Economics, history, English and communications Professor Diedre N. McCloskey, of the University of Illinois, Chicago offers a unique interpretation of economic history that is well summarized in the subtitle of her book, “Bourgeois Equality: How Ideas, Not Capital or Institutions Enriched the World.”
This is a magisterial volume, which Matthew Ridley praised in his Times of London review, saying “It is so rich in vocabulary, allusion and fact as to be a contender for the great book of our age.” That is not an exaggeration.
As would be expected of any economic history, McCloskey emphasizes the material advancement that has transformed human lives in so much of the world since 1800. Finding that that the cradle of this advancement was northwestern Europe, and in particular the Netherlands and Great Britain, McCloskey rejects notions of geographic or cultural determinism, suggesting it could have arisen from other parts of the world, especially China and India.
Not Capital Nor Institutions
Despite predominant theories to the contrary, neither capital accumulation nor institutions were pivotal in the substantially rising standards of living. McCloskey creatively illustrates the problem with institutions:
“You can set up British – style courts of law, and even provide the barristers with wigs, but if the judges are venal and the barristers have no professional pride and if the public disclaims them both, then the introduction of such a nice sounding institution will fail to improve the rule of law.”
She rejects the idea that the progress of the previous two centuries represented the continuation of progress already underway. Indeed, annual economic growth had staggered along at from less than 0.1 before 1800. McCloskey contrasts this with what she calls a “hockey stick” phenomenon, in which per capita incomes grew by factors of from 10 to 30 times --- 1,000 percent to 3,000 percent per cent from 1800 to 2010.
The Problem
The problem was the bifurcation of society into a small privileged class and a far larger number of commoners, the bourgeoisie. Opportunity was largely limited to the privileged class.
“The former aristocratic or Christian or Confucian elites, then, had contempt for business, and taxed it or regulated it at every opportunity, keeping it within proper bounds. Such social regulation was the chief obstacle preventing the march to the modern, namely, the withholding of honor from betterment and dignity from ordinary economic lives.”
The result was a social structure characterized by “extortion, not protection,” what McCloskey calls the “Aristocratic Deal.”
The Great Enrichment
However, this was to change in the years leading up to 1800. McCloskey describes changing attitudes that encouraged participation of commoners and a “partial erosion of hierarchy.” The “Aristocratic Deal” was replaced by the “Bourgeois Deal,” which became “unevenly, the ruling ideology.”
“The deal crowded out earlier ideologies, such as ancient royalty or medieval struck aristocracy or early modern mercantilism or modern populism. The bettering society of liberalism which, when true to itself, was not led by the great king or the barons of the bureaucrats or the mob, all of whom took their profits from zero sum and the monopoly of violence.”
McCloskey refers to this advancement as the “Great Enrichment.” The key was what she calls “trade-tested betterment,” characterized as commoners joined a free market for ideas. All of this led to a radical improvement in the standard of living, the result of “allowing free entry to compete with the monopolies that the aristocrats or the plutocrats had arranged under the aegis of a captured government.”
This liberated ordinary people, who became generally equal under the law who were “freed from ancient suppression of their hopes.” The Great Enrichment, she says, is the most important secular event since the invention of agriculture,” adding that it “restarted history.”
Reversion
But for all the progress, there have been strong headwinds. According to McCloskey, the rhetoric took a decidedly negative turn about around 1848, the banner year of revolutions. It was led by the “clerisy,” artists, the intelligentsia, journals, professionals and bureaucrats, which “misled its earlier commitment to a free and dignified common people.” She attributes the attack to a “new and virulent detestation of the bourgeoisie.”
In more recent years, the clerisy has sought to replace the focus on equality of opportunity with equality of results. McCloskey objects, so much so that a chapter is entitled: “What Matters is not Equality of Outcome, but the Condition of the Working Class.” She effectively makes the case that poverty can be generally measured only absolutely, not relatively.” Otherwise there can be no eradication of poverty. “
Nonetheless, she is concerned about low income citizens, indicating the need to find effective ways to reduce poverty. She shares the concerns of the Left: “In our desire to help the poor, we bleeding heart libertarians stand in solidarity with our social democratic friends – if not usually agreeing with them on exactly which policies have helped the poor.” Her concern is that “we actually help the billion [the world’s remainingpoor], not merely indulge our indignation and our conviction of ethical superiority by supporting policies that in fact make them worse off.”
A Sampling of Observations
Throughout the book, McCloskey provides useful observations.
Importantly, she notes that an economy exists for the benefit of consumers, not producers. “After all the point of an economy’s production for production for consumption not protection of existing jobs using old tools – horses candles and control drill presses.”
She challenges much of “progressive” thought, noting that protection of trades and jobs is inappropriate and that government should not be in the business of choosing winners (or losers).
She discusses “first act, second act and third act” economics, which requires competent analysts to look beyond the immediate consequences to the ultimate consequences of policy. Henry Hazlitt made this the core of his best-selling book Economics in One Lesson, seven decades ago, though economists, often working for governments, have not always heeded this advice.
Finally, McCloskey colorfully dismisses much of the current politically correct thought: “…end-state egalitarians would argue that markets ‘enslave’ and therefore the people can be saved only by forced – march liberation, hopefully provided by the Brahmans now in power…”
High Density Economics
Bourgeois Equality is the second of two great volumes on economic history in just a year. The first was The Rise and Fall of American Growth: The U.S. Standard of Living Since the Civil War by Professor Robert Gordon of Northwestern University, a long ride on the Chicago El (Metro) from McCloskey’s University of Illinois, Chicago . Both volumes are yet more evidence of Chicago’s high density of ground-breaking economic analysis.
The setting of the two books is considerably different, with Gordon focusing on the United States and technological advancement. Gordon is somewhat more pessimistic about the future, which is understandable from his historic analysis. McCloskey’s view is more optimistic.
Nonetheless, my years have taught me a profound respect for the ability of entrenched institutions, to block achievement of better living standards, while professing the opposite. This makes me prone to pessimism (as I indicated in the Gordon review). Professor McCloskey would not agree:
"Pessimism on the basis of the most alarming of today’s trends is jolly good fun. … But since 1800 it has been a poor predictor."
Trickle-Out Economics
For decades there have been debates about “trickle-down economics.” More recently, Nobel Laureate Paul Krugman characterized the Obama stimulus programs as “trickle-up economics” (the effect of which is debatable). Professor McCloskey tells us that that economic growth comes from ordinary people not by the beneficence of those above. We could call it “trickle-out” economics.” To the considerable extent her analysis is right, McCloskey describes that may be the ultimate flowering of democracy.
Wendell Cox is principal of Demographia, an international public policy and demographics firm. He is a Senior Fellow of the Center for Opportunity Urbanism (US), Senior Fellow for Housing Affordability and Municipal Policy for the Frontier Centre for Public Policy (Canada), and a member of the Board of Advisors of the Center for Demographics and Policy at Chapman University (California). He is co-author of the "Demographia International Housing Affordability Survey" and author of "Demographia World Urban Areas" and "War on the Dream: How Anti-Sprawl Policy Threatens the Quality of Life." He was appointed to three terms on the Los Angeles County Transportation Commission, where he served with the leading city and county leadership as the only non-elected member. He served as a visiting professor at the Conservatoire National des Arts et Metiers, a national university in Paris.
Photo: Cover: Bourgeois Equality: How Ideas, Not Capital or Institutions Enriched the World.
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