A chapter-by-chapter outline of Deirdre McCloskey’s in-progress book The Treasured Bourgeoisie: How Markets and Innovation Became Virtuous, 1600-1848, and Then Suspect, a third volume in her series on The Bourgeois Era.
An e-book version of Deirdre McCloskey’s Crossing: A Memoir is free to download this month from its publisher, the University of Chicago Press.
A five-chapter excerpt from Deirdre McCloskey’s book Bourgeois Dignity: Why Economics Can’t Explain the Modern World (2010) that contends particularly with the work of economist Douglass North.
Ikeda: TANSTAAFL and Saving: Not the Whole Story, 4 September 2012.
“As McCloskey, as well as Rosenberg and Birdzell, have argued, it isn't saving, capital investment per se, and certainly not colonialism, income inequality, capitalist exploitation, or even hard work that is responsible for the tremendous rise in economic development, especially since 1800.
“It is innovation.
“And, McCloskey adds, it is crucially the ideas and words that we use to think and talk about the people who innovateâ€“the chance takers, the rebels, the individualists, the game changersâ€“and that reflect a respect for and acceptance of the very concept of progress. Innovation blasts the doors off budget constraints and swamps current rates of savings.”
James Pethokoukis’s post in AEIdeas, 3 August 2012:
Mitt Romney supposedly made an economic blunder in Israel the other day by saying that "if you could learn anything from the economic history of the world it's this: Culture makes all the difference.â€ In Romney's view, it's culture that explains why Israelis are rich and the Palestinians are not.
Not so says geographer Jared Diamond, whose book Guns, Germs, and Steel Romney dismissively mentioned in that same speech. In the New York Times, Diamond calls Romney's cultural explanation "dangerously out of date.â€ Diamond's thesis is that it's the sort of environment â€” from plants and animals that exist to the physical features of the continents â€” where different societies emerged that's made, to use Romney's phrase, "all the difference.â€
Or, as Barack Obama might put it, Israel "didn't build that.â€
Academics like Diamond and many economists tend to prefer materialistic explanations as to why nations succeed or fail. Diamond's theory is just one of many similar attempts to explain why the West (the United States, Europe, Japan) has a per capita GDP â€” adjusted for cost of living differences â€” of around $40,000 a person vs, say, Burkina Faso at $1500 per person or Afghanistan at $1000 per person.
Or, to put it another way, why did the average Brit or American live on $3-$5 a day in 1800 vs. $130-$140 a day in 2012, but other nations seem hardly any better off now than their ancestors 200 hundred years ago?
What explains that?
Economist Deidre McCloskey offers a long list of things that she argues don't explain that amazing surge: capital accumulation, trade, transportation, geography, natural resources, property rights â€” basically all the stuff economists tend to focus on. Here's what McCloskey says about Diamond:
Diamond argues very persuasively that the east-west axis of Eurasia from Spain to Japan made for shared domestications of plants and animalsâ€”wheat, rice, horses, chickensâ€”that the north-south places like sub-Saharan Africa or the isolated places like Australasia or the north-south and isolated places like the Americas could not enjoy. His is a powerful argument for why "advancedâ€ societies tended strongly to be Eurasian, from China to Rome (though he does emphasize that in Africa and in Polynesia and the Americas the advance was coming along, slowlyâ€”though in the sixteenth through nineteenth centuries it was shorted out by European conquests).
Yet Diamond's insight offers no explanation as to why "northwest European â€˜white people' had an Industrial Revolution and the other peopleâ€”whether Eurasian or African or Mesoamericanâ€”did not, until after the northwest Europeans had led the way.
"Italians, Iraqis, Indians, Chinese, and other beneficiaries of the 4000-year head start in civilization coming out of the Fertile Crescent did not get there first. The Dutch and British did, closely followed by the French and Germans and Americans.â€
In her book Bourgeois Dignity, McClosksey argues that it was a change in the culture of Holland and then Britain in the 1700s that kicked off the Industrial Revolution and the Age of Innovation, which then led to a stupendous jump in the Western standard of living. Simply put, people started thinking and talking about commerce and treating business in a new and respectful way. This led to the emergence of what McCloskey calls the Bourgeois Deal:
Give a woman some rice, and you save her for a day. Give a man some seed and you save him for a year. That's the plan of investment in capital, tried for decades in foreign aid, without much success.
But give a man and a woman the liberty to innovate, and persuade them to admire enterprise and to cultivate the bourgeois virtues, and you save them both for a long life of wide scope, and for successively wider lives for their children and their grandchildren, too. That's the Bourgeois Deal, which paid off in the Age of Innovation.
And wherever this Bourgeois Deal of economic freedom and the acceptance of innovation and creative destruction has been accepted â€” Great Britain, America, Japan, Israel, perhaps finally China â€” society has prospered beyond what previous generations could have ever imagined. As Romney explain further in National Review:
But what exactly accounts for prosperity if not culture? In the case of the United States, it is a particular kind of culture that has made us the greatest economic power in the history of the earth. Many significant features come to mind: our work ethic, our appreciation for education, our willingness to take risks, our commitment to honor and oath, our family orientation, our devotion to a purpose greater than ourselves, our patriotism. But one feature of our culture that propels the American economy stands out above all others: freedom. The American economy is fueled by freedom. Free people and their free enterprises are what drive our economic vitality.
Postrel’s post entry at BloombergView, 2 August 2012:
[Related post: "How to contribute to society," Michael Giberson, August 2, 2012, Knowledge Problem.]
“The controversy surrounding President Barack Obama's admonishment that "if you've got a business — you didn't build that. Somebody else made that happenâ€ has defied the usual election-year pattern.
Normally a political faux pas lasts little more than a news cycle. People hear the story, decide what they think, and quickly move on to the next brouhaha, following what the journalist Mickey Kaus calls the Feiler Faster Thesis. A gaffe that might have ruined a candidate 20 years ago is now forgotten within days.
Three weeks later, Obama's comment is still a big deal.
Although his supporters pooh-pooh the controversy, claiming the statement has been taken out of context and that he was referring only to public infrastructure, the full video isn't reassuring. Whatever the meaning of "thatâ€ was, the president on the whole was clearly trying to take business owners down a peg. He was dissing their accomplishments. As my Bloomberg View colleague Josh Barro has written, "You don't have to make over $250,000 a year to be annoyed when the president mocks people for taking credit for their achievements.â€
The president's sermon struck a nerve in part because it marked a sharp departure from the traditional Democratic criticism of financiers and big corporations, instead hectoring the people who own dry cleaners and nail salons, car repair shops and restaurants — Main Street, not Wall Street. (Obama did work in a swipe at Internet businesses.) The president didn't simply argue for higher taxes as a measure of fiscal responsibility or egalitarian fairness. He went after bourgeois dignity.
Bourgeois Dignity is both the title of a recent book by the economic historian Deirdre N. McCloskey and, she argues, the attitude that accounts for the biggest story in economic history: the explosion of growth that took northern Europeans and eventually the world from living on about $3 a day, give or take a dollar or two (in today's buying power), to the current global average of $30 — and much higher in developed nations. (McCloskey's touchstone is Norway's $137 a day, second only to tiny Luxembourg's.)
That change, she argues, is way too big to be explained by normal economic behavior, however rational, disciplined or efficient. Hence the book's subtitle: Why Economics Can't Explain the Modern World.
"Economics of a material sort can surely explain why Americans burned wood and charcoal many decades longer than did the forest-poor and coal-rich people of inner northwestern Europe. It can explain why education was a bad investment for a British parlor maid in 1840, or why the United States rather than Egypt supplied most of the raw cotton to Manchester, England,â€ writes McCloskey, a professor of economics, history, English and communication at the University of Illinois-Chicago, and of economic history at Gothenburg University in Sweden. But the usual stories of utility maximization and optimal pricing "can't explain the rise in the whole world's (absolute) advantage from $3 to $30 a day, not to speak of $137 a day.â€
Something bigger was at work. McCloskey's explanation is that people changed the way they thought, wrote and spoke about economic activity. ‘In the eighteenth and nineteenth centuries,’ she writes, ‘a great shift occurred in what Alexis de Tocqueville called “habits of the mind” — or more exactly, habits of the lip. People stopped sneering at market innovativeness and other bourgeois virtues.’ As attitudes changed, so did behavior, leading to more than two centuries of constant innovation and rising living standards.
Most of "Bourgeois Dignityâ€ is devoted to knocking down alternative explanations for the sudden and enormous escalation in living standards. In particular, McCloskey draws on the last half-century of economic-history scholarship to debunk what most people outside the field assume was the critical ingredient: savings and wealth accumulation. We might call this explanation ‘capitalism.’ Whether derived from Karl Marx, Max Weber, Karl Polyani, or, in a more recent incarnation, Fernand Braudel, she argues, the emphasis on capital simply gets the facts wrong. It is empirically false.
First of all, savings were high centuries before the economy took off. Given medieval crop yields, just preserving enough grain to plant next year's crop implied a savings rate of at least 12 percent, compared with no more than 10 percent to 20 percent in modern industrial economies. And, contrary to Weber's story about a new Protestant Ethic, savings rates were roughly the same in Catholic and Protestant countries or, for that matter, in China.
‘Something besides thrifty self-discipline or violent expropriation must have been at work in northwestern Europe and its offshoots in the eighteenth century and later,’ she writes. ‘Self-discipline and expropriation have been too common in human history to explain a revolution gathering force in Europe around 1800.’
Besides, as economic historians discovered in the 1960s, the economic takeoff didn't actually require large amounts of capital. Early cotton mills, for instance, were relatively cheap to set up. ‘The source of the industrial investment required was short-term loans from merchants for inventories and longer- term loans from relatives — not savings ripped in great chunks from other parts of the economy,’ McCloskey writes. ‘Such chunk-ripping “capitalism” awaited the Railway Age.’
There had always been enough capital. What was different, she maintains, is how people thought about new ideas. Creative destruction became not only accepted but also encouraged, as did individual enterprise. ‘What made us rich,’ she writes, ‘was a new rhetoric that was favorable to unbounded innovation, imagination, alertness, persuasion, originality, with individual rewards often paid in a coin of honor or thankfulness — not individual accumulation restlessly stirring, or mere duty to a calling, which are ancient and routine and uncreative.’
This is a radical claim, and one that McCloskey, having dispatched the alternatives, plans to demonstrate further in her next book, "The Treasured Bourgeoisie.â€ The idea will sound particularly strange if you learned your economic history, as many political intellectuals do, in a diluted version of Marx and Polanyi (on the left) or Weber (on the right) and thus assume that economic growth depends, first and foremost, on some accumulated store of wealth. You might be inclined, therefore, to sneer at innovation — or even, as Daniel Bell did, to write a book condemning it as a "cultural contradictionâ€ of capitalism — and at bourgeois virtue. If you think that capital, not insight or innovation, is the critical ingredient, it's also a short hop to the belief that the entrepreneur doesn't deserve praise for building the business.
McCloskey's book is not only a useful survey of how scholars answer the biggest question in economics: What causes growth? It is also a timely reminder that prosperity depends on more than effort or resources or infrastructure or good laws. Attitudes matter, too. You don't build a wealthy society by deriding bourgeois enterprise — or the people who take pride in it.”
From Pethokoukis’s “Sorry, America, You're Rich Enough. Stop Working” (Richocet, 5 July 2012):
[E]lites like Skidelsky have often frowned on work despite their professed affection for the working man. As economist Deirdre McCloskey writes in Bourgeois Dignity: Why Economics Can't Explain the Modern World, the rising reputation of commerceâ€”of making money through private trade rather than government favorâ€”was a key driver of the Industrial Revolution. Historically, elites have looked down on the merchant class, particularly what today we call small business and entrepreneurs. She notes that in ancient Rome, Cicero declared that "commerce, if on a small scale, is to be regarded as vulgar; but if large and rich â€¦ it is not so very discreditable â€¦ if the merchant â€¦ contented with his profits â€¦ betakes himself from the port itself to an estate in the country.â€ Even the commercial Dutch in the 1500s thought hustling for a buck was disreputable, an attitude summed up by the proverb, "A lie is a merchant's prosperity.â€
But then that all changed:
After about 1700 in Britain â€¦ the vulgarities of the economy and of money and of dealing with their unsettling creativity came gradually to be talked about as noncorrupting. They began to be seen in theory as worthy of a certain respect, as not being hopelessly vulgar or sinful or underhanded or lower caste. In a word they became dignified, in part because they were recognized as good for the nation, not a useless scam. [Bourgeois Dignity, 2010]
Work can be mindless repetition. But it can also be an outlet for creativity and imagination, one that brings a sense of self-worth, identity, and achievement. A job well done as a way of doing the Lord's work, of creating a "good life.â€
In “Jealousy as a driver of innovation and growth! There's some merit in this idea” (14 July 2012), Sanjeev Sabhlok says:
I chanced upon a very provocative hypothesis by Deirdre McCloskey who suggests that the roots of modernisation can be traced to the Dutch revolt of 1568 against Spain. But more generally, it is the jealousy that people feel about others (including other nations) that motivates economic growth. The desire to keep up with (or rather, outdo) the Joneses is a great movitator.
From Sarah Skwire’s “Economics and the Humanities: It’s Time to Cross the Disciplines” (The Conversation, 12 July 2012):
I suggest … that we begin seriously to exploit gains from trade. In other words, let's do some real interdisciplinary work. The co-authored kind. Deirdre McCloskey's Bourgeois Virtues and Bourgeois Dignity … suggest to me that there is a strong interest from the economics side of this equation in exploring literature from a free market angle.