Don’t Dismiss the Materialist Explanation

The first volume of Deirdre McCloskey’s quartet The Bourgeois Virtues, so enthralled me that my copy is littered with enthusiastic marginalia. I had never read something that combined such apothegmatic writing with such perceptive ideas — at least not in the field of economics. The skewering of the clerisy’s hypocrisy was especially delicious.

I look forward immensely to the second volume. To judge by McCloskey’s target essay there is much that will once again have me writing “yes!” in the margins. But there is also something here that troubles me, that has me fearing I may occasionally scribble “No!” Maybe I am too much of a materialist to take the final step she urges. Maybe I am reading too much into brief hints. But I fear she has fallen among thieves; I hope I am wrong.

Start with the bits I agree with. “Innovation backed by liberal economic ideas has made billions of poor people pretty well off, without hurting other people…Let’s keep it.” Yes!

“A true liberalism, what Adam Smith called ‘the obvious and simple system of natural liberty,’ contrary to both the socialist and conservative ideologues, has the historical evidence on its side.” Yes!

So let’s agree that absolutely key to the economic success of the last 200 years is that people are free to innovate in an undirected way. What I cannot bring myself to agree with is that this was an idea that had to be invented. I cannot agree that “what changed around 1700 was the valuation of economic and intellectual novelties within a system of all the virtues.”

Because, let us face the fact squarely, bursts of innovation — bush fires, I call them — have been happening in some place or other for hundreds of thousands of years. Britain’s industrial miracle was preceded by Holland’s, which was preceded by Italy’s, China’s, Greece’s, India’s, Phoenicia’s, Sumer’s. And before that there was the Neolithic revolution of 10,000 years ago, the Upper Paleolithic Revolution of 40,000, the Blombos explosion of 70,000, and the Pinnacle Point one of 160,000. It defies Occam’s Razor to argue that there was something utterly, qualitatively different about the mindset of the innovator then than now. I daresay that is not what McCloskey means, but I think she is drifting in that direction, if only unintentionally.

Apart from anything else, my suspicions are always aroused by claims that human nature suddenly came up with a new feature at a certain point in history. This was a common habit of Marxist anthropologists, for example, when they distinguished pre-industrial economies based on “reciprocity” from modern economies based on markets. Stephen Shennan has satirized the attitude thus: “We engage in exchanges to make some sort of profit; they do so in order to cement social relationships; we trade commodities; they give gifts.” Like Shennan, I think this is patronizing bunk. So I am not happy conceding that eighteenth-century Englishman were the first people to value novelty or see the world in scientific terms or whatever.

I would argue forcefully that the record shows quite clearly that the thing that always causes innovation is trade, because it encourages specialization. When networks of exchanging human beings grow dense enough, technology advances. That explanation works at every point in history and prehistory, too. It explains not only the great leaps forward, but also why technology went backwards in Tasmania when it became an island; it explains why China’s great boom petered out when it became an autarkic autarchy under the Ming. And so on.

So why did every one of these booms come to naught, whereas the one that began in 1700 is still transforming lives, if, as I say, the human nature that it requires is always there? Surely, there is clue in the same paragraph of McCloskey’s essay where she identifies what happened around 1700. She talks of the piratical economy of the Bahamas. Dead right. Piracy, or predation, or parasitism, or plunder — this is what prevented or brought to an end every other boom. What kept France from being an economic superpower? Pirates: tax farmers, kings, armies, emperors, officials. What finished Holland’s golden age? War: endless, exhausting, life-sapping, liberty-killing war. Louis XIV was a pirate, and so was Alexander, and the first Ming emperor.

I am saying that there have always been liberals, who want to be free to trade in ideas as well as things, and there have always been predators, who want to extract rents by force if necessary. The grand theme of history is how the crushing dominance of the latter has repeatedly stifled the former. As Joel Mokyr puts it: “Prosperity and success led to the emergence of predators and parasites in various forms and guises who eventually slaughtered the geese that laid the golden eggs.” The wonder of the last 200 years is not the outbreak of liberalism, but the fact that it has so far fought off the rent-seeking predators by the skin of its teeth: the continuing triumph of the Bourgeoisie.

It has been a close-run thing. Napoleon, Hitler, Stalin, and Mao came close to handing the world economy to rentier pirates. On local scales and much less effectually, Peron and Nehru, Khomeini and Putin have tended in the same direction. Perhaps even Nixon did too. And Blair.

But we have seen just how quickly the innovation machine whirs back into action when you liberalize: that is the story of the booms sparked by Deng Xiaoping, Manmohan Singh, Ludwig Erhard, Sir John Cowperthwaite (the founder of Hong Kong’s liberal economy), and Ronald Reagan. Surely McCloskey does not disagree with this. If all she is saying is that those with liberal ideas got the upper hand at the start of the Industrial Revolution, then I am with her, but this was hardly the only time in history this happened.

But if she is saying, as I fear, something much more Mokyrian, then I am worried. As I see it, Joel Mokyr (whom I greatly admire) argues in his book The Gifts of Athena that although the Scientific Revolution did not start the Industrial Revolution, nonetheless the broadening of the epistemic base of knowledge — the sharing and generalization of understanding — allowed a host of new applications of knowledge, which escaped diminishing returns and enabled the Industrial Revolution to continue indefinitely. I am unconvinced by this. It seems to me to put the philosophical cart before the technological horse: to this day thinkers follow rather than precede doers in the innovation story. From cotton weaving to software, the innovative industries have been ones barely influenced by natural philosophers. Examination of any innovation usually leads to the conclusion that theory played second fiddle to practice.

Likewise, I think McCloskey risks getting cause and symptom confused. I agree with her that one of the glories of the modern age is its liberal tolerance, its virtue and its rhetoric. But I think these are products of an innovation-rich society as much as they are its enabler. To keep the pirates at bay, it is necessary to sustain tolerance and the bourgeois virtues. But is that sufficient? I do not think so.

So the thing that made the Industrial Revolution unique, that was different about the British bush fire of 200 years ago, was that it did not stop. It continues to spread to this day. And what was the cause of that? My answer is a single word, and McCloskey rejects it in a single word: coal. I am sorry, but the more I study the Industrial Revolution’s failure to peter out, the more convinced I become that energy is crucial.

Hear me out. Or rather, hear out Robert Allen, professor of economic history at Oxford, whose new book The British Industrial Revolution in Global Perspective, is a tour de force.

The point about fossil fuels is not that they produce special energy. Joules are joules. With suitable machinery, there is nothing that coal can do that wood, wind or water cannot. Nor is it that the British discovered coal and everybody else missed it. This is not a discovery-push story but a demand-pull one.

The point is that fossil fuels were the only power source that did not show diminishing returns. In sharp contrast to wood, water and wind, the more you mined them the cheaper they became. Energy amplifies human work, and Britain found itself able to amplify the productivity of its labor long after its population and its technology would have exhausted all other sources of power. Fossil fuels therefore kept the innovation machine running so that profits from commerce just kept ahead of profits from piracy.

Coal did not start Britain’s boom any more than it started Holland’s or ancient Greece’s. As Allen tells the story, Britain’s success in the 1700s was caused by London, and London’s success was caused by trade. Like Tyre, Athens, Venice and Amsterdam, London did exchange and specialization with the world, got rich and — thanks to the Reformation and the Glorious Revolution — kept the pirates (chiefs, priests, and thieves) at bay. That drove up its wages, which spurred on labor-saving innovation in machinery.

“The coal trade took off,” says Allen, “when London got big enough to drive the price of wood fuel high enough to make it profitable to mine coal in Northumberland and ship it to London.” That mining then created abundant cheap energy in northern districts, which rewarded inventors of steam engines. (Declaration of interest here: My ancestor was a Newcastle coal trader who installed and improved some of the first steam engines.) The result was that Britain’s boom in living standards did not run out of steam in 1800 when it had dammed every Pennine stream and felled every Cumbrian forest. Instead Britain went on to be the world’s workshop, and by 1830 it was consuming coal equivalent to wood from an impossible 15 million acres of forest.

Not only did this coal get cheaper and cheaper the more that was mined, but machines grew more and more effective at turning its heat into work. “The cheap energy economy,” says Allen, “was the foundation of Britain’s economic success.” As Gregory Clark has reminded us, it was only in the nineteenth century, when fossil fuels amplified human labor, that wages really began to rise. The rest of the world then borrowed this innovation — fossil energy — and its ability to produce increasing returns through new technology. Today the average citizen of planet earth uses fossil energy equivalent to having 150 slaves working continuous eight-hour shifts on his or her behalf. That is why we are all so rich and that is why per capita economic growth turned upwards so sharply after 1800.

As I say, a materialist explanation.

Also from This Issue

Lead Essay

  • Bourgeois Dignity: A Revolution in Rhetoric by Deirdre McCloskey

    In this month’s lead essay, Deirdre McCloskey summarizes the argument of her forthcoming book, Bourgeois Dignity: Why Economics Can’t Explain the Modern World. She argues that while the modern world rode an economic tide, the tide did not have economic causes. Changes in thinking and, yes, in rhetoric did the real work. Neither thrift, nor greed, nor the Protestant ethos are at the heart of this transformation, which brought material prosperity to whole classes that had never before known it. A variety of possible causes must be dismissed, she argues, from foreign trade, to legal institutions, to coal. The dignity and liberty of the bourgeoisie are the keys to economic transformation.

Essays

  • Why Economics MUST Explain the Modern World by Gregory Clark

    Gregory Clark argues that cultural or intellectual developments, like the rise of the bourgeois virtues, ultimately can’t explain the modern world. Not only were such virtues around long before the Industrial Revolution, but they have come and gone throughout many different societies over thousands of years. Why, then, did the Industrial Revolution only happen so recently, and only once? Worse, if we accept that cultural changes brought modern prosperity, we face the prospect that future changes in intellectual fashion may rob us of prosperity as easily as it was bestowed. This he finds both unfortunate and, thankfully, unlikely.

  • Unleashing Creative Development by Jonathan Feinstein

    Jonathan Feinstein suggests that the revolution in human creativity is still underway, and that we have not yet fully recognized what it means to be creative. The science of creativity, he argues, is key here, as the creative process is very different from what most people imagine it to be.

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