things on an assembly line will be as rare as a farmer, nonpersuaders vanishing into the background.

The delivery of information and commands partakes in the euthanasia of the maker. A farmer can turn on his computer in the morning and know at once the price of hogs on every exchange. A single source of information on hog prices does the work of fifty newspapers. The order to march can be conveyed cheaper by radio than by a lieutenant on a horse. Information and commands become cheaper and cheaper. But persuasion does not. The decision what to do with the hogs, knowing all there is to know about prices, is still made in the kitchen council by farmer and son and wife, persuading each other; or in the councils of the farmer’s mind. The decision about where to send the army is still a matter of persuasive talk.

One reason the importance of sweet talk will increase is that much of it is adversarial. If the other salesman has a computer-assisted video to persuade, then you will need it, too. If the defense in a personal injury case starts hiring economists to testify on the low value of the victims time, then the plaintiff will start hiring economists to persuade the other way. If teachers get better at persuading people to read books, then television executives will devote more resources to persuading them to watch reruns of the Beverly Hillbillies. The technology is irrelevant. Persuasion is in this way like pure queuing. The time (or something else) must be spent in a queue somehow or else the queuing will not serve its function of allocating bread sold for below the market price. Oregon Plans, queue tickets, and other technology of queuing have no effect on the amount spent. Likewise, persuasive energy must somehow be spent arguing or else the persuasion will not serve its function of allocating decisions to the proper side. The problem is that the decision making itself is intrinsically costless: after all, we could decide in an instant henceforth never to produce anything different from what we produced today, as rotten as such a plan would be. The decision would take the stroke of a dictator’s pen. Since it is not intrinsically costly (unlike the very production of information or orders) it will be made, so to speak, artificially costly.

* * * *

Is the persuasive talk of the bourgeoisie then “empty,” mere comforting chatter with no further economic significance? If that was all it was then the economy would be engaging in an expensive activity to no purpose. A quarter of national income is a lot to pay for economically functionless warm and fuzzies. The fact would not square with economics. The businesspeople circling La Guardia on a rainy Monday night could have stayed home. The crisis meeting in the plant cafeteria between the managers and the workers would lack point. Wasteful motion, or empty words, sit poorly with conventional economics. By shutting up we could pick up a $20 bill (or more exactly a $1,500,000,000,000 bill). That cannot be. A quarter of our working time in the marketplace is spent in persuasive converse.

Adam Smith knew. The second chapter of The Wealth of Nations speaks of “the faculty of . . . speech.” The book does not again speak of the faculty of speech in a foundational role, though Smith, who began his career as a teacher of rhetoric, did remark frequently on how business people and politicians talked together. In The Theory of Moral Sentiments he calls speech “the characteristical faculty of human nature.” The other half of his foundational formula, the faculty ofreason became in time the characteristic obsession of economists. Smith himself did not much pursue it. Economic Man, rationally seeking, is not a Smithian character. It was later economists, especially Paul Samuelson during the 1940s, who reduced economics to the reasoning of a constrained maximizer, Seeking Man, Homo petens. The seeking has a peasant cast to it: the maximization of known utility under known constraints sounds more like Piers Ploughman than Robinson Crusoe. The utilitarian reduction of all the virtues to one maximand makes all virtues into prudence. The wind-up mice of modern economic theory know nothing of integrity, humor, affection, and self-possession. Smith’s notion of Homo loquans squares better with the varied virtues of the bourgeoisie.

The high share of persuasion provides a scene for the bourgeois virtues. One must establish a relationship of trust with someone in order to persuade him. Ethos, the character that a speaker claims, is the master argument. So the world of the bourgeoisie is jammed with institutions for making relationships and declaring character, unlike that of the aristocracy or peasantry, who get their relationships and characters ready-made by status, and who in any case need not persuade. Thomas Buddenbrook bitterly scolds his unbusinesslike brother, a harbinger of bohemianism in the family: “In a company consisting of business as well as professional men, you make the remark, for everyone to hear, that, when one really considers it, every businessman is a swindler-you, a business man yourself, belonging to a firm that strains every nerve and muscle to preserve its perfect integrity and spotless reputation.”

The class work of an Austen novel is not done by portrayal of the middle class: but by the effect on the implied audience. The virtues recommended are not those of aristocrats or (and this is more surprising in the devout daughter of a clergyman) Christian. They are bourgeois, which is to say, helpful for a life in commerce. [Check this.] So notes Walter Benn Michaels (refer to him).

The bourgeoisie works with its mouth, and depends on word of mouth. Buddenbrooks is not social history (though Mann was proud of having “intuited and invented the thought that modern-capitalist acquisitive man, the bourgeois with his ascetic ideal of professional duty, is a creature of the Protestant ethic, completely on my own, without reading . . . learned thinkers, namely, Weber, Troeltsch, Sombart.” ) It imagines rather than reports Mann’s own family of Lübeck grain merchants. But if it testified to the attitudes towards the bourgeoisie only in 1901 (and Mann did go to a good deal of trouble to get his family history right) rather than in the 1850s it would still weigh. The fictional Tom speaks in the 1850s of his grandfather during the Napoleonic Wars: “he drove in a four-horse coach to Southern Germany, as commissary to the Prussian army-an old man in pumps, with his head powdered. And there he played his charms and his talents and made an astonishing amount of money.” Tom himself most enjoys “trade he came by through his own personal efforts. Sometimes, entirely by accident, perhaps on a walk with the family, he would go into a mill for a chat with the miller, who would feel himself much honored by the visit; and quite en passant, in the best of moods, he could conclude a good bargain.” At the crisis of 1848 the Assembly is trapped by a mob in the town hall. “The natural instinct towards industry, common to all these good burgers, began to assert itself: they ventured to bargain a little, to pick up a little business here and there.” Charming the generals, chatting with the miller, picking up a little business here and there.

On the other hand, idle talk is not bourgeois. Idle, artistic, romantic talk is a habit of the new bohemians sprung from the bourgeoisie, adumbrated in Christian Buddenbrook, of whom Tom the bourgeois says, “There is such a lack of modesty in so much communicativeness . . . . Control, equilibrium, is, at least for me, the important thing. There will always be men who are justified in this interest in themselves, this detailed observation of their own emotions, . . . poets” or indeed novelists like Heinrich and Thomas Mann.

Now of course the sweet talk among the bourgeoisie can be parodied, and has been for two centuries to the point of tedium. “Everybody puts his best foot forward before strangers. We all take care to say what will be pleasant to hear.” The intellectuals can sneer at the vulgarity of business talk (“Run it up the flagpole and see if anyone salutes”), “the clumsy but comfortable idioms which seemed to embody to [the burgers] the business efficiency and the easy well-being of their community.”

And speech of course can be false. In Buddenbrooks Grünlich is the bad bourgeois, a mere acquirer. His false speech is aimed from the beginning at acquiring Antonie and her fortune: “He regarded her with the air of a satisfied possessor.” Grünlich gets his rival for Antonie’s hand out of the way by committing the worst sin among the bourgeoisie, lying about a contract: he claims falsely that she had promised him. It develops that he was lying, too, about his firm’s prosperity. At first he seems to the elder Buddenbrook “an agreeable man, and well recommended, the son of a clergyman. I have business dealings with him.” Grünlich “talked business and politics, and spoke soundly and weightily.” Buddenbrook is later “wounded in his pride as a merchant, . . . the disgrace of having been so thoroughly taken in,” taken in by a torrent of sweet words.

Bourgeois friendship is false in aristocratic or peasant terms. Tom’s father recalls his own business experiments as a young man: “My journey to England had for its chief purpose to look out for connections there for my undertakings. To this end I went as far as Scotland, and made many valuable acquaintances.” These acquaintances of which one hears so much in a bourgeois society are hardly friends on the aristocratic model of Achilles and Patroclus. The friends could turn, exhibiting “all the sudden coldness, the reserve, the mistrust at the banks, with ‘friends,’ and among firms abroad which such an event, such a weakening of working capital, was sure to bring in its train.”

The virtues of the bourgeois are those necessary for town life, for commerce and self-government. The virtue of tolerance, for example, can be viewed as bourgeois. The experience of uncertainty in trading creates a skepticism about certitude-the arrogant and self-possessed certitude of the aristocrat or the humble and routine certitude of the peasant. As Arjo Klamer has pointed out to me, “the dogma of doubt” is bourgeois. City air makes one free.

Bourgeois charity, again, if not the “charity,” meaning love, of the King James translation of the Bible, runs contrary to the caricature of greed. More than the peasant or aristocrat the bourgeois gives to the poor-as in the ghettos of Eastern Europe or in the small towns of America. Acts of charity follow the bourgeois norm of reciprocity. The American Gospel of Wealth, founding hospitals, colleges, and libraries wherever little fortunes were made, is a bourgeois notion, paying back what was taken in profit. Middle class people in the nineteenth century habitually gave a Biblical tenth of their incomes to charity. The intrusion of the state into charity killed the impulse, remaking charity into a taille imposed on grumbling peasants: I gave at the office.

* * * *

Economists since Bentham have viewed talk as cheap and culture as insignificant. Yet humans are talking animals, and the animals talk a great deal in their forums, agoras, marketplaces. Of course the economist does not have to pay attention to everything that happens in an economy. That farmers chew tobacco or paint traditional designs on their barns while dealing in corn does not necessarily have to appear in the econometrics. What would have to appear is a large expenditure, since expenditure is the economist’s measuring rod.

Economics as presently constituted does not acknowledge the fact (if it isa fact: I repeat that the calculation would need much elaboration to be scientifically persuasive). The conversation of the economy is taken as irrelevant to economic science. As the late Don Lavoie put it, “economists seem to agree that the scientific discourse of economics should dissociate itself from the everyday discourse of the economy.” He observed dryly, “Economists are not so clear why they think this.”

The economy, one might say from the statistics, “rests” on persuasive talk. Yet economists, to repeat a point of methodology obvious to economists but obscure to most of their critics, are not required to pay attention even to everything the economy “rests” on. It also rests, for example, on engineering, but in speaking of the economics of bridges and other social overhead capital an economist does not need to know about the equilibrium equations for three-dimensional rigid bodies.

In the present case, when economists can reduce some transaction to a silent physical action, they can properly ignore the talk, at least in its effects on the equilibrium price. Adam Smith, to continue the quotation from Lectures on Jurisprudence, said that persuasion, “being the constant employment of trade of every man, in the same manner as artisans invent simple methods of doing their work, so will each one here endeavor to do his work in the simplest manner. That is bartering, by which they address themselves to the self interest of the person and seldom fail immediately to gain their end.”

Of course, a sociologist would point out that the institutions of a bartering grocery store “rest” on all manner of talk, such as the giving of orders to the junior grocery clerk to spend the next hour fronting the stock in aisles 6 through 8. The anthropologist reminds economists that “behind” their market lies a culture, which is another talking matter. But given the culture and the institutions (a big given, admittedly), and confining attention to the immediate result, if the clerk does not like the assignment he can silently walk, exercising his option of what Albert Hirschman calls “exit.” He is not a slave. Likewise, a man who tries to haggle with his local grocery store about the price of a quart of milk is wasting his breath and wasting the grocer’s time. If he thinks he can get a better price down the street, he can walk. If the grocer thinks the next customer will pay the price, he can ignore the haggler. The talk in such cases is not essential for the economics.

Walk or talk. To put it another way, that many transactions involve talk may be interesting but need not be a criticism of economics. The physical walking may still set tight limits on what can be charged. People bargain over houses and automobiles, talking a lot, yet no one will be talked into selling a four bedroom apartment overlooking Central Park for $3.57 or into buying a ’77 Chevy with a little rust and 220,000 miles for $500,000. The customer will walk away from such offers. What matters is the size of the “gold points” within which silent trade confines the price. If the gold points are narrow, the talking does not change the deal. If they are wide, however, it may well change it.

A case of wide gold points, by definition, is pure bargaining. Two people meet in the middle of the Sahara, alone. One person has plenty of water but no food; the other plenty of food but no water. At what price will the deal take place? Obviously, it depends on the bargaining skills of the two. Economists, truth be known, have not made much progress in understanding situations of pure bargaining. Game theory for all its wonders has not gotten far on the matter.

The theoretical impasse arises because bargaining is talk, all the way down. As the food owner in the Saharan encounter, Arjo claims forcefully that he has a physical ailment requiring an unusual amount of both water and food. Deirdre detects a ruse, and offers little of her water in exchange for his pound of food. Arjo weeps affectingly; Deirdre’s heart softens, and she hands over half her water. Or she laughs sardonically (she is a hard lady) and portions out to Arjo a tiny swig in exchange for most of his food. It depends on talk.

This unsatisfactory conclusion relates to a basic feature of speech, that it can apparently be trumped, cheaply, in a way that sweaty physical action cannot. Suppose you devised a rule that would predict the bargaining speech of lonely owners of water in the middle of Sahara. Would this permit you to extract the water at a low price? No. As economists have pointed out repeatedly, if one person is predictable, the other can exploit the predictability, which will suggest to the exploited one that he had better randomize. If you’re so smart about bargaining, why ain’t you rich?

A limit on calculability is a feature of any speaking. If anyone could get their way by shouting, for example, then everyone would shout, as at a cocktail party, arriving by the end of the party hoarse but without having gotten their way. The philosopher H. P. Grice affixed an economic tag to the trumping of speech conventions, “exploitation.” The linguist Stephen Levinson puts his finger on the limits of formalization when language is involved: “[T]here is a fundamental way in which a full account of the communicative power of language can never be reduced to a set of conventions for the use of language. The reason is that wherever some convention or expectation about the use of language arises. there will also therewith arise the possibility of the non-conventional exploitation of that convention or expectation. It follows that a purely . . . rule-based account of natural language usage can never be complete.”

A joke among linguists makes the point (the story is said to be true). A pompous linguist was giving a seminar in which he claimed that while there were languages in which two negatives made a positive (as in Received Standard English: “I did not see nobody” = “I saw somebody”) or two negatives made a negative (standard Italian: “Non ho visto nessuno” = “I did not see nobody” = “I did not see anybody”), there are no languages in which two positives made a negative. Pause. Then a smart aleck in the back row says loudly, with a sneer in his voice, “Yeah, yeah.” Any rule of language can be trumped for effect.

The game theorist Joseph Farrell has made a similar point in a paper of his called “Meaning and Credibility in Cheap-Talk Games.” What I call “trumping” he calls “neologism,” and finds that games are sensitive to its use. “We could conclude that we have no satisfactory positive theory in a one-shot game [a conclusion which may explain the unpopularity of the paper with referees]. . . . Games should be taken in context, especially when analyzing the effects of communication. Language that could not survive in equilibrium if the world were nothing but a particular game, can nevertheless affect the outcome of the game.”

Economists specialize in knowing about costs and benefits. But someone — maybe even a specialized economist — might want to learn about the speech by which people construct their stories the cost and benefit. Maybe some useful economics can be done, or the existing economics modified. Adam Smith, as usual, put the issue well. The division of labor is the “consequence of a certain propensity . . . to truck, barter, and exchange . . . [W]hether this propensity be one of those original principles in human nature, of which no further account can be given; or whether, as seems more probable, it be the necessary consequence of the faculties of reason and speech.” Smith, who began his career as a teacher of rhetoric, remarked frequently on how business people and politicians talked together. Half of his foundational formula, the faculty of reason, became in time the characteristic obsession of economists. Smith himself did not much pursue it. Economic Man, whether speaking or seeking, I have noted, is not a Smithian character.
Speaking Man has never figured much in economics, even among institutionalist economists. A man acts, by and for himself. That is what utility functions or institutions or social classes or property rights are about. No need to speak. Smith would have disagreed. Towards the end of The Theory of Moral Sentiments he dug behind the faculty of speech (which led to the propensity to exchange, which led to the division of labor, which led to the wealth of nations). He connected it to persuasion, which is to say, speech meant to influence others: “The desire of being believed, the desire of persuading, of leading and directing other people, seems to be one of the strongest of all our natural desires.” Compare his Lectures on Jurisprudence, in the passage quoted: “Men always endeavor to persuade others . . . [and] in this manner every one is practicing oratory through the whole of his life.” Though always Smith, and his contemporaries, admitted payment as a form of persuasion: “Sir, you may make the experiment,” said Johnson to Boswell. “Go into the street, and give one man a lecture on morality, and another a shilling, and see which will respect you the most.”

Here maybe an empirical measurement of contacts increasing in 18th century. Three stages. Self-sufficiency –> silence. Handicraft –> chat. Industry (what Frank Knight called an “enterprise” economy, with his wheel of wealth) –> conversation. Complex speech, signaling, many stages of production, millions of interactions implied.

(notes for) Chapter 25
Do We Need New Economic Models?

Virtues caused commerce. Endogenization of ethical change. A new humanistic economics. The outcome was the greatest change in the human condition since the invention of agriculture, the freeing of billions of people from poverty.

Another way to put the point is to think of three strands in economic thinking since the mercantilists:

ch25

The first two have failed to explain what we want to explain. They cannot account even for the doubling of British incomes per head 1780-1860 in the teeth of rising population and a long French War. And especially they cannot account for the factor of 19 down to the present.

To account for the startling growth of income before 1860 and the still more startling growth after 1860 it would seem that we must let our economic models expand. That economists have not explained modern economic growth is indeed something of a scientific scandal, although economists are not the only ones to blame. A hundred times more funds, perhaps a thousand times more, have been spent on mapping distant galaxies or mapping the genes of E. coli than on explaining the economic event that made the telescopes and the microscopes for the mappings possible.

Some economists have recently turned back to questions of economic growth, questions neglected for some decades by most non historical economists. They have tried on the blackboard to modify the economic models to fit what is by now two centuries of growth, building especially on the speculations in the 1920s by the American economist Allyn Young about economies of scale. But the new growth economists have not read more than a page or two of economic history or the history of economic thought, and so repeat the mistakes of earlier generations of economists, though exhibiting greater mathematical skill. The temptation in theorizing is machinery fetishism. Since the classical economists (excepting the master, Adam Smith, who had a better understanding) — for example Marx — the economists have tried to make the making of machinery into the machine for development. You see that your neighbor has a bigger car and a bigger house than you do, and the factory he owns has bigger machines than your own modest workshop; it is natural to conclude that if you could only get your hands on his bigger machines you, too, would be a big figure the neighborhood.

William Easterly notes that for half a century after the Second World War the theorists and practitioners from the West, trying to help the economies of the East and South, indulged in machinery fetishism. The idea was that machines yield income. Obviously the average British railway has more capital, taken to be equal to machinery, than the average Indian railway. (By the way, this is not as obvious as it looks, since the British engineers who laid out the Indian railways built them to British standards by way of tunneling vs. hill-climbing, by contrast with the flimsy, capital-saving traditions of American railways. And when India was part of a British capital market this was not obvious foolishness.) In any case, to get a British standard of living, said the Western economists after Independence, the Indians needed British amount of machines, right?

Wrong. Easterly calls it “capital fundamentalism.” Believing it, the governments of poor countries and their rich allies embarked on a fifty-year project of building dams, importing machinery, and in general trying to raise the “capital/output ratio”: more capital, they reasoned, more output. The project was like thinking that because you begin with a certain weight/height ratio you can raise your height by raising your weight. Most of these projects failed. “Both Nigeria and Hong Kong,” Easterly reports, “increased their physical capital stock per worker by over 250 percent over the 1960 to 1985 time frame. The results of this massive investment were different: Nigeria’s output per worker rose by 12 percent from 1960 to 1985, while Hong Kong’s rose by 328 percent.” The Akosombo Dam in Ghana created after 1964 the world’s largest artificial lake, Lake Volta. Instead of the expected boom in aluminum production and electricity and irrigation for farming it produced illnesses like river blindness and scant electricity and no irrigation water at all.

Turn then to less material causes, looking for some way of supplementing a materialist but unsuccessful theory in economics. Pure thought, perhaps Science, in sense 5b in the Oxford English Dictionary, now ‘the dominant sense in ordinary use’, lab coated and concerned with those distant galaxies and E. coli. Science by this modern definition, however, is another Not (Musson and Robinson 1969; Musson 1972). A powerful myth of moderns is that Science Did It, making us rich. Scientists believe it themselves, and have managed to convince the public. The finding of Not is again relatively recent. Simon Kuznets (1966) and Walt Rostow (1960) both believed that science had much to do with modern economic growth, but it is increasingly plain that they were mistaken. The Victorians when in an optimistic mood tended to combine technology and science together in a vision of Progress. They were mistaken as well. Workshop ingenuity, not academic science, made better machines. Chemistry made no contribution to the making of steel until the twentieth century, the reactions of a blast furnace being too complex in their details for earlier chemistry to understand fully. Sciences mechanical and otherwise had little or nothing to do with inventions in textiles, which depended instead on a craft tradition of machine makers. The same could be said for the other mechanical inventions of the nineteenth century. Steam might be thought to have had a theoretical base, for it was necessary to know that an atmosphere existed before an atmospheric engine would have seemed plausible. But it is notorious among historians of physics that the steam engine affected thermodynamics, not (until very much later) the other way around (von Tunzelmann 1978). Few parts of the economy used much in the way of applied science in other than an ornamental fashion until well into the twentieth century. In short, most of the first couple of centuries of industrial change was accomplished with no help from academic science.

Literacy, too, is a Not, though more of a Not But than is science. Literacy was not essential for modern industry, as is apparent in its fall during periods of intense industrialization (Mitch 1992; West 1978). But a mute, inglorious Watt would lie undiscovered in an illiterate nation, and doubtless did in Russia and Spain. Britain, especially north Britain, with northern Europe (and the United States), was more literate than other countries in the eighteenth century (Japan, with a more difficult form of writing, had at the time similar attainments in literacy; it appeared ready for economic growth, which was only with difficulty killed by its government). Easterly reviews the grim news if you hope that investment in human capital will rescue capital fundamentalism. Bad schooling (such as in Pakistan, where education is handed over to imans or to the relatives of politicians) of course has nugatory effects. But even good schooling does not do much: only 6 percent of any excess of a country’s growth rate over the average in the past few decades can be explained by educational attainment.

So we have more Nots in the world of the mind. “Cultural factors” more or less mental are promising and much studied. We have learned from Richard Roehl and Patrick O’Brien a good deal about the French/British comparison, learning for example that French agriculture was not backward, despite an old British presumption that Frenchmen simply cannot get anything right. On the technological front it is notable that Frenchmen invented in the eighteenth century what Englishmen applied. Something was different in England that encouraged more application. Yet looked at from a distance it seems wrong to separate France from England. It was north west Europe as a whole that developed fast, as Pollard points out. Southern France lagged, but so, after all, did southern England: Macaulay promised in 1830 that backward Sussex could some day hope to equal the West Riding. Belgian industrialization was almost as early and vigorous as Yorkshire’s and Lancashire’s.

Suppose then we look at the problem from a chronological distance. “Give me a lever and a place to stand on,” said boasting Archimedes, “and I shall move the world.” What is odd about his world of the classical Mediterranean is that for all its genius it did not apply the lever, or anything much else, to practical uses. Applied technology, argue Jones (1981) and Mokyr (1990a), was a northern European accomplishment. The “Dark Ages” contributed more to our physical well being than did the glittering ages of Pericles or Augustus. From classical times we got toy steam engines and erroneous principles of motion. From the ninth and tenth centuries alone we got the horse collar, the stirrup, and the mould board plough.

Then from an explosion of ingenuity before 1500 we got in addition the blast furnace, cake of soap, cam, canal lock, carrack ship, cast iron pot, chimney, coal fuelled fire, cog boat, compass, crank, cross staff, eyeglass, flywheel, glass window, grindstone, hops in beer, marine chart, nailed horseshoe, overshoot water wheel, printing press, ribbed ship, shingle, ski, spinning wheel, suction pump, spring watch, treadle loom, water driven bellows, weight driven clock, whisky, wheelbarrow, whippletree (see “The Wonderful One Hoss Shay”), and the windmill. Before 1750 the pace merely slackened, without stopping: note that the pace of invention decelerated on the eve of the sharpest industrial change. And then came “The Years of Miracles” as Mokyr (1990a) calls them, from 1750 to 1900.

Why? Can one give an economic account that does not run afoul of the Nots and the Harbergers?

The economist Israel Kirzner has argued recently that profit is a reward for what he calls ‘alertness’ (1989). Sheer — or as we say “dumb” — luck is one extreme. Hard work is the other. Alertness falls in between, being neither luck nor routine work. Pure profit, says Kirzner, earned by pure entrepreneurs, is justified by alertness metaphors, improving both the story and the metaphor. The story of ingenuity can be told in Kirzner’s metaphors. As many economists have emphasized, relying once again on their conviction that there is No Free Lunch, the systematic search for inventions can be expected in the end to earn only as much as its cost. The routine inventor is an honest workman, but is worthy therefore only of his hire, not worthy of supernormal profit. The cost of routine improvements in the steam engine eats up the profit. It had better, or else the improvement is not routine. Routine invention is not the free lunch experienced since the eighteenth century. Rationalization of invention has limits, as Joseph Schumpeter and Max Weber did not grasp. The great research laboratories can produce inventions, but in equilibrium they must spend in proportion to the value invented — or else more research laboratories will be opened until, in the way of routine investment (see Smith on Holland above), the cost rises to exhaust the value.

If hard work in invention was not the cause of the factor of fifteen, is the explanation to be found at the other extreme of Kirzner’s spectrum, sheer, dumb luck? No, it would seem not. After all, industrialization happened in more than one place (in Belgium and New England as well as in Britain, for instance; in cotton as well as in pottery) but spread selectively (to northern but not soon southern Italy; to Japan and then very late Korea, but only much later to China — though wait a decade or two, if China stays on its new bourgeois path). Modern economic growth seems to select countries and sectors by some characteristic.

Well, then, is it Kirzner’s metaphor of “alertness” that explains the European peculiarity? Perhaps it is. Mokyr makes a distinction between micro inventions (such as the telephone and the light bulb), which responded to the routine forces of research and development (both the telephone and the light bulb were sought methodically by competing inventors), and macro inventions (such as the printing press and the gravity driven clock), which did not. He stresses that both play a part in the story. Yet he is more intrigued by the macro inventions, which seem less methodical and, one might say, less economic, less subject to the grim necessities of paying for lunch. Guttenberg just did it, says Mokyr, and created a galaxy. Macro inventions such as these come to the alert, not to the lucky or the hard working, and macro inventions seem to lie at the heart of the modern miracle. In short, as Mokyr says, from the technological point of view the quickening of industrial change was “a cluster of macroinventions” : the steam engine, the spinning jenny, and so to a factor of fifteen.

But there is something missing in the metaphor and the story, needed to complete the theory. From an economic point of view, alertness by itself is highly academic, in both the good and the bad sense. It is both intellectual and ineffectual, the occupation of the spectator, as Addison put it, who is “very well versed in the theory of a husband or a father, and can discern the errors of the economy, business, and diversion of others better than those engaged in them.”

If his alert observation of error is to be effectual the spectator has to persuade a banker. Even if he is himself the banker he has to persuade himself, in the councils of his mind. What is missing, then, from the theory of technological change is power. (Those outside the mainstream of bourgeois economic thinking will here find something to agree with.) Between the conception and the creation, between the invention and the innovation, falls the shadow. Power runs between the two. An idea without financing is just an idea. In order for an invention to become an innovation the inventor must persuade someone with the financial means or some other ability to put it into effect.

What matters, to put the point another way, are the conditions of persuasion. Europe’s fragmented polity, perhaps, made for pluralistic audiences, by contrast with intelligent but stagnant China. The story we all know is of Columbus pitching his expedition to first this monarch and then that one until he got a yes. An inventor persecuted by the Inquisition in Saville could move to Holland. The skilled Jews and Moslems of Spain, expelled in 1492, invigorated the economic life of hundreds of towns on the Mediterranean, such as far Salonika in northern Greece.

Early in his book Mokyr asserts that there is no necessary connection between capitalism and technology: “Technological progress predated capitalism and credit by many centuries, and may well outlive capitalism by at least as long” (1990a). In the era of the factor of fifteen one doubts it, and even before one might wonder, so close bound are gain, persuasion, and ingenuity. Capitalism was not, contrary to Marx’s story — which still dominates the modern mind — a modern invention. As the medieval historian Herlihy put it long ago, “research has all but wiped from the ledgers the supposed gulf, once thought fundamental, between a medieval manorial economy and the capitalism of the modern period.” And any idea requires capitalism and credit in order to become an innovation. The Yorkshireman who invested in a windmill c. 1185 was putting his money where his mouth was, or else putting someone else’s money. In either case he had to persuade.

What makes alertness work, and gets it power, is persuasion. At the root of technological progress, one might argue, is a rhetorical environment that makes it possible for inventors to be heard. If such a hypothesis were true — its truth is untried, and may at last end up itself on the pile of weary Nots — it would also be pleasing, for it would suggest that free speech and an openness to persuasion leads to riches. Europeans tortured, beheaded, and burnt people they disagreed with in alarming numbers, to be sure, but it may be argued that their fragmented polity let new thinkers escape more often than in China or the Islamic world at about the same time. And when the Europeans, or at any rate some of them, stopped torturing, beheading, and burning each other, the economy grew. No wonder that the nations where speech was free by contemporary standards were the first to grow rich: Holland, Scotland, England, Belgium, and the United States.

The conclusion, then, is that Harberger Triangles — which is to say the gains from efficiency at the margin, as economists put it — cannot explain the factor of fifteen. This is lamentable, because economics is much more confident about static arguments than about dynamic arguments. And yet the conclusion is not that static arguments have no role. On the contrary, they give us the means to measure what needs to be explained on other grounds. A static model of costs and revenues, for example, allows one to measure productivity change with the abundant material on prices. One can find out with static models how widespread was the ingenuity set to work in the eighteenth and nineteenth centuries. A static model of international trade allows one to see the wider context for the British economy, to see that political boundaries do not cut economies at their joints.

But going beyond the usual models, static or dynamic, appears to be necessary.

&

Modern capitalism is commonly seen, in the words of the legal philosopher James Boyd White, as “the expansion of the exchange system by the conversion of what is outside it into its terms. It is a kind of steam shovel chewing away at the natural and social world” (White 1990, p. 71). I don’t think so. I do not deny that an amoral capitalism, recommended by the country club, is damaging, though as a card-carrying Libertarian I must add that it often does its damage through an over-powerful government, such as the independent authorities in the New York area run by Robert Moses. But the growth of the market, I would claim, can be civilizing, too. It’s not the worst ethic to be raised up to smile at customers and do an honest days work. Dr. Johnson said, “There are few ways in which a man can be more innocently employed than in getting money” (Boswell, p. 532; 27 March 1775).

Montesquieu had earlier not literally used the phrase “sweet commerce” (doux commerce), but implied it: “Wherever one has sweet manners, there is commerce; and wherever there is commerce there are sweet manners.

&

Knight 1934 (p. 317f) on doux commerce:

There seems to be no room for doubt that commercialism, while it lasted [he was writing when the future of commerce seemed dark], made for tolerance and humanity, and to a significant extent practiced as well as preached the doctrine of `live and let live.’ It encouraged friendliness and good humor, and the sense of a basic human equality, among men of divergent rank and station. This was surely true to a degree far beyond anything ever seen in any other type of culture. And this was in addition to its incomparable multiplication of the means necessary to a decent existence and they even more remarkable diffusion of these means among the masses

&

The life of a merchant according to Smith is of course social and therefore — in view of Smith’s highly social theory of ethics — ethical. Smith according to Christopher Berry (1992) put great emphasis on the need to cultivate sympathy with strangers (this, after all, is Sam’s point about “it is not from the ….”). Berry summarizes Smith this way: “The ubiquity of strangers in a commercial society will have the effect of strengthening the character by making habitual the need to moderate one’s emotions. A stranger is more like the impartial spectator. This spectator corrects ‘the natural misrepresentations of self-love’”(citing TMS, 147, 153-154, 137). So: a merchant or customer must enter the mind of the other. Smith’s argument here is similar to his early point about the difficulty of conveying indignation. “Smith can be interpreted as associating the ideal of tranquility with the modern world of commercial interdependence and not with the miserably impoverished world [admired by stoics ancient and modern] of self-sufficiency.”

&

When has honesty in the modern sense of telling the truth become the obsession? Not under the rule of pagan or Christian virtues defined as the pagans and Christians had in mind, but in a bourgeois society. Berry notes a virtuous spiral in Smith: “To act justly . . . brings forth trust and confidence and they, in their turn, make it rational and feasible to specialize, to increase the extent of the division of labor and the market, and so create opulence.”

&

“The postclassical world,” as Berry understand Smith, “is irretrievably a world of strangers” (Berry 1992, p. 84). Berry’s reply to communitarians such as Alasdair, MacIntyre, Charles Taylor, and Michael Walzer, with their nostalgia for civic humanism, is essentially, “Too bad.” “We must look to the public realm for rules . . . and to the private for virtue.” One can sympathize with Berry’s position, noting the horrors that modern “moral communities of citizens” such as under fascism or communism or nationalism have perpetrated. Berry (and old Adam Smith) have a lively appreciation of the corruptions possible, ranging from such mild misuses of public activism as imperial preferences and protection all the way up to the aestheticization of the public sphere in the fascist state.

But I have another reply: that we do in a commercial world bump regularly against strangers, but the strangers become friends. To my friends (as indeed they are) the communitarians I say: your ends are achieved precisely by commerce.

&

Henry Maine a century and a half ago made the still-sound argument that cases of fraud imply the existence of a general trust: “if colossal examples of dishonesty occur, there is no surer conclusion than that scrupulous honesty is displayed in the average of the transactions.” The muckrakers are liable to draw the opposite, and erroneous, conclusion: that a fraud is typical of the whole barrel.

&

Arthur Miller remarked on his play, All My Sons (1947, two years before Death of a Salesman),

If the . . . play was Marxist, it was Marxism of a strange hue. Joe Keller is arraigned by his son for a willfully unethical use of his economic position; and this, as the Russians said when they removed the play from their stages, bespeaks an assumption that the norm of capitalist behavior is ethical.

Miller, 1957, p. 170.

&

The growth of the market, I would argue, promotes virtue, not vice. Most intellectuals think the opposite: that it erodes virtue. And yet we all take happily what the market gives-polite, accommodating, energetic, enterprising, risk-taking, trustworthy people; not bad people. Sir William Temple attributed the honesty of Dutch merchants in the 17th century “not so much [to] . . . a Principle of Conscience or Morality, as from a Custom or Habit introduced by the necessity of Trade among them, which depends as much upon Common-Honesty, as War does upon Discipline.” In the Bulgaria of socialism the department stores had a policeman on every floor — not to prevent theft but to stop the customers from attacking the arrogant and incompetent staff charged with selling goods that at once fell apart. The way a salesperson in an American store greets customers makes the point: “How can I help you?” The phrase startles foreigners. It is an instance in miniature of the bourgeois virtues.

Even taking the calumnies of the clerks against the bourgeoisie at face value, an ethics of greed for the almighty dollar is not the worst. It is better, for example, than an ethics of slaughter with patrician swords or plebeian pikes. Dr. Johnson said, “There are few ways in which a man can be more innocently employed than in getting money.” Commenting on Johnson’s remark, Hirschman notes that “The very contempt in which economic activities were held led to the conviction, in spite of much evidence to the contrary, that they could not possibly have much potential in any area of human endeavor and were incapable of causing either good or evil. ” The “evidence to the contrary” was not so great in 1775. Adam Smith at the time saw only a modest growth arising from peaceful specialization.

Donald Trump offends. But for all the jealous criticism he has provoked he is not a thief. He did not get his billions from aristocratic cattle raids, acclaimed in bardic glory. He made, as he put it in his first book, deals, all of them voluntary. He did not use a .38 or a broadsword to get people to agree. He bought the Commodore Hotel low and sold it high because Penn Central, Hyatt Hotels, and the New York City Board of Estimate — and behind them the voters and hotel guests (and, let it be admitted, the powers and potentates) — put the old place at a low value and the new place, trumped up, at a high value. Trump earned a suitably fat profit for seeing that a hotel in a low-value use could be moved into a high-value use. An omniscient central planner would have ordered the same move. Market capitalism can be seen as the most altruistic of systems, each capitalist working to help a customer, for pay. Trump does well by doing good.

Thomas Buddenbrook becomes the head of the family and “The thirst for action, for power and success, the longing to force fortune to her knees, sprang up quick and passionate in his eyes.” But success at bourgeois occupations is success in mutually advantageous deals, deals in which Thomas delights, not the successful slaughter or double dealing recounted in the literature of aristocrats or peasants. Greece even in Homer’s time was a commercial society, and one sees a trace of the merchant in the emplotment of Odysseus’ wanderings, ” . . . and unbent sails/ There, where down cloudy cliffs, through sheets of foam,/ Shy traffickers, the dark Iberians come;/ And on the beach undid his corded bales.” But the character shows few townly virtues.

And even from a strictly individual point of view the bourgeois virtues, though not those of Achilles or Jesus, are not ethical zeroes. The honesty of a society of merchants in fact goes beyond what would be strictly self-interested in a society of rats, as one can see in that much-maligned model of the mercantile society, the small Midwestern city. A reputation for fair dealing is necessary for a roofer whose trade is limited to a city of 50,000. One bad roof and he is ruined. A professor at the University of Iowa refused to tell at a cocktail party the name of a roofer in Iowa City who had at first done a bad job (he redid the job free, at his own instigation) because the roofer would be ruined in town if his name got out in this connection. The professor’s behavior itself shows that ethical habits of selfish origin can harden into ethical convictions, the way a child grows from fear of punishment towards servicing an internal master. A rat would have told the name of the roofer, to improve the story. After all, the professor’s own reputation in business was not at stake.

The motto of the Buddenbrook family was “My son, attend with zeal to thy business by day; but do none that hinders thee from thy sleep at night.” It is the bourgeois’ pride to be “a fair-dealing merchant,” with “quiet, tenacious industry,” to “make concessions and show consideration.” to have “assured and elegant bearing, . . . tact and winning manners,” a “liberal, tolerant strain,” with “sociability and ease, and . . . remarkable power of decision at a division” in the town Assembly, “a man of action,” making “quick decision upon the advantageous course,” “a strong and practical-minded man, with definite impulses after power and conquest,” but by no evil means. “Men walked the streets proud of their irreproachable reputation as business men.” Is it evil to hope that “one can be a great man, even in a small place; a Caesar even in a little commercial town on the Baltic”? What is wrong with “the dream of preserving an ancient name, an old family, an old business”?

&

Joan Tronto assumes with many others she supposes that the male realm of long-distance trade was without morality, arguing that it is merely as matter of “unlimited economic acquisition,” as though greed were peculiar to modern capitalism. In fact trade always requires morality. It often turns out that people who write this way are depending on Karl Polanyi’s account of economic history (e.g. p. 32, the only citation to him, to be sure; she also relies on Habermas for historical proof of the same assertion that the public became more public in the eighteenth century, p. 33; Habermas, like Polanyi, knows very little history). I don’t think Polanyi’s mistake is necessary for Tronto’s own argument. It is not necessary for 18th-century long-distance trade to represent a qualitative break with earlier forms of economy. It can still be true, as Tronto argues persuasively, that at the level of ethical theory the late 18th-century saw a breaking up of a unified view, in which the virtues of the household and the marketplace were the same.

[beginnings of] Chapter 24
It Was Technical Change

Fernand Braudel’s astonishing product of his old age, full title, and especially volume 2, The Wheels of Commerce.

Throughout Wheels Braudel admires markets and disdains what he calls “capitalists.” [give numerous examples of both to prove].

It gradually becomes clear [arrange the quotes so it does so] that what he means by a “market” is the routine provisioning of a society. One goes to the Norderkirk market on Saturday in Amsterdam expecting to buy cheese or broccoli for a little less than the two nearby Albert Hijn supermarkets charge. One does not expect enormous savings, and neither do the stall owners expect enormous profits. The provisioning is routine, and profits as Albert Marshall put it in Principles of Economics (date) is “normal.”

By contrast to the honest cheese vendor by the Norderkirk, or by contrast for that matter to the honest if more fancy and more convenient and more expensive Albert Hijn on Haarlemerdijk [get right], a “capitalist” in Bruadel’s scheme makes big profits. The profits are abnormal, the “quasi-rents” as Marshall called them, the profits of the short run before entry brings normality back.

Braudel’s capitalist makes the quasi-rents by Mafia techniques. He corrupts governments. Give French examples, and Smith’s warnings. He organizes monopolies. Again, Braudel and Smithe xample. To defend his trading post in [example], his abnormally profitable turf, he is willing to engage in shocking violence, shocking at any rate to those who faced European imperial commerce 1600-1848,]. He eagerly leaps into any new opportunity to buy very low in, say, [give Braudel example from East] to sell very high, N times higher, in Amsterdam. He sneers at the suckers who work 9:00-5:00 for merely normal profits. He’s a crook, a player, a wise guy. No wonder Braudel doesn’t love such a “capitalism.” Who could love Tony Soprano, really?

Braudel argues that peddlers 1100-1789 slowly become shop keepers and that the merchant fairs such as Champagne’s slowly became warehousing entrepot’s [check spelling and meaning] like Genoa or Amsterdam. Such developments, he says, were routine matters of population density and the cost of transport. Before Germany’s population boomed in the 16th century, the economical way to sell ribbons to Germans was by peddling, wandering from village to village or farm to farm in the style of Oklahoma or Chaucer’s wandering merchant. Denser population makes it worthwhile for a peddler to settle in town. The fairs that had in medieval times services developed into the warehouses of Amsterdam — able in NN, Braudel reports, to hold nine years worth of Dutch grain consumption, had that been their main use (it was not: it was to hold the grain, lumber, cloth, spices consumption of all western Germany). The warehousers — the great merchants of Holland — were able to settle down, and not dust their feet in twenty fairs a year, because the Dutch fluyt, broad of beam and light of crew, cut costs of shipping between the Baltic and the North Sea. Such changes were reversible[if true:] The Thirty Years’ War cut the population of Germany by a third and the peddlers once more hit the road.

One by one the little retail peddlers and the big wholesale merchants settled down, and no “capitalist” profit ensued.

Fernand Braudel was very far from being a Marxist, at any rate by the standard of, say, his contemporary Sartre or the next generation, such as Louis Althusser. But like us all he imbibed Marxist ideas about how the economy functioned, echoing through followers of Marx like Karl Polanyi or even heavy revisionists such as Max Weber. You can’t avoid Marxist ideas any more than you can avoid Darwinian or Freudian ideas. I can’t, either. They’re part of the rhetoric of the age, commonplaces. Braudel distinguished three levels of economic life, the “material life” of Volume 1, etc. The line between the market and the capitalists is written in ethics: the capitalists cheat, and because they are big-time cheaters they get ennobled rather than hung. “Mr. Moneybags” was Marx’s indignant characterization of such behavior.

What Braudel gets very wrong because of his Marxoid rhetoric is his claim that there is line between normal markets and sper-normal capitalism. No, there is not. I do not mean simply that there’s no bright line. I mean that there’s no line at all. Market participants are capitalists. You are, for example. True, you don’t have Scrooge-McDuck amounts of moneybags to back your investment ideas — at any rate until you can persuade Scrooge to invest. But when you bought your home, or “invested” in a fur coat against the Chicago winter, you were engaging in the same activities as the masters of high finance. Buying low and selling high, expecting the capital gain on your condo to finance your retirement home in south Texas, expecting the fur coat to yield “profits” in warmth over many winters to come, runs all markets, haute or petite.

The analogy extends even to the misbehavior that Braudel assigns to the capitalist sphere. {everyone appeals to govt. True, oil executives granted numerous opportunities to chat up Vice-President Dick Cheney are going to do better, probably, than a local store owner complaining to her alderman that the opening of a WalMart will ruin her. But there’s no difference in principle — or, adjusting for scale, in practice — between the two cases of lobbying. etc.

Alertness, not investment or corruption, is the heart of any successful economy. Kirzner talk. Examples from early modern.

Braudel’s vision is of a routine world of normal profits. Economists call it the “steady state,” [Smith's phrase]. It is not just normal and steady. It is stagnant. Innovation, the way modern capitalism has made us all rich, depends not on bribery, violence, and cheating. It depends on alertness. That is, it depends on noticing — and using by the exercise of internal and external peruasion, a necessary supplement to Kirzner’s story — opportunities for super-normal profit. One can notice that the booming South Loop could really use a high-end grocery store, such as [give Chicago name of place on Erie]. That will make NNN profits in future years worth as a capital sum now, say, $1,000,000 (I offer the advice to NNN gratis, and have a suspicion that my advice is worth just what I charge). It’s pocket change by the standard of big capitalists like Donald Trump. But it’s nonetheless capitalism, and results, as the Donald’s first big real-estate project in Manhattan did, in supernormal profits until the competition wakes up, too.

Something happened in the rhetorical world of Europe, during the 17th century in Holland and England, in the 18th century in Belgium, Scotland, and the English colonies in North America, in the very early 19th century in France, and so forth, that made alertness explode.

The Marxoid vision attributes super-normal profit to large capital accumulation and to outrageous behavior. Neither is correct. On the whole you make a little or big fortune by alertness, not by theft, at any rate in a well-ordered community of laws. Clive of India, shortly before killing himself, defended his thefts so. . . . quote.

On the other hand, Braudel had one important fact right, which some of his fellows — Weber, for example — did not. Routine behavior yields routine profits. Braudel quotes Weber on sobriety, etc. Weber called it Protestant behavior — though he would admit that it was praised in numerous handbooks of proper business behavior by undoubted Catholics in northern Italy two centuries before the Calvinists got hold of the idea. But Braudel knows that sobriety, etc. does not yield supernormal profits.

Yet on the whole Braudel is an orthodox Marxoid — a rhetoric, I emphasize, he shareswith most historians of the periods before and during the Industrial Revolution. He believes that the key to capitalism is the accumulation of profits. The “free financial force” (Trace origin) stood ready then to shift its Mafia-style attentions to manufacturing when that rather than long-distance trade in spices and chinoise was the place to make supernormal profits.

I’ve said why the “original accumulation” part of this way of narrating the birth of the modern is wrong. But the other half is wrong, too. It’s not–pace Marx — the surplus value stored up by Mr. Moneybags that propels modern capitalism. Such profit is merely the hope tempting to the imagination. Profit pairs with productivity. Normal profits are earned not by exploitation but by alertness to the right way of doing business — running a grocery store, say — and super-normal profits are earned by superior alertness. The piled-up alertnesses have made us rich. The Astors and the Carnegies make the money in the first generation by alertness in the fur trade or in steel manufacturing. (And with an occasional but well-placed bribe, it must be admitted; but remember that this is no different from the Chicago restauranteur paying off the health inspector, small-time.) But when everyone figures out how to get beaver or steel, the profit goes back to normal, and we are left with cheaper beaver and cheaper steel.

[Dating "it" correctly: late payoff (therefore not entirely rationalist). Not racist Europeanness. Landes review. Great Divergence. Here is the heart of the economic argument, that the new prestige of bourgeois virtues lent courage to — literally, "encouraged" — continuous, mad innovation and checked the extractive impulses of the state. You can be a writer and yet still achieve fama. A scientist. An explorer. Careers open to talents, and not only for war. (It will be the hardest to persuade other scholars of.)]

Chapter 23
Material Causes are Rebutted

The other Klamerian sphere is the market. Not . . . .

What we’ve learned from economic history. Not demand. Not saving. Not original accumulation, as I have said, and not slavery, not piracy, not poverty, not enclosures [my calculations], as the anti-bourgeois theorists alleged; and especially not what bourgeois economists call “neoclassical reallocations.” Here look into New Growth Theory, taking what is valuable, if anything.

To put the wider Not finding in a sentence: we have not so far discovered any single factor essential to British industrialization. Alexander Gerschenkron a long time ago argued that the notion of essential prerequisites for economic growth, single or multiple, is a poor one (1962a). He gave examples from industrialization in Russia, Italy, Germany and Bulgaria which showed substitutes for the alleged prerequisites. The big banks in Germany and state enterprises in Russia, he claimed, substituted for entrepreneurial ability. (his claim has been much disputed since then). The British case provided the backdrop for comparison with other industrializations.

But anyway Gerschenkron’s economic metaphor that one thing can “substitute” for another applies to Britain itself as much as to the other countries. Economists believe, with good reason, that there is more than one way to skin a cat. If foreign trade or entrepreneurship or saving had been lacking, the economist’s argument goes, other impulses to growth (with a little loss) could conceivably have taken their place. A vigorous domestic trade or a single minded government or a forced saving from the taxation of agriculture could take the place of the British ideal of merchant adventurers left alone by government to reinvest their profits in a cotton factory.

Transportation, for example, is often cast in the hero’s role. The static drama is most easily criticized. Canals carrying coal and wheat at a lower price than cartage, better public roads bringing coaching times down to a mere day from London to York, and then the railway steaming into every market town were of course Good Things. But land transportation is never more than 10 per cent of national income it was something like 6 per cent 1780 1860. Britain was well supplied with coastwise transportation and its rivers flowed gently like sweet Afton when large enough for traffic at all. Even unimproved by river dredging and stone built harbors, Mother Nature had given Britain a low cost of transportation. The further lowering of cost by canals and railways would be, say, 50 per cent (a figure easily justified by looking at freight rates and price differentials) on the half of traffic not carried on unimproved water say another 50 per cent. By Harberger’s Law, 50 per cent of 50 per cent of 10 per cent will save a mere 2.5 per cent of national income. One would welcome 2.5 per cent of national income as one’s personal income; and even spread among the population it is not to be sneezed at. But it is not by itself the stuff of “revolution.”

Yet did not transportation above all have “dynamic” effects? It seems not, though historians and economists have quarreled over the matter and it would be premature to claim that the case is settled (for the pro transport side see Szostak 1991). A number of points can be made against the dynamic effects. For one thing the attribution of dynamism sometimes turns out to be double counting of the static effect. Historians will sometimes observe with an air of showing the great effects of transport that the canals or the railways increased the value of coal lands or that they made possible larger factories — dynamic effects (the word is protean). But the coal lands and factories are more valuable simply because the cost of transporting their outputs is lower. The higher rents or the larger markets are alternative means of measuring what is the same thing, the fall in the cost of transporting coal or pottery or beer.

For another, some of the dynamic effects would themselves depend on the size of the static, 2.5 per cent effect. For example, if the ‘dynamic’ effect is that new income is saved, to be reinvested, pushing incomes up still further, the trouble is that the additional income in the first round is small.

For still another, as has already been stressed, the truly dynamic effects may arise from expensive as much as from cheap transportation. Forcing more industry into London in the early nineteenth century, for example, might have achieved economies of scale which were in the event dissipated by the country locations chosen under the regime of low transport costs. The balance of swings and roundabouts has to be calculated, not merely asserted.

Sector by sector the older heroes have fallen before the march of Notting economists and historians. Marx put great emphasis for instance on the enclosure of open fields, which he claimed enriched the propertied classes and drove workers into the hands of industrialists. By now several generations of agricultural historians have argued, contrary to a Fabian theme first articulated eighty years ago, that eighteenth century enclosures were equitable and did not drive people out of the villages. True, Parliament became in the eighteenth century an executive committee of the landed classes, and proceeded to make the overturning of the old forms of agriculture easier than it had been. Oliver Goldsmith lamenting The Deserted Village wrote in 1770 that ‘Those fenceless fields the sons of wealth divide,/ And even the bare worn common is denied.’ But contrary to the romance of the poem, which reflects poetic traditions back to Horace more than evidence from the English countryside, the commons was usually purchased rather than stolen from the goose.

The result of enclosure was a somewhat more efficient agriculture. But was enclosure therefore the hero of the new industrial age? By no means. The productivity changes were small (McCloskey 1972; Allen 1992), perhaps a 10 per cent advantage of an enclosed village over an open village. Agriculture was a large fraction of national income (shrunk perhaps to a third by 1800), but the share of land to be enclosed was only half (McCloskey 1975; Wordie 1983). Harberger’s Law asserts itself again: (1 /3) (1 /2) (10 per cent) = 1.6 per cent of national income was to be gained from the enclosure of open fields. Improved road surfaces around and about the enclosing villages (straightening and resurfacing of roads went along with enclosure, but is seldom stressed) might have been more important than the enclosure itself.

Nor was Adam Smith correct that the wealth of the nation depended on the division of labor. To be sure, the economy specialized. Ann Kussmaul’s work on rural specialization shows it happening from the sixteenth century onward. Berg and Hudson (Hudson 1989) have emphasized that modern factories need not have been large, yet the factories nonetheless were closely divided in their labor. Most enterprises were tiny, and accomplished the division of labor through the market, as Smith averred. It has long been known that metal working in Birmingham and the Black Country was broken down into hundreds of tiny firms, anticipating by two centuries the ‘Japanese’ techniques of just in time inventory and thorough sub contracting. Division of labor certainly did happen, widely.

That is to say, the proper dividing of labor was, like transport and enclosure, efficient. Gains were to be had, which suggests why they were seized. But a new technique of specialization can be profitable to adopt yet lead to only a small effect on productivity nationally look again at the modest, if by no means unimportant, productivity changes from the puddling and rolling of iron. The gains were modest in the absence of dynamic effects, because the static gains from more complete specialization are limited by Harberger’s Law.

A similar thought experiment shows the force of the argument. Specialization in the absence of technological change can be viewed as the undoing of bad locations for production. Some of the heavy clay soil of the midlands was put down to grazing, which suited it better than wheat. Or the labor of the Highlands was ripped off the land, to find better employment — higher wages, if less Gaelic spoken — in Glasgow or New York. The size of the reallocation effect can be calculated. Suppose a quarter of the labor of the country were misallocated. And suppose the misallocation were bad enough to leave, say, a 50 per cent wage gap between the old sector and the new. This would be a large misallocation. Now imagine the labor moves to its proper industry, closing the gap. As the gap in wages closes the gain shrinks, finally to zero. So the gain from closing it is so to speak a triangle (called in economics, naturally, a Harberger Triangle), whose area is half the rectangle of the wage gap multiplied by the amount of labor involved. So again: (1 /2) (1 /4) (50 per cent) = 6.25 per cent of labor’s share of national income, which might be half, leaving a 3 per cent gain to the whole. The gain, as usual, is worth having, but is not itself the stuff of revolutions. The division of labor: Not.

Geography is still another Not. Some economic historians (e.g. Wrigley 1988) continue to put weight on Britain’s unusual gifts from Nature. It must be admitted that coal correlates with early industrialization: the coal-bearing swath of Europe from Midlothian to the Ruhr started early on industrial growth. But economically speaking the coal theory, or any other geographical theory, has an appointment with Harberger. Coal is important, blackening the Black Country, running the engines, heating the homes. But it does not seem, at least on static grounds, to be important enough for the factor of fifteen. The calculations would be worth doing, but one suspects they would turn out like the others.

The claim is that the economists’ static model does not explain the factor of fifteen. It can tell why it did Not happen, a series of Nots, useful Nots, correctives to popular fable and sharpeners of serious hypotheses. But the kind of growth contemplated in the classical models, embedded now deep within modern economics as a system of thought, was not the kind of growth that overtook Britain and the world in the late eighteenth and nineteenth centuries.

One might reply that many small effects, static and dynamic, could add up to the doubling of income per head to be explained: trade, coal, education, canals, peace, investment, reallocation. No, Not. One trouble is: that doubling, 100 per cent, is not enough, since in time modern economic growth was not a factor of two but a factor of fifteen, not 100 per cent but 1,400 per cent. Another is that many of the effects, whether in the first or the second century of modern economic growth, were available for the taking in earlier centuries. If canals, say, are to explain part of the, growth of income it must be explained why a technology available since ancient times was suddenly so useful. If teaching many more people to read was good for the economy it must be explained why Greek potters signing their amphora c. 600 B.C. did not come to use water power to run their wheels and thence to ride on railways to Delphi behind puffing locomotives. If coal is the key it must be explained why north China, rich in coal, had until the 20th century no industrial growth. The mystery inside the enigma of modern economic growth is why it is modern.

The classical model from Smith to Mill was one of reaching existing standards of efficiency and equipment. To put it in a name: of reaching Holland. Holland was to the eighteenth century what America is to the 20th, a standard for the wealth of nations.

The province of Holland [wrote Adam Smith in 1776] . . . in proportion to the extent of its territory and the number of its people, is a richer country than England. The government there borrows at two per cent., and private people of good credit at three. The wages of labor are said to be higher in Holland than in England, and the Dutch … trade upon lower profit than any people in Europe.

WN, 1776:10: 108.

The emphasis on profit at the margin is characteristic of the classical school. The classical economists thought of economic growth as a set of investments, which would, of course, decline in profit as the limit was reached. Smith speaks a few pages later of “a country which had acquired that full complement of riches which the nature of its soil and climate, and its situation with respect to other countries allowed it to acquire” (1776: Lix.14: 111). He opines that China “neglects or despises foreign commerce” and “the owners of large capitals [there] enjoy a good deal of security, [but] the poor or the owners of small capitals . . . are liable, under the pretense of justice, to be pillaged and plundered at any time by the inferior mandarins” (1776: Lix.15: 112; cf. 1776: Lviii.24: 89). In consequence the rate of interest in China, he claims, is 12 rather than 2 per cent (Smith, incidentally, was off in his facts here). Not all the undertakings profitable in a better ordered country are in fact undertaken, says Smith, which explains why China is poor. Smith and his followers sought to explain why China and Russia were poorer than Britain and Holland, not why Britain and Holland were to become in the century after Smith so very much more rich. The revolution of spinning machines and locomotive machines and sewing machines and reaping machines that was about to overtake north west Europe was not what Smith had in mind. He had in mind that every country, backward China and Russia, say, and the Highlands of Scotland might soon achieve what the thrifty and orderly Dutch had achieved. He did not have in mind the factor of fifteen that was about to occur even in the places in 1776 with a “full complement of riches.”

Smith, of course, does mention machinery, in his famous discussion of the division of labor: “Men are much more likely to discover easier and readier methods of attaining any object, when the whole attention of their minds is directed towards the single object” (1776: Li.8: 20). But what is striking in his and subsequent discussions is how much weight is placed on mere reallocations. The reallocations, mere efficiencies, we have found, are too small to explain what is to be explained.

In a deep sense the economist’s model of allocation does not explain the factor of twelve. If allocation were all that was at stake then previous centuries and other places would have experienced what Britain experienced 1780 1860. Macaulay says, in a Smithian way, “We know of no country which, at the end of fifty years of peace, and tolerably good government, has been less prosperous than at the beginning of that period” (1830: 183). Yes. But 100 per cent better off, on the way to 1,400 per cent better off? Not. There had been many times of such peace before, with no such result as the factor of fifteen.

To put it another way, economics in the style of Adam Smith, which is the mainstream of economic thinking, is about scarcity and saving and other puritanical notions. In the sweat of thy face shalt thou eat bread. We cannot have more of everything. We must abstain puritanically from consumption today if we are to eat adequately tomorrow. Or in the modern catch phrase: there’s no such thing as a free lunch.

The chief fact of the quickening of industrial growth 1780 1860 and its aftermath, however, is that scarcity was relaxed — relaxed, not banished, or overcome by an “affluent society,” since whatever the size of income at any one time more of it is scarce. Modern economic growth is a massive free lunch.

In 1871, a century after Smith and at the other end of the period (but not the end of modern economic growth), John Stuart Mill’s last edition of Principles of Political Economy marks the perfection of classical economics. Listen to Mill:

Much as the collective industry of the earth is likely to be increased in efficiency by the extension of science and of the industrial arts, a still more active source of increased cheapness of production will be found, probably, for some time to come, in the gradual unfolding consequences of Free Trade, and in the increasing scale on which Emigration and Colonization will be carried on.

1871: Bk IV, ch. ii. l : 62.

Mill was wrong. The gains from trade, though statically commendable, were trivial beside the extension of industrial arts (“science” means here “systematic thinking,” not, as it came to mean in English shortly afterwards, and only in English, the natural sciences alone). The passage exhibits Mill’s classical obsession with the principle of population, namely, that the only way to prevent impoverishment of the working people is to restrict population. His anxieties on this score find modern echo in the environmental and family limitation movements. Whatever their wisdom today, the Malthusian ideas told next to nothing about the century to follow 1871. British population doubled again, yet income per head increased by nearly a factor of four. Nor did Mill’s classical model, as we have seen, give a reasonable account of the century before 1871.

Mill again: “It is only in the backward countries of the world that increased production is still an important object: in those most advanced, what is economically needed is a better distribution, of which one indispensable means is a stricter restraint on population” (1871 : Bk IV, ch. vi. 2: 114). Still more wrong, in light of what in fact happened during the century before and the century after. Mill is unaware of the larger pie to come — unaware, so strong was the grip of classical economic ideas on his mind, even in 1871, after a lifetime watching it grow larger. He says elsewhere, “Hitherto it is questionable if all the mechanical inventions yet made have lightened the day’s toil of any human being” (1871: Bk IV, ch. vi. 2: 116), a strange assertion to carry into the 1871 edition, with child labor falling, education increasing, the harvest mechanizing, and even the work week reducing.

Mill was too good a classical economist, in short, to recognize a phenomenon inconsistent with classical economics. That the national income per head might quadruple in a century in the teeth of rising population is not a classical possibility, and so the classicals from Smith to Mill put their faith in greater efficiency by way of Harberger Triangles and a more equitable distribution of income by way of improvements in the Poor Law. It should be noted that Mill anticipated social democracy in many of his later opinions, that is, the view that the pie is after all relatively fixed and that we must therefore attend especially to distribution. That the growth of the pie would dwarf the Harberger Triangles available from efficiency, or the Tawney Slices available for redistribution, did not comport with a classical theory of political economy. Macaulay’s optimism of 1830 turned out to be the correct historical point: “We cannot absolutely prove that those are in error who tell us that society has reached a turning point, that we have seen our best days. But so said all who came before us, and with just as much apparent reason” (1830: 186). The pessimistic and puritanical classical economists, with the pessimistic and puritanical romantic opponents of industrialization, were wrong.

Here is the economist’s way of stating the problem. Think of the output of Stuff (clothing, food, houses, etc.) and Services (doctoring, teaching, soldiering) in 1780 in Britain as being measured along two axes (bring back that high-school algebra and geometry, now!). The possibilities in 1780 are a curve along which the actual Britain of 1780 took a point, which we’ll call Self-Sufficiency:

{art to be supplied: here a scrunched-up production possibility curve}}

Inefficiency, misallocation, opportunities missed, distortions introduced of the usual static sort are about being inside or on that curve. Note the point Massive Unemployment: that would be a stupid place to be, since you could get out to the curve and have more of both Stuff and Services. You can get a little outside it by trading with foreigners. But only a little outside, to a point like Trade.

How sweet. Now I’ll tell you why I drew the so-called “production possibility curve” for 1780 as such a pathetically scrunched up little curve in the very corner of the axes: because to represent Now on the same diagram the amounts of Stuff and Services (averaged) have to be fifteen times further out. Natch: that’s what being better off means:

{added to last diagram is a modern production possibility curve, very much further out}

But observe. No merely static improvement of matters in 1780 can come remotely close to the curve of Now. That’s the intellectual puzzle in explaining this greatest of historical events.