The Great Enrichment – Ideas, Not “Capital,” Enriched The World by Deirdre N. McCloskey, Foundation For Economic Education
Or, Why Economics Cannot Explain the Modern World
Why are we so rich? Who are “we”? Have our riches corrupted us?
“The Bourgeois Era,” a series of three l-o-n-g books just completed — thank God — answers:
- first, in The Bourgeois Virtues: Ethics for an Age of Commerce (2006), that the commercial bourgeoisie — the middle class of traders, dealers, inventors, and managers — is on the whole, contrary to the conviction of the “clerisy” of artists and intellectuals after 1848, pretty good. Not bad.
- second, in Bourgeois Dignity: Why Economics Can’t Explain the Modern World (2010), that the modern world was made not by the usual material causes, such as coal or thrift or capital or exports or imperialism or good property rights or even good science, all of which have been widespread in other cultures and at other times. It was caused by very many technical and some few institutional ideas among a uniquely revalued bourgeoisie — on a large scale at first peculiar to northwestern Europe, and indeed peculiar from the sixteenth century to the Low Countries;
- and third, in Bourgeois Equality: How Ideas, Not Capital or Institutions, Enriched the World (2016), that a novel way of looking at the virtues and at bettering ideas arose in northwestern Europe from a novel liberty and dignity enjoyed by all commoners, among them the bourgeoisie, and from a startling revaluation starting in Holland by the society as a whole of the trading and betterment in which the bourgeoisie specialized.
The revaluation, called “liberalism,” in turn derived not from some ancient superiority of the Europeans but from egalitarian accidents in their politics from 1517–1789. That is, what mattered were two levels of ideas — the ideas in the heads of entrepreneurs for the betterments themselves (the electric motor, the airplane, the stock market); and the ideas in the society at large about the businesspeople and their betterments (in a word, that liberalism). What were not causal were the conventional factors of accumulated capital and institutional change. They happened, but they were largely dependent on betterment and liberalism.
The upshot since 1800 has been a gigantic improvement for the poor, yielding equality of real comfort in health and housing, such as for many of your ancestors and mine, and a promise now being fulfilled of the same result worldwide — a Great Enrichment for even the poorest among us.
These are controversial claims. They are, you see, optimistic. Many of the left, such as my friend the economist and former finance minister of Greece, Yanis Varoufakis, or the French economist Thomas Piketty, and some on the right, such as my friend the American economist Tyler Cowen, believe we are doomed.
Yanis thinks that wealth is caused by imperial sums of capital sloshing around the world economy, and thinks in a Marxist and Keynesian way that the economy is like a balloon, puffed up by consumption, and about to leak. I think that the economy is like a machine making sausage, and if Greece or Europe want to get more wealth they need to make the machine work better — honoring enterprise, for example, and letting people work when they want to.
Piketty thinks that the rich get richer, always, and that the rest of us stagnate. I think it’s not true, even in his own statistics, and certainly not in the long run, and that what has mainly happened in the past two centuries is that the sausage machine has got tremendously more productive, benefiting mainly the poor.
Tyler thinks that improvements in the sausage machine are over. I think that if Tyler were so smart (and he is very smart), he would be rich, and anyway there is little evidence of technological stagnation, and anyway for at least the next century, the poor of the non-Western world will be catching up, enriching us all with their own betterments of the sausage machine.
In other words, I do not think we are doomed. I see over the next century a world enrichment both materially and spiritually that will give the wretched of the earth the lives of a present-day, bourgeois Dutch person.
For reasons I do not entirely understand, the clerisy after 1848 turned toward nationalism and socialism, and against liberalism. It came also to delight in an ever expanding list of pessimisms about the way we live now in our approximately liberal societies, from the lack of temperance among the poor to an excess of carbon dioxide in the atmosphere. Anti-liberal utopias believed to offset the pessimisms have been popular among the clerisy. Its pessimistic and utopian books have sold millions.
But the twentieth-century experiments of nationalism and socialism, of syndicalism in factories and central planning for investment, of proliferating regulation for imagined but not factually documented imperfections in the market, did not work. And most of the pessimisms about how we live now have proven to be mistaken.
It is a puzzle. Perhaps you yourself still believe in nationalism or socialism or proliferating regulation. And perhaps you are in the grip of pessimism about growth or consumerism or the environment or inequality. Please, for the good of the wretched of the earth, reconsider. The trilogy chronicles, explains, and defends what made us rich — the system we have had since 1800 or 1848, usually but misleadingly called modern “capitalism.”
The system should rather be called “technological and institutional betterment at a frenetic pace, tested by unforced exchange among all the parties involved.” Or “fantastically successful liberalism, in the old European sense, applied to trade and politics, as it was applied also to science and music and painting and literature.” The simplest version is “trade-tested progress.”
Many humans, in short, are now stunningly better off than their ancestors were in 1800. And the rest of humanity shows every sign of joining the enrichment. A crucial point is that the greatly enriched world cannot be explained in any deep way by the accumulation of capital, as economists from Adam Smith through Karl Marx to Varoufakis, Piketty, and Cowen have on the contrary believed, and as the very word “capitalism” seems to imply.
The word embodies a scientific mistake. Our riches did not come from piling brick on brick, or piling university degree on university degree, or bank balance on bank balance, but from piling idea on idea. The bricks, degrees, and bank balances — the capital accumulations — were of course necessary. But so were a labor force and liquid water and the arrow of time.
Oxygen is necessary for a fire. But it would be at least unhelpful to explain the Chicago Fire of October 8-10, 1871, by the presence of oxygen in the earth’s atmosphere. Better: a long dry spell, the city’s wooden buildings, a strong wind from the southwest, and, if you disdain Irish immigrants, Mrs. O’Leary’s cow.
The modern world cannot be explained, I show in the second volume, Bourgeois Dignity, by routine brick-piling, such as the Indian Ocean trade, English banking, canals, the British savings rate, the Atlantic slave trade, natural resources, the enclosure movement, the exploitation of workers in satanic mills, or the accumulation in European cities of capital, whether physical or