Part XIII. Creative Language, Creative Destruction, Creative Politics
Dignity and Liberty for Ordinary People, in Short, were the Greatest Externalities
I have argued that the Industrial Revolution and its sequel cannot be explained by open opportunities such as trade or property rights lying about unused until taken up in the eighteenth century. The economic theories depending on routines such as accumulation or imperialism, that is, can’t explain the factor of sixteen. The innovation was fundamentally unpredictable. If it had not been — if it was routine economic opportunities lying about — then it would have happened elsewhere at other times. Hayek put it this way: “Nowhere is freedom more important than where our ignorance is greatest — at the boundaries of knowledge, . . . where no one can predict.” And the greater is “our” knowledge the greater is the ignorance of any one of us, whether a central planner or a great scientist. “The more men know,” Hayek continues, “the smaller the share of all that knowledge becomes that any one mind can absorb.”25 It is said that John Milton was the last man in Europe who had read everything — well, everything in Western European and certain biblical languages. It’s been a long time since Milton. The more social knowledge there is, the more urgent it is for free arrangements to try out an idea in this or that way, since no one mind can predict where it will end. No one in 1990 could have guessed how the internet would turn out. Inventors themselves commonly do not know what use their invention will be. “Prediction is difficult,” said Yogi Berra, “especially about the future.” Thomas Edison believed his recording cylinders would be used mainly for office dictation. When someone asked Orville Wright what he thought the use of his airplane was going to be, he replied, “Sport, mainly.”
But economists have a word for closed opportunities that can lie about unused, until stumbled into — “positive externalities.” The more transparent word for the idea is “spillovers.” In the jargon, a spillover or an “external effect” means some harm or benefit that is not paid for with money in a market. Therefore it spills over from one person to another without being subject to market discipline, or the market signals for an opportunity. It stands off the market’s stage, so to speak, hidden in the wings, unpaid and unheeded. Yet it will from time to time loudly deliver its own lines, disrupting or advancing the play. It has real effects, in other words, though not accounted for in private financial statements, and therefore not attended to.
Smoke from a power plant is called a “negative externality” (like all masters of mysteries, the economists love jargon). The harm caused by the smoke does not show up as a money cost to the power plant or to the users of its electricity. That’s why the disruption is ignored, external, offstage, unpaid. “Luckily,” says Charles Montgomery Burns, rubbing his hands with glee, “I don’t have to pay money for the privilege of dumping the radioactivity from my power plant into the air you breathe. So what do I care?!” There’s no market in which another person can buy the radioactivity or smoke or aircraft noise to stop it, expressing her distaste in money bids.
But not all externalities or spillovers are bad, like power-plant smoke or aircraft noise or other dumping of by-products. Some are good, those positive externalities. Even some smoke — from leaf fires in autumn or from wood fires in winter — is not a harm but a benefit, at any rate to older folk remembering the sweet smells of 1959. Some of us even have a loony nostalgia for the smell of diesel exhaust from the old London buses. More seriously, having lots of educated people around is a spillover beneficial to you and to me and to many others, educated or not. We do not pay fully for the educated-populace benefit in a market. (We do pay in part through wages paid to educated workers.) And so the uncompensated part is an externality. You would pay a little if it could be arranged to get the sweet, nostalgic smell of autumn or winter, or of London in a late 1950s smog. You would pay a lot to deal with people who can read and can calculate and can see through the more obviously manipulative campaign advertisements. People routinely pay the big costs of migration to get from countries that do not have such positive externalities of education into those that do.
A pair of positive externalities, I have been arguing, had been untried on a large scale until stumbled into by the United Provinces in the seventeenth century and by the United Kingdom imitating the bourgeois Dutch in the eighteenth century. They were a new dignity for the bourgeoisie in its dealings and a new liberty for the bourgeoisie to innovate in economic affairs. Both were necessary for the modern world. The two, when linked, appear even to have been sufficient, if you supply a few routine background conditions — having already somewhat large cities, for example, and extensive trade and reasonable security of property and cheap if slow riverine or coastal transport. Such background conditions were widespread in the world of 1700, and cannot therefore be thought of as shocking Dutch and English novelties. China had them. So did Japan, the Mughal Empire, the Ottoman Empire, northern Italy, the Hansa.
But without the two necessary, and large scale, conditions of dignity and liberty for the innovating class, we would have no modern world. Both were necessary. Without the liberty to innovate no amount of new social prestige for the previously scorned bourgeoisie would have done the trick. The constitution of 1689, wrote Hume in the last volume of his The History of England (1754-1755), “gave such an ascendant to popular principles, as has put the nature of the English constitution beyond all controversy. And it may justly be affirmed, without any danger of exaggeration, that we, in this island, have ever since enjoyed. . . the most entire system of liberty that ever was known amongst mankind.”26 He perhaps overstates the case — Holland led the way, after all, to speak only of recent examples. And the poor in Britain, though vividly aware that they were freeborn English men and women (and very willing in the eighteenth century to riot in aid of such a notion), had not yet been emancipated in politics or in wealth. Yet Frenchmen like Voltaire and Montesquieu and later Tocqueville were right to emphasize the peculiarity of English liberties — habeas corpus, Parliamentary pre-eminence, and especially the ancient English security of property. Tocqueville wrote in 1835 that “it is above all the spirit and habits of liberty which inspire the spirit and habits of trade.”27 Liberty is necessary. Merchants and manufactures could have been brought with full dignity into the British national elite of 1700, with ribbands, stars, and a’ that, but had they lacked the liberty to profit from innovation, either in machines or in ways of doing business, nothing would have happened. The French in the eighteenth century illustrate the problem in their state-sponsored prizes and industrial espionage, namely, that they did not give liberty to innovation. In France as in Japan and the Ottoman Empire one had to apply to l’État for permission to open a factory. With such lack of liberty (and without the Dutch and then the British examples) the program of the French elite would have stayed as it had for centuries, namely, the preservation of the old ways, the cake of custom. Or so at least an economist would claim.
But without the new dignity for merchants and inventors, no amount of the liberty to innovate would have broken the old cake, either. Or so at least a sociologist would claim. The foreigners were startled by the esteem in which trade was held in Britain, though also noting the continuing hauteur and practical power of the British aristocracy. Merchants in Japan and China were ranked for millennia close to night-soil men. In Christian Europe they were considered for millennia the enemies of God. Innovations were for millennia viewed as threats to employment. And so the best minds went into war or politics or religion or bureaucracy or poetry. Some still do, often on anti-bourgeois grounds taught to them by the clerisy after 1848.
By adopting the respect for deal-making and innovation that Amsterdam and London pioneered around 1700, the modern world was born. Dignity and liberty still work. The special development zone of Shenzhen in mainland China, a suburb of Hong Kong, went from being a small fishing village to an eight-million soul metropolis in two decades. Such a feat required a shift in rhetoric: stop jailing millionaires and start admiring them; stop resisting creative destruction and start speaking well of innovation; stop over-regulating markets and start letting people make deals.
In 1776 Adam Smith, who invented sociology as much as economics, called the new amalgam “the obvious and simple system of natural liberty.”28 But my point, and his, is that, astonishingly, the system was not considered “obvious and simple” until the eighteenth century. That’s the point of theorizing it as an “externality.” In many circles to this day it still is suspect. You can still hear people who do not pretend to have thought very deeply about the matter declaring confidently that the market of course needs to be closely regulated, or that trade needs to be fair, or that immigration must be restricted, or that jobs are to be created by governmental programs, or that businesspeople routinely cheat, or that markets are chaotic, or that the more complex an economy is the more it needs government regulation, or that that governmental bureaucracies are always fair and efficient. And many still declare that it is ever-so-much more dignified to work as a professor or a civil servant or another sort of non-profit employee than as someone making deals in the financial services industry or in the wholesale meat trade. Such anti-bourgeois people (many of them my good friends) do not believe the bourgeois axiom that a deal between two free adults has a strong presumption in its favor, practically and ethically and aesthetically. They deny that allowing such deals and honoring their makers has resulted in the modern enrichment of the poor. They think instead, against the historical evidence, that action by government or trade unions did it.
But a sufficiently large number of Europeans were converted to a rhetoric of bourgeois-respecting in the late seventeenth and especially in the eighteenth century. Nowadays many people worldwide have come believe in market-guided innovation, and have learned to speak kindly of it. The endlessly renewed schemes of “protection,” which seek to keep us doing what we have always done, have enemies they did not have in 1600. The evidence has become overwhelming that letting innovation rip is the best plan for helping the poor — from the enrichment of poor Europeans around 1900 to the enrichment of poor Indians around 2000. (One is reminded of the old joke: “Do I believe in infant baptism?! I’ve seen it!”) As early as 1641 one Lewes Roberts in England praised “the judicious merchant, whose labor is to profit himself, yet in all his actions doth therewith benefit his king, country, and fellow subjects.”29 Adam Smith could not have put it better. In 1675 an anonymous English writer declared that “cupidity has taken the place of charity, and effects it after a manner which we cannot enough admire.” Note the word “admire.” He asked, “What charity will run to the Indies for medicines, stoop to the meanest employments, and not refuse the basest and most painful offices?” Note, too, the hierarchy in which many “employments” are reckoned mean and base, not honorable. A job of work in those hierarchical days was “service,” as in “servant.” And yet he continued, “cupidity will perform all this without grudging,” to our collective good.30 John Stuart Mill could not have put it better. Dudley North, that man of aristocratic background enriched by a bourgeois career trading with the Ottomans, wrote in 1691 that “to force men to deal in any prescribed manner may profit some as happen to serve them; but the public gains not, because it is taking from one subject to give to another.31 Milton Friedman could not have put it better. “I don’t know which is the more useful to the state,” wrote Voltaire in 1733 with heavy sarcasm, “a well-powdered lord who knows precisely when the king gets up in the morning. . . or a great merchant who enriches his country, sends orders from his office to Surat or to Cairo, and contributes to the well-being of the world.”32 The emphasis was soon to shift from merchants to manufacturers, who also buy low and sell high. But the young Robert Nozick could not have put it better. Deals to buy spices or steam engines low and to sell them high were for the first time admired. The admiration overturned the various versions of anti-bourgeois hierarchy which had so long prevailed: that deals are dirty, that the dealers are dangerous and disreputable, and that men of honor, such as the gentry or the mandarins, should of course keep them in their place.
To put the historical point in the economist’s jargon, then, the new bourgeois liberty and the new admiration for the bourgeois life constituted world-making externalities. They were not tried in earlier times or other places because they stood offstage, and the prevailing powers wanted them to stay there. The powers could not imagine how very rich allowing onstage the honoring and liberating of economic innovation would make the powers themselves — and by the way their subjects. No economist, for one thing, had stated the argument persuasively. That economics itself is such an oddly modern invention lends plausibility to the case for a modern shift in rhetoric. The professors of Salamanca, the pamphleteers of Amsterdam and London, the political economists of Edinburgh were figures of the sixteenth, seventeenth, and eighteenth centuries. Nothing like their thought can be found earlier in Europe, and only glimmers elsewhere. And in early times, for another, no stunning, whole-country examples of success from according dignity to the bourgeoisie and leaving it free to innovate had stood in mute testimony, such as Holland in the seventeenth century, or now China in the twenty-first.
On the contrary, dignity and liberty for the bourgeoisie was viewed, until the view suddenly changed in academic circles in Spain and in commercial circles and Holland and then in Britain and then (in all circles) in the United States, as an outrageous absurdity. Of course the bourgeoisie was contemptible, in Confucianism the fourth and lowest of the social classes, or in Christianity the rich man of the Gospels who can scarcely enter heaven. Of course the market needed to be regulated in the interest of the rich — and if not the rich baldly, then regulated in the interest of the continued rule of the rich by way of enriching some selected and favored and relatively well-off poor (unskilled automobile workers earning $30 an hour, high-school-graduate Cook-County hospital administrators earning $100,000 a year, members of local 881 of the United Food and Commercial Workers International Union earning more than what Wal-Mart employees are eagerly willing to work for). Of course people should be arrayed in a great chain of being from God to slave, and kept in their place, except by royal favor or state examination or Party membership.
My theme in short is the true liberal one of the de la Court brothers, Thomas Rainsborough, Dudley North, Locke, Voltaire, Hume, Turgot, Montesquieu, Smith, Tom Paine, Destutt de Tracy, Jefferson, Madame de Staël, Benjamin Constant, Wilhelm von Humboldt, Charles [not Auguste] Comte, Charles Dunoyer, Malthus, Ricardo, Harriet Martineau, Tocqueville, Giuseppe Mazzini, Frédéric Bastiat, Mill, Henry Maine, Richard Cobden, Elizabeth Cady Stanton, Cavour, Johan August Gripenstedt, Herbert Spencer, Karl von Rotteck, Friedrich Dahlman, Johan Rudolf Thorbecke, Lord Acton, Josephine Butler, Knut Wicksell, Luigi Einaudi, H. L. Mencken, Johan Huizinga, Frank Knight, Ludwig von Mises, Rose Wilder Lane, Nora Zeale Hurston, Karl Popper, Isaiah Berlin, Friedrich Hayek, Raymond Aron, Ronald Coase, Milton Friedman, James Buchanan, Gordon Tullock, Thomas Sowell, Julian Simon, Israel Kirzner, Wendy McElroy, and the young Robert Nozick. It is the obvious and simple system of natural liberty. It contradicts the aristocratic sneering by conservatives at innovation and at the bourgeoisie, or the clerical sneering by progressives at markets and at the bourgeoisie. The true-liberal claim is that unusual bourgeois dignity and personal liberty in northwestern Europe, and especially in Holland and then in Britain, made for unusual national wealth, by way of a Revaluation of ordinary, bourgeois life. “The true end of Man, ” wrote von Humboldt expressing in 1792 the elevated form of the claim, “is the highest and most harmonious development of his powers to a complete and consistent whole. Liberty is the grand and indispensable condition which the possibility of such a development presupposes.”33 Notice that a Kantian (and novel) respect for personhood is here combined with a political demand for liberty.
The conservative political theorist Tod Lindberg points out that neo-conservatism was for a while animated by empirical studies of what did not work in the aspirations of post-War American liberalism — minimum wages that unfortunately damaged the poor, educational expenditure that unfortunately enriched middle-class teachers’ unions and mis-educated the poor, foreign aid that unfortunately enriched big men, and so forth. But he concludes that “the proper response to a mugging by reality is not the abandonment of liberalism, broadly construed, in favor of a pre-liberal or anti-liberal or ‘conservative’ alternative, neo- or otherwise, but rather the abandonment of those elements (rife in postwar liberalism) that reality would not accommodate in favor of those that reality would accommodate and, indeed, compel. This is our current and future politics.”34 I agree. The economic history supports our opinion.
Dignity and liberty, to put the point in economic terms, were the Greatest Externalities. As the historical anthropologist Alan Macfarlane writes in summarizing the liberal theme, “political and religious freedom seem to have a close association with the generation of economic wealth.”35 That is to put it mildly. A notion of liberty to try novelties that in its origins was “a liberty,” that is, a special privilege, as in the phrase “a freeman of the City of London,” came by various happy accidents to be asserted by wider groups, and to characterize northwestern Europe and its offshoots. At the same time a life in trade and manufacturing came to be a little bit honored, at more than a local level. Liberty, I say again for the benefit of my libertarian colleagues, does not by itself suffice. The political theorist James Otteson asserts a theorem that many libertarians believe: “Those countries that respect private property and efficiently administer justice prosper, and those that do not do not. It is as simple as that.”36 Not quite, unless the word “respect” has more meaning than “enforce the laws of property.”
The older aristocratic and peasant/Christian rhetorics began to be questioned, if never entirely abandoned. When a bourgeois rhetoric born in Venice or Antwerp in the Middle Ages began to be elevated during the seventeenth century into an ideology, equipped with its own literature and its own history and its own symbolic life, no longer borrowing these from court or church, and came to be equipped with the muskets and cannons to deal peremptorily with traditional folk, the Bourgeois Era was fairly launched. Richard Steele, with Joseph Addison, in the Spectator 1711-1712 had provided a weekly reflection on bourgeois vs. gentry-aristocratic virtues. Ten years later, in his play of 1722, The Conscious Lovers, Steele has Mr. Sealand (thus the range of merchant, from sea to land) declare, “we merchants are a species of gentry that have grown into the world this last century, and are as honorable, and almost as useful, as you landed folks, that have always thought yourselves so much above us. For your trading, forsooth, is extended no farther than a load of hay, or a fat ox.”37 George Lillo’s embarrassingly cloying play another ten years later, in 1731, The London Merchant, can stand as an emblem for the change — though a change always under challenge from the aristocracy and the clerisy and the peasantry/proletariat. The honest merchant of the title (absurdly named “Thoroughgood”) declares in the first scene that “as the name of merchant never degrades the gentleman, so by no means does it exclude him.”38 The play was put on at least annually until 1818 for the edification of the apprentices of the City of London. Courtesy, once confined literally to the court, spread to the middle class. At the Octagon Room in Bath later in the century the daughters of the better merchants danced with the sons of the lesser gentry. A century later the heiresses of American bankers and manufacturers were refreshing the fortunes of British ducal families.
The dual ethical change of dignity and of liberty for ordinary bourgeois life led to a reign of sense and sensibility from which we are still benefitting. Its virtues are commercial prudence and family love, combined in the self-defined middle class with an almost insane inventive courage fueled by hope, protected in its politics by faith and temperance, and by a just improvement in the condition of the other, working classes — the ancestors of all the rest of us, to say it again — who themselves at last came to partake of the citizenly, bourgeois dignity of a vote, a house, an education, and became themselves “gentlemanly” middle class.
Thus Norwegian immigrants to the upper Midwest read a comic strip drawn by Peter Rosendahl from 1919 to 1935 in their community newspaper, Decorah-Posten, concerning the adventures of Han Ola and Han Per (“Han” means “Him,” in the sarcastic sense of “Himself,” “His Nibs”). One of the running jokes is Per’s obsessive inventiveness, sometimes a crazy reuse of older technologies. During the life of the strip he tries out with disastrous effect fully sixty new machines, the editor of a collection of the cartoons notes, “invented (or bought) by Per. Rosendahl presents him as the undying optimist, trying in every way possible to mechanize not only the outdoor work of the farmer but also the indoor work of his wife.”39 Thus in 1927:
It is all very American, as the characters keep saying. People in the Bourgeois Era were free to dream of innovation, and found the attempt dignified. Even fools were free thus to dream. They found their dignity, and their comeuppance, in comical attempts at innovation.
The rhetorical explanation for such a historically unique madness seems to cohere within itself and to correspond with the facts better than the materialist alternatives from left or right.
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[back] Hayek 1960, p. 26.
[back] Hume 1754-1755, p. 531.
[back] Tocqueville 1835, p. 116.
[back] Smith 1776, IV.ix.51, p. 687 (vol. II).
[back] Lewes 1641, pp. 1-2, quoted in McKeon, p. 202.
[back] Quoted in McKeon 1987 (2002), p. 197.
[back] North 1691, Preface, p. viii.
[back] Voltaire 1733, Letter 10, p. 154f.
[back] The first sentence of Chapter 2 of The Spheres and Duties of Government (published only in 1851, after his death, because of its libertarian content, and swiftly translated into English.)
[back] Lindberg 2004.
[back] Macfarlane 2000, p. 207.
[back] Otteson 2006, p. 160.
[back] Steele 1722, Act IV, sc. 2, p. 159 in Quintana 1952.
[back] Lillo 1731, Act I, sc. 1, p. 294 in Quintana 1952.
[back] Rosendahl, p. xi. The cartoonist "Rosendahl," by the way, would appear to have come from the unique barony of that name (unlike Danes and Swedes, the Norwegian peasants working their wretched soils were not on the whole serfs of any baron). It is three miles from the Dimelsvik of my ancestors.
I thoroughly enjoyed this chapter! Well-done! I suspect that in future works you will investigate the causes of the change in rhetoric. My opinion is that the Dutch strove to implement Christian principles in the organizing of their society. They were aware of the writings of the School of Salamanca because the great Lessius taught them. Monarch had refused to implement those teachings, but in reconstructing their society after so many years of war the Dutch were the first to create the institutions that could instantiate Salamanca ideas.
Written by Roger D. McKinney on December 12th, 2010.Dear Mr. McKinney, That is a very interesting suggestion, which I shall follow up. Lessius, eh? I need education on soooo many fronts!
Written by Deirdre McCloskey on December 12th, 2010.Sincerely,
Deirdre McCloskey