About this Issue

The making of the modern world is a question of perennial interest. We are, after all, modern. One of the signal developments of modernity is that for the first time, widespread economic prosperity becomes possible. Not all societies attain it, even in the modern world. But only modern societies have done it at all. How did they do it?

Answering this question may do more for human welfare than any other intellectual task before us. What is special about the prosperous modern society? Many answers have arisen. Institutionalist accounts stress law and social practice; Marxists point to proletarian and colonial exploitation; thinkers of a wide variety of persuasions have examined genetic and environmental factors.

In this month’s Cato Unbound, we are pleased to offer an iconoclastic view. All previous answers are wrong, says polymath economist Deirdre McCloskey. Professor McCloskey is at the halfway point of a four-part series of books on the rise of the bourgeoisie. In it, she argues that what really changed in the modern world was the rhetoric of economic activity.

If this sounds wildly improbable, it shouldn’t. The classical art of rhetoric referred not to blustering phrases and glib talk, but to the unforced art of persuasion via argument and evidence. People began to talk differently about economics, and to conceive of economic production and exchange in new ways that had never been seen before. In simple terms, the artisans and shopkeepers of the world became understood as a dignified, honest, and worthwhile group — rather than a crafty cabal of dishonest penny-pinchers.

Laws, institutions, and wealth all followed, but they could not have done so without a revolution in thought. The revolution began as an idea, and it became an idea that convinced the world.

Such a bold hypothesis won’t stand unchallenged for long, and it’s only fair that we’ve invited several others, each with a distinct viewpoint, to discuss McCloskey’s ideas. Economic historian Gregory Clark, science journalist Matt Ridley, and economist Jonathan Feinstein will each contribute a response essay in which they’ll examine the rhetoric of bourgeois dignity.


Lead Essay

Bourgeois Dignity: A Revolution in Rhetoric

A big change in the common opinion about markets and innovation, I claim, caused the Industrial Revolution, and then the modern world. The change occurred during the seventeenth and eighteenth centuries in northwestern Europe. More or less suddenly the Dutch and British and then the Americans and the French began talking about the middle class, high or low — the “bourgeoisie” — as though it were dignified and free. The result was modern economic growth.

That is, ideas, or “rhetoric,” enriched us.[1] The cause, in other words, was language, that most human of our accomplishments. The cause was not in the first instance an economic/material change — not the rise of this or that class, or the flourishing of this or that trade, or the exploitation of this or that group. To put the claim another way, our enrichment was not a matter of Prudence Only, which after all is a virtue possessed by rats and grass, too. A change in rhetoric about prudence, and about the other and peculiarly human virtues, exercised in a commercial society, started the material and spiritual progress. Since then the bourgeois rhetoric has been alleviating poverty worldwide, and enlarging the spiritual scope of human life. The outcome has falsified the old prediction from the left that markets and innovation would make the working class miserable, or from the right that the material gains from industrialization would be offset by moral corruption.

In other words, I argue that depending exclusively on materialism to explain the modern world, whether right-wing economics or left-wing historical materialism, is mistaken. The two books to follow will make the positive case for a rhetorical, or ideological, cause of our greatly enlarged human scope. In my current project, the case is negative. The usual and materialist economic histories do not seem to work. Bourgeois dignity and liberty might.

Such a theme is old-fashioned, as old as eighteenth-century political theory. Or it is new-fashioned, as new as twenty-first-century studies of discourse. Either way, it challenges the usual notions about “capitalism.” Most people harbor beliefs about the origins of the modern economy that historical and economic science have shown to be mistaken. People believe, for example, that imperialism explains European riches. Or they believe that markets and greed arrived recently. Or they believe that “capitalism” required a new class or a new self-consciousness about one’s class (as against a new rhetoric about what an old class did). Or they believe that economic events must be explained “ultimately,” and every single time, by material interests. Or they believe that it was trade unions and government protections that have elevated the working class. None of these is correct, as I hope to persuade you. The correct explanation is ideas.

I’ve tried to write a book engaging the educated reader. But the argument has to use the findings of economic and historical specialists, and to get down into some of the details of their arguments. I tell the story of modern economic growth, summarizing what we have thought we knew from 1776 to the present about the nature and causes of the wealth of nations — how we got refrigerators and college degrees and secret ballots. The book tests the traditional stories against the actually-happened, setting aside the stories that in light of the recent findings of scientific history don’t seem to work very well. A surprisingly large number of the stories don’t. Not Karl Marx and his classes. Not Max Weber and his Protestants. Not Fernand Braudel and his Mafia-style capitalists. Not Douglass North and his institutions. Not the mathematical theories of endogenous growth and its capital accumulation. Not the left-wing’s theory of working-class struggle, or the right-wing’s theory of spiritual decline.

Yet the conclusion is in the end positive. As the political scientist John Mueller put it, capitalism — or as I prefer to call it, “innovation” — is like Ralph’s Grocery in Garrison Keillor’s self-effacing little Minnesota town of Lake Wobegon: “pretty good.”[2] Something that’s pretty good, after all, is pretty good. Not perfect, not a utopia, but probably worth keeping in view of the worse alternatives so easily fallen into. Innovation backed by liberal economic ideas has made billions of poor people pretty well off, without hurting other people.[3] By now the pretty good innovation has helped quite a few people even in China and India. Let’s keep it.

The Big Economic Story of our times has not been the Great Recession of 2007–2009, unpleasant though it was. And the important moral is not the one that was drawn in the journals of opinion during 2009 — about how very rotten the Great Recession shows economics to be, and especially an economics of free markets. Failure to predict recessions is not what is wrong with economics, whether free-market economics or not. Such prediction is anyway impossible: if economists were so smart as to be able to predict recessions they would be rich. They’re not.[4] No science can predict its own future, which is what predicting business cycles entails. Economists are among the molecules their theory of cycles is supposed to predict. No can do — not in a society in which the molecules are watching and arbitraging.

The important flaw in economics, I argue here, is not its mathematical and necessarily mistaken theory of future business cycles, but its materialist and unnecessarily mistaken theory of past growth. The Big Economic Story of our own times is that the Chinese in 1978 and then the Indians in 1991 adopted liberal ideas in the economy, and came to attribute a dignity and a liberty to the bourgeoisie formerly denied. And then China and India exploded in economic growth. The important moral, therefore, is that in achieving a pretty good life for the mass of humankind, and a chance at a fully human existence, ideas have mattered more than the usual material causes. As the economic historian Joel Mokyr put it recently in the opening sentence of one of his luminous books, “economic change in all periods depends, more than most economists think, on what people believe.”[5] The Big Story of the past two hundred years is the innovation after 1700 or 1800 around the North Sea, and recently in once poor places like Taiwan or Ireland, and most noticeably now in the world’s biggest tyranny and the world’s biggest democracy. It has given many formerly poor and ignorant people the scope to flourish. And contrary to the usual declarations of the economists since Adam Smith or Karl Marx, the Biggest Economic Story was not caused by trade or investment or exploitation. It was caused by ideas. The idea of bourgeois dignity and liberty led to a rise of real income per head in 2010 prices from about $3 a day in 1800 worldwide to over $100 in places that have accepted the Bourgeois Deal and its creative destruction.

Innovation backed by ideology, then, promises in time to give pretty good lives to us all. Left and right tend to dismiss the other’s ideology as “faith.” The usage devalues faith, a noble virtue required for physics as much as for philosophy, and not necessarily irrational. But maybe both sides are correct. A socialist maintains her faith in governmental planning despite the evidence that it doesn’t work to the benefit of the poor. A conservative maintains his faith that what’s good for the military-industrial complex is good for the country despite the evidence that it impoverishes and coarsens the people.

I claim that 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. Despite the elements of regulation and corporatism defacing it (and the welfare programs improving it), it has worked pretty well for the poor and for the people for two centuries. I reckon we should keep it — though tending better to its ethics.

When bourgeois virtues do not thrive, and especially when they are not admired by other classes and by their governments and by the bourgeoisie itself, the results are sad. As the economists Virgil Storr and Peter Boettke note about the Bahamas, “Virtually all models of success to be found in the Bahamas’ economic past have to be characterized as piratical,” with the result that entrepreneurs there “pursue ‘rents’ rather than [productive] profits.”[6] It hasn’t worked very well to depend on a piratical greed, which is to say a self-interested prudence without the balance of other virtues such as justice (except, to speak of the actual history of piracy, democratic justice on shipboard among the pirates themselves). Contrary to a widespread opinion on left and right, such piratical Prudence Only is not characteristically bourgeois. Bernard Mandeville and Ivan Boesky got it wrong. Prudence is not the only virtue of an innovative society. People (not to speak of grass and bacteria and rats) have always been prudent, and there have always been greedy people among them unwilling to balance prudence with other virtues. What changed around 1700 was the valuation of economic and intellectual novelties within a system of all the virtues.

Yet innovation, even in a proper system of the virtues, has continued to be scorned by many of our opinion makers now for a century and a half, from Thomas Carlyle to Naomi Klein. At the behest of such a clerisy we can if we wish repeat the nationalist and socialist horrors of the mid-twentieth century. If we imagine only the disruptions of a pastoral ideal, and reject the gains from innovation, we can stay poor shepherds and dirt farmers, with little scope for intellectual and spiritual growth. If we worship hierarchy and violence and the nation, we can hand our lives over to the military-industrial complex. If we abandon economic principles in our worrying about the environment, we can revert to $3 a day, and live in huts on a hillock in the woods by Walden Pond, depending on our friends in town to supply us with nails and books. Now in the early twenty-first century we can even if we wish add for good measure an antibourgeois religiosity, as new as airplanes crashing into the World Trade Center and as old as the socialist reading of the Sermon on the Mount.

But I suggest that we don’t. I suggest instead that we recoup the bourgeois virtues, which have given us the scope, in von Humboldt’s words, to develop the highest and most harmonious of our powers to a complete and consistent whole. We will need to abandon the materialist premise that reshuffling and efficiency, or an exploitation of the poor, made the modern world. And we will need to make a new science of history and the economy, a humanistic one that acknowledges number and word, interest and rhetoric, behavior and meaning.



[1] Since the seventeenth century the word rhetoric has often been misunderstood as lies or bloviation. I use it in its ancient sense, “the means of [unforced] persuasion,” which includes logic and metaphor, fact and story. Modern pragmatics, criticism, and social psychology have largely been a reinvention of ancient rhetoric, how words matter. If any of that strikes you as crazy or indefensible, you may wish to consult McCloskey 1985a (1998), 1990, 1994c.

[2] Mueller 1999.

[3] I will use the word liberal throughout not in its confused and twentieth-century American sense (“left-wing”) but in its older and still European sense of “devoted to liberty, especially political and economic liberty.” It is part of my argument that the American sense can be corrosive of true liberalism. (But so can neoconservatism.)

[4] McCloskey 1990.

[5] Mokyr 2010, p. 1.

[6] Boettke and Storr 2002, pp. 180–181. Compare Storr 2006.


Boettke, Peter J., and Virgil Henry Storr. 2002. “Post Classical Political Economy.” American Journal of Economics and Sociology 61 (1): 161–191.

Storr, Virgil. 2006. “Weber’s Spirit of Capitalism and the Bahamas’ Junkanoo Ethic.” Review of Austrian Economics 19 (4): 289–309.

Mueller, John. 1999. Capitalism, Democracy, and Ralph’s Pretty Good Grocery. Princeton: Princeton University Press.

Mokyr, Joel. 2010. The Enlightened Economy: An Economic History of Britain 1700–1850. London: Penguin Press; New Haven: Yale University Press.

McCloskey, Deirdre N. 1985a. The Rhetoric of Economics. Madison: University of Wisconsin Press. 2nd rev. ed., 1998.

McCloskey, Deirdre N. 1990. If You’re So Smart: The Narrative of Economic Expertise. Chicago: University of Chicago Press.

McCloskey, Deirdre N. 1994c. Knowledge and Persuasion in Economics. Cambridge: Cambridge University Press.


Why Economics MUST Explain the Modern World

Economics pulls in neophytes with a grand and exciting vision of the world: people are highly responsive to incentives, differences in incentives explain all major variations in wealth and poverty across societies, and easy institutional changes will create the incentives to launch a brave new world. This is the buzz that animates Freakonomics, the book, and now the movie. This is the vision that led Roland Fryer, Professor of Economics at Harvard University, to offer students in the New York, Chicago, and Washington, DC school systems “cash for grades.”

Deirdre McCloskey earlier in her career did stellar work advancing this program in economics — her virtuoso writings recruited me to the study of the history of economies. But having over many years considered the general problem of economic growth, and the specific puzzle of the timing and location of the Industrial Revolution, McCloskey has come to a stunning epiphany. This is that incentives explain very little of the huge gaps in wealth across the world. Growth is a cultural production, a society wide embrace of “bourgeois virtues.” Specifically, she claims, growth came because the activities of marketing, profiting, and innovating have become in our society uniquely respected, admired and praised. The rise of the Bourgeois Virtues has created societies such as those of Northern Europe, so primed for growth that even though the grabbing hand of the state is on every shoulder, people continue to produce and innovate.

I fully agree with McCloskey about the surprisingly poor ability of incentives alone to account for growth. In order to hold on to the central idea that the 10,000-year delay in the Industrial Revolution from the first appearance of settled agriculture was created by a lack of incentives, economists have to maintain the collective fiction that all societies before 1800 were run along the lines of Kim Jong-Il’s North Korea. Yet, in case after case, we find, deep in the 10,000 years of economic stagnation, fully incentivized market societies.

Go to any village in Suffolk in England in the years of the Poll Tax, 1377-81 and you will find in the tax lists an abundance of traders, craftsmen, and merchants.[1] Go to the records of Oxford University in 1500 and you will find the descendants of those traders and craftsmen, revealed by surnames such as Smith and Baker, had become within a few hundred years nearly fully incorporated into the elites of medieval society. Go to Paris in 1300 and you will find living cheek by jowl with the locals Scots, English, Italians, Flemish, and Jews. Medieval cities were hives of enterprise and industry, taxed lightly by kings fearing to kill the golden goose. London, among others, was almost as polyglot in 1300 as it is today. And the clay tablets of ancient Sumer bear testament to the deep antiquity of the market. Yet these societies had extremely low rates of growth. The market and incentives predate modern growth by perhaps 10,000 years.

Similarly when we see U.S. cities such as Detroit collapse internally, and revert to wasteland, it is not because the inhabitants of these benighted places were offered any worse incentives than their suburban neighbors. It is because the inhabitants responded differently to these same incentives, and in a way that was destructive to economic activity.

But while I share McCloskey’s view, and that of Joel Mokyr in his recent The Enlightened Economy, that a shift in behaviors and values is the foundation of modern growth, and the true underpinning of the prosperous societies of the modern world, I cannot accept their view that growth culture is sui generis, the product of transient and ineffable intellectual fashions.

McCloskey’s own précis of her argument after all is, “Through a ‘Bourgeois Revaluation’ redefining such virtues, first in the Netherlands and then in Britain, people started accepting [my emphasis] the creative destruction of innovation.”[2]

This makes the supposed admiration of bourgeois virtue in seventeenth and eighteenth century England and the Netherlands seem as accidental as the fashion for powdered wigs in the early eighteenth century, or the fall from favor of the codpiece after the 1590s. In that case we have no account for why the Industrial Revolution waited so long. Why didn’t the right intellectual fashion emerge some time earlier in the 10,000 years of settled agriculture?

And if admiration for bourgeois virtue is like any other fashion, then we have no assurance that bourgeois virtue can survive the combined assault of Facebook, Fox TV, Twitter, Jersey Shore, and Paris Hilton. Modern high-income societies may be as transient as Athenian democracy, or the Paris Commune. Fashions are cyclical. We know that in some future society, men will once again proudly sport codpieces. Why must we not also assume, then, that in time bourgeois virtue will once again be despised, innovation cease, and the world slip back into the stasis that comprised most of human history?

If cultural shift is the foundation of modern high-income societies, then there must be an explanation for why that cultural shift took so long, why it took the direction it did, and why it seems a permanent change. For I agree with Matt Ridley in The Rational Optimist that the Industrial Revolution was an event from which there will be no going back.

Another reason I am wary of the public embrace of bourgeois virtues as a world historical force is that what people admire or disapprove of, and what they actually do are so frequently disconnected. Most people believe now that burning more fossil fuels will potentially devastate the planet. But Big Oil has little difficulty in recruiting the talented and driven engineers that allow it year by year to tap even deeper and more inaccessible deposits of the precious black fluid. The amount of actual reduction in fossil energy use in the modern United States is tiny compared to the emotional and intellectual energies devoted to this. There is just too much wriggle room between ideologies and acts for the one to constrain the other very tightly. China — home of a whole coterie of billionaires — is after all still a communist regime.

I believe modern growth is associated with a deeper, more basic shift in values and capacities than McCloskey identifies for a number of reasons. First, the behavioral shifts that took place in societies like England before the Industrial Revolution were much longer in development than some brief intellectual fashion of the seventeenth and eighteenth centuries. England already in 1300 was a fundamentally different type of society than that of our hunter-gatherer forbears. We are talking in some cases about at least 3,000 years of change.

Second, behaviors changed that people were not even aware of, or subjecting to public discussion. These fundamental changes include changes in how impatient people were, changes in how hard they liked to work, and changes in how much interpersonal violence they displayed. [3]

Third, the drive toward innovation, improvement, and consumption that moves capitalism ever forward is remarkably resistant to attempts at reformation. Mao could re-educate a whole generation of Chinese on the virtues of communism, yet they have turned en masse to a fervent pursuit of material goods and personal interest within two decades of his death.

If we are forced by the facts to embrace culture as the vital economic force, then we need to work towards a scientific theory of culture. Any such theory, I think, has to be Darwinian at its core, founded in evolutionary anthropology. For in human society the success that matters for the long-run dynamics of the society is not your lifetime consumption, but instead your success in replicating your behaviors and capacities in the next generation, some of which is encoded in genetic inheritance. Evolutionary anthropology has wrestled with the problem of the seeming too-great plasticity of human cultures, if culture is to be rooted in the common pressures of an evolutionary past. But there is a vast range of human behavior that must have an evolutionary rooting in maximizing reproductive success in past environments. North Korea, for example, is a bizarre regime that has broken radically from other societies. But when its leaders look for successors, they look to their children, in the timeless fashion of absolute rulers of old, as would be predicted by evolutionary anthropology.

Thus McCloskey is right to emphasize the importance of values and behaviors in modern economic growth. But she is wrong to frame these changes in values in a way that makes them as predictable and explicable as the 1970s craze for platform shoes.



[1] The Poll Tax did lead to a significant tax revolt movement, a sort of medieval Tea Party, which causes some disruption and a few deaths before being swiftly suppressed, though with no further Poll Taxes attempted in England until Margaret Thatcher. But the tax that led to this brief convulsion of revolt was equivalent to three days’ wages. A derisory morsel compared to the taxing appetites of modern governments.

[2] http://www.deirdremccloskey.com/weblog/2009/09/25/the-argument/

[3] See Clark, 2007.


Clark, Gregory. 2007. A Farewell to Alms: A Brief Economic History of the World. Princeton: Princeton University Press.

Mokyr, Joel. 2010. The Enlightened Economy: An Economic History of Britain 1700-1850. New Haven: Yale University Press.

Ridley, Matt. 2010. The Rational Optimist: How Prosperity Evolves. Harper.

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.

Unleashing Creative Development

Unleashing creative potential and innovation is the key to cultural and economic development. Values and education that empower people to recognize and pursue their own creative paths are vital.

Prof. McCloskey argues that the shift in values that empowered the bourgeoisie to recognize the value of their creativity — in the economic sphere especially — was crucial to unleashing the forces of economic growth in the past two centuries. We agree. But whereas McCloskey seems to think everything is hunky-dory, we think there is still a long way to go: The voices of creative expression in our society are too often limited, both by our misunderstanding of how creativity happens, and by values that we believe are still not fully aligned with creative potential. McCloskey, like most economists, doesn’t have a well-formed model of the creative process in mind. We do and will sketch it and how it informs this discussion.

Creativity is held back by a misunderstanding of the nature of the creative process. The most common image of creativity in our society is a light bulb turning on — an image linked in the popular mind to Thomas Edison, inventor par excellence.

We tell people to be creative through 30 minute brainstorming sessions or in the midst of long showers or even longer runs. Natural scientists and computer scientists tell us that human creativity is like evolution in nature or follows some simple algorithm. Just follow the random trial-and-error algorithm and sooner or later you’ll hit on something, with no need to think too deeply. This advice, however well intentioned, is misguided. There are sudden, dramatic moments of creativity — indeed these stand out in our minds and our cultural lore precisely because they are so dramatic. But this is a just part of a much larger story.

Think of creativity as a holistic activity, a pattern of life, emerging out of a rich process of development — what we call “creative development.” This kind of creative development has been going on for centuries — it is the path that Petrarch followed, that Coleridge, Matisse and Faulkner followed, that Newton, Darwin and Einstein followed, that Edison and Ray Kroc and countless other inventors and entrepreneurs have followed. But it is not widely appreciated and, partly as a result, most of us don’t realize what we must do to unleash our creative potential.

In its simplest form creative development can be thought of as a two-step process. Step one is defining a creative interest — a topic or domain or larger issue we want to explore and learn about and that we think intuitively we can develop creatively. Creative interests are organic, they form naturally in the course of living, being curious and engaged, desiring to explore and experiment. But the process can be helped along: Ask yourself to define a creative interest you would like to explore; as a teacher ask your students to define creative interests; as a manager encourage those around you to define and explore their own personal creative interests. Discuss your creative interests with those around you and invite others to discuss incipient creative interests they have. The most productive creative interests are intermediate in size: not so big or vague as say “politics” or “economics” nor so narrow as one particular article or piece of data, but rather of intermediate size, for example “exploring bourgeois values in the eighteenth century in relation to economic development” or, more generally, exploring the relationship between two topics that have not commonly been connected, such as bringing a new conceptual frame to a topic that has traditionally been studied using other methods. One of the fascinating things about creative interests is that everyone forms their own — no two are identical, and in being distinctive they are the root of much creativity.

Step two is exploring a creative interest: learning, gathering elements in the domain of the interest. Out of this potpourri creativity emerges. In some cases the creativity is sudden, a response sparked when a person encounters some element that intersects in an interesting, productive way with her interest. In other cases the creativity happens when an individual pieces together elements she has gathered exploring her interest, combining and connecting them to fashion a novel idea. When we examine the historical record of how people create we find that both pathways occur as the source of creativity. Further, both pathways are accessible to all of us, once we free ourselves to pursue the creative interests that excite and motivate us.

A great deal of creativity can be unleashed in our world if individuals learn to embrace creative development and our society encourages everyone to engage in their own personal process of creative development. Each of us has a unique set of experiences, and can define distinctive creative interests. By developing these each of us can make a creative contribution of some kind. Cultural and economic development is the sum product of all of our contributions. We envision a scenario in which individuals are taught the process of creative development and are encouraged to embark on their own paths of discovery and development. This can happen in the classroom, the workplace, or the open spaces of personal time.

It can also happen in the context of social issues and debates. Individuals could be encouraged not just to write 30-second comments on articles they read, which often contain just a modicum of sense and a large dose of intemperance, but rather to define and explore their own creative take on these issues, taking the time to explore their interests in their own idiosyncratic ways, pursuing the paths of creative development that open up before them, which ultimately sparks their creativity. Then they could post these insights and ideas putting forth their own take on the issue. How much more would all of us get out of this use of our vast array of media outlets?

The valuation of creativity and innovation is an ongoing historical process that we believe can go a good deal further. This belief perhaps helps sharpen the difference between us and McCloskey. In his “Oration on the Dignity of Man” Pico della Mirandola argued that what makes man special is his freedom to choose his own way of life — to create his own identity in postmodern parlance. His statement was a part of the tide of Renaissance values that emphasized human agency and creativity. As this tide of cultural change rolled on over the succeeding centuries, the role and importance of the bourgeoisie gained ascendancy.

This was part of a larger, unfolding story of the growth in recognition of individual human dignity and creativity, including the abolition of slavery, extension of the franchise and education, civil rights, and countless forms of self-expression. Now, in the twenty-first century, our views on human creative potential need to be developed even further.

Jonathan Feinstein is the author of The Nature of Creative Development (Stanford University Press, 2006). He is the John G. Searle Professor of Economics and Management at the Yale School of Management. Visit his website. Images provided by Sean Kelley.

The Conversation

Humanomics: Values and Innovation

Matt Ridley and I form a little mutual admiration society — I have learned a great deal from his beautiful books, and he seems at least to tolerate mine. Well, not all of the latest one, not the parts where I appear to him to have fallen among thieves who think that ideas of liberty and dignity for the innovating middle class powered the modern world.

We agree at least that innovation is the key. That’s a very, very important agreement. Joel Mokyr, Jack Goldstone, and our own Greg Clark join Matt Ridley, Robert Allen, and me in affirming it. It sets us Innovators off from most economists and historians, who are Accumulators. We say that the modern world got rich by (at a minimum) 1500% percent compared with 1800 not, as the sadly mistaken Accumulators say, because of capital accumulation, or exploitation of the third world, or the expansion of foreign trade. The world got rich by inventing cheap steel, electric lights, marine insurance, reinforced concrete, coffee shops, saw mills, newspapers, automatic looms, cheap paper, modern universities, the transistor, cheap porcelain, corporations, rolling mills, liberation for women, railways.

What’s distinctive in my own book is the old idea that “bourgeois dignity and liberty” started it all off, and sustains it right down to the present. It’s as “old” as eighteenth-century political thinking. The “dignity” part, note, is as important as the second, “liberty” part that Matt thinks I am resting with. The history of the European Jews 1800 to 1945 exhibits the unhappy results of according legal liberty without also the dignity that protects and encourages liberty to innovate. Without a society admiring innovators and merchants and bankers, their liberty, and ultimately their lives, are in danger.

Matt thinks I am saying that “human nature” changed. But that’s a Weberian hypothesis I in fact reject in detail (in Chapter 16 out of 46; at at length in Chapters 30-32 against the genetic form of changing human nature put forward by Greg Clark; one has to read the book to see that I do: I invite you all to read, and especially to buy, buy, buy). It’s not the “mind of the innovator” or his genes that changed but his (or in more cases than one might think, her) social standing and political liberty.

Matt says that on the contrary it’s all quite Smithian. Rising trade causes a greater division of labor which causes innovation. Simple. Greg Clark, Jack Goldstone, Joel Mokyr, and I reply that, no, large trades were commonplace in the Mediterranean or the Indian Ocean for centuries before the stirring of Atlantic trade, yet resulted in no sustained industrial revolution. The gigantic magnitude of what happened in northwestern Europe from the eighteenth century on is crucial to getting the science right. A factor at minimum of 16 (that 1500% I mentioned) can’t be explained by trade, which was routine in the Ottoman Empire, or coal, which was routine in China.

As to coal. Bob Allen’s The British Industrial Revolution in Global Perspective, which leans heavily on coal, is dazzling work, but mistaken. Like a recent book by Douglass North, Barry Weingast, and John Wallis (modestly subtitled A Conceptual Framework for Interpreting Human History) it doesn’t carry out the promise of the title, not getting much beyond England and France. Getting beyond the English Channel is the program of the new work on global economic history (to which Allen has in fact contributed), and its findings radically change the story. Coal after all was how China made “china” to export to the coal-stupid English and French. And on the other side, charcoal from wood continued to be used to make iron very late in places like the United States (as Peter Temin showed along ago) and in Sweden. The last Swedish charcoal-fueled blast furnace closed as late as 1965. I have a Swedish acquaintance who exhibits photographs on the remains of the one that closed in 1962.

Most centrally, Allen’s book and the coal argument that otherwise brilliant folk like Tony Wrigley and Matt Ridley cling to, is based on a non-sequitur — one persuasive to non-economists but known by all us mistresses of the science (don’t try this at home) to be nonsense. Matt correctly summarizes Allen’s argument as “[high English] wages . . spurred on labor-saving innovation in machinery.” But wait: a shilling is a shilling, and adds to profit whether got by saving labor or by saving coal (saving coal is in fact what the early steam engineers mainly obsessed on, as Peg Jacob has shown, which is a trifle odd if cheap coal is what is supposed to have driven innovation). “Scarce” labor (and what about its relative scarcity in fourteenth-century Italy or second-century China?) means that people will substitute machines and land (e.g., coal) for labor. But it doesn’t mean that technology as a whole will get better.

And what about the inverse: if labor is cheap in Russia or India, why wasn’t there a labor-using industrial revolution there? After all, something is always relatively scarce, and the scarcity argument implies therefore that everyone will have an industrial revolution. You can see there is something screwy with the Allen and now Ridley argument. If spaghetti is cheap relative to rice in Italy compared with Japan you can expect Italians to eat relatively more spaghetti than rice. Yet such an expectation about static substitution does not say anything about how much food in total the two countries will consume, one sort of food aggregated with another. In explaining modern innovation of a factor or 16 or 30 or 100, the aggregate is what matters, not the scarcity-driven pattern of substitution at any one time. The aggregate, as Mokyr, Goldstone, Eric Jones and others of the New Anti-Materialism claim, was determined by ideas, such as the bourgeois dignity of my title.

Here Matt preaches an unattractive materialism which I wish he would work on escaping from. I shall pray for him to my Anglican god. After all, he and I write books trying to change people’s minds. If we were consistent materialists we would put down our pens and start offering people large bribes to become liberals. He claims that “thinkers follow rather than precede in the innovation story.” Well, who says? (Greg Clark falls into a similar materialism — what the modern Marxists call “vulgar Marxism” — when in a single sentence he dismisses ideational forces in European history.)

I don’t think thought follows matter, not always. The U.S. Constitution, for example, as the historian Bernard Bailyn argues, was a creative event in the realm of ideas — and its economic origins are easily exaggerated. “The Atlantic democratic revolutions of the later eighteenth century,” writes Jonathan Israel, “stemmed chiefly from a general shift in perceptions, ideas, and attitudes,” a “revolution of the mind.” The abolition of slavery, a policy once advocated merely by a handful of radical churchmen (and the Baron de Montesquieu), played in the 1820s and 1830s a role in British politics, and later of course a much bigger role in American politics. It had less to do with the North’s material interests than with cheap printing (matter induced in part by innovative ideas) interacting with evangelical Christianity (ideas only, thank you). As Lincoln famously said on being introduced to the author of Uncle Tom’s Cabin (1852), “So you’re the little woman who wrote the book that made this great war!” Books can indeed make big wars; as another example, Erskine Childers’s spy novel, The Riddle of the Sands: A Record of Secret Service (1903), was no minor influence on the Anglo-German naval rivalry. Socialist ideas and at length socialist reality spread after the disappointed revolutions of 1848 in congresses and party meetings and manifestos. Scribble, scribble, scribble. Various nationalisms had spread across Europe in reaction to Napoleon’s conquests, but then were matured in poetry and songs of risings and in the screeds of exiles resident in London. Talk, talk, talk. Ideas matter. And they matter in the economy as much as in politics or society. One doesn’t have to be a materialist just because one is talking about ships and stocks and labor.

I invite Matt, then, to abandon his historical materialism and come over to the little band of practitioners of a new “humanomics” (Hirschman, Klamer, Bronk are some names to conjure with, and Smith, Mill, Keynes, Hayek, Boulding in olden times). We humanomists believe that humans are motivated by more than incentives, just as Greg Clark summarizes my views in his comment. We abhor Max U as a sociopath, admitting that sometimes Prudence Only is satisfactory in explaining some events; we urge Max to become a more reasonable Maxine U, exhibiting the full range of human virtues — prudence, yes, but also temperance, justice, courage, faith, hope, and love. And that’s how we believe one should explain the Industrial Revolution and its astonishing sequel.

China and Bourgeois Virtue

A recent New York Times article titled “Rampant Fraud Threat to China’s Brisk Ascent” provides an interesting counter to Deirdre McCloskey’s assertion that modern growth required bourgeois virtue, not just old fashioned greed. A fundament of bourgeois virtue is honesty in dealing with others: a horror of prevarication, mendacity, and lying.

China, as we know, has grown spectacularly. It seems set to soon take its place among the developed nations. Yet Chinese society, as currently constituted, lacks just this fundament of bourgeois virtue. In particular lying about achievements, authorship, and ownership is routine, accepted, and little punished.

Plagiarism by Chinese academics is rampant. Recently a group of Chinese scientific journals installed an automatic plagiarism check on submissions. Nearly one third were found to contain pirated content. Similarly one third of 6,000 scientists at six of China’s top institutions admitted on a survey that “they had engaged in plagiarism or the outright fabrication of research data.”

Dishonesty permeates the academic system from top to bottom. Cheating and fraud begin in high school: hundreds of web sites offer ghost written essays and question answers for the competitions for college entrance.

Cheating continues at college and beyond. As reported in the Times, “Centenary College, a New Jersey institution with branches in China and Taiwan, shuttered its business schools in Shanghai, Beijing and Taipei after finding rampant cheating among students.”

Nor does it appear that this systematic fraud is confined to the academic world. Airline safety in China has been hazarded by widespread lying by pilots about their qualifications. Theft of intellectual property is routine in the business world. Tainted milk flows into the distribution system.

All these activities are of course carried on in the bourgeois west. Think Enron, think Bernie Madoff, think of Harvard Professor Marc Hauser. But as Hauser’s cases illustrates, the sanctions and loss of face associated with being caught are vastly greater here.

Deirdre McCloskey points to the association in eighteenth century England between two innovations: the rise of bourgeois virtue, and the Industrial Revolution. But modern experience in China suggests this is an accidental conjunction. Economic growth may demand many social qualities, but virtue does not seem to be one of them.

Neophobia vs. Innovation

Deirdre is delightfully right about many things, including the fact that the Accumulators are wrong. I should have taken more time to acknowledge what a struggle still lies ahead to persuade most of the academic world, let alone the rest of humanity, that the great economic expansion of the past 200 years did not come by piling up “resources” that were stolen from others, or from Gaia. The non-zero-sum message has not yet got through. So yes, compared with that, our little differences are trivial. Her use of innovation as a synonym for growth is a masterstroke.

This is also a good place to recall that in church history, the word “innovation” often means “heresy.” I reckon it still does in many other places. Sitting through a committee meeting discussing a change in government policy yesterday, I was amazed afresh by the neophobic pessimism of the great and the good. The fact that this change might mean an opportunity for the organization in question seemed utterly foreign. Even firms are artful at suppressing and discouraging innovation. Left to their own devices (e.g., nationalized) they would settle into comfortable and conservative monopolies ill-serving their customers. It is markets, not profit-seeking, that cause innovation.

So, like Greg, I am not entirely sure that Deirdre is right to identify a moment when people began to admire innovators. Have they ever? My favorite quote from the seventeenth century economist, doctor and tycoon William Petty, could have been written today, rather than in 1679: “When a new invention is first propounded, in the beginning every man objects and the poor inventor runs the gauntloop of all petulant wits.”

Deirdre says I think it is all quite Smithian, but objects that the Mediterranean was full of Smithian trade under the Ottomans. Well, remember piracy. I just read a tremendous book called Empires of the Sea by Roger Crowley, about the wars waged in the 1500s using slave galleys by the Ottomans and their corsair proxies against the Spanish and the Pope’s forces and their Maltese-knight proxies. Broadly speaking every penny Charles V made by selling Peruvian silver went to building ships and abducting slaves to man them, before destroying both in storms, plagues, and battles. In the process, the entire Mediterranean littoral was badly depopulated by slave raiders. The result was a negative sum game and a world in which Smithian growth was impossible. But what interests me most was that the only people who emerged with a smidgen of moral credit were the Venetians, because they kept surreptitiously doing Smithian deals with the Ottomans when the Pope wasn’t looking and were most reluctant to join in the galley game till their hand was forced. Pious people denigrated their despicable commercial obsession, just as the clerisy today denigrates commercialism. Yet it was the source of their relative virtue.

So how much wealthier would the Ottoman and Spanish empires have grown if they could have stopped routinely plundering their own Smithian profits for warfare and waste.

By chance, Tim Worstall reminded me yesterday after reading my first post of Deepak Lal’s distinction between Malthusian, Smithian, and Promethean growth. Under Lal’s definitions, Malthusian growth is innovation that raises living standards only to see them reduced again by rising population. Smithian growth comes from trade and the division and specialization of labor. Promethean growth comes from the amplification of labor by new forms of energy. This is probably a simplification too far but it helps me rephrase my coal argument again, because I cannot quite see the non-sequitur in it yet. I don’t think Allen, or I, would accept the Chinese use of coal as a counter-argument, because Kenneth Pomeranz argues that the remoteness of the Chinese coal districts made coal rarely competitive with wood. Nor is the fact that the Swedes had a wood-based iron industry a killer point, because Sweden’s prosperity was lifted by trade with Britain.

So let me try this formulation. Energy technologies are specially different from others not because they substitute but because they amplify, and they go on doing so more and more. So the key is that a shilling spent on labor could only get a limited amount of work done, whereas a shilling spent on coal could get more and more work done as the efficiency of the technology improved. True, you could amplify your work with a spinning jenny or an ox or a stream-driven mill — but all of these faced diminishing returns. Either the limits of the spinning jenny were quickly reached, or the land to feed your ox from, or the streams to power your mill wheel. A shilling spent on steam in 1900 got you many times more work than a shilling spent on steam in 1800. The same was not true of labor, oxen, or water mills.

I must be missing something. People as clever as Deirdre and those she mentions may see a flaw here that I cannot yet see.

But let me also defend the secondary nature of ideas. Deirdre’s examples of ideas that changed the world do not seem to me persuasive. Abolitionism struggled to achieve anything against commercial self-interest, but quickly triumphed when it suited the commercial class who were newly wealthy and on the prowl for causes. As I say in my book, it is eloquent that the first big coal-fired cotton mill opened in the same year that the slave trade was abolished. Did Harriet Beecher Stowe and Erskine Childers really cause the feelings that started wars, or did they give eloquent voice to feelings that were already present? For me the new realization that materialist technology leads to new ideas is new and thrilling – and I got it mostly from reading about technology. I get it from reading Terence Kealey and Kevin Kelly and Steven Berlin Johnson and Yochai Benkler and Eric von Hippel and Michael Heller.

So while I enthusiastically apply for membership of the Humanomics movement, I still raise a few questions still about the direction of causality.

I Too Was Once a Materialist

The test of an intelligent critic is that he gets one’s arguments straight, putting them in ways that one wishes one had been clever enough to devise. My old friend Greg Clark passes the test at three A’s in A-levels. He’s exactly right, for example, about our shared dismay at the boyish charms of incentives à la Freakonomics. In Bourgeois Dignity I have some vexed discussion of how “institutions” have come in some circles to mean “economic incentives.” When I read Steve Levitt or Doug North I’m reminded of Mae West’s response: “I approve of the institution of marriage. But I’m not ready for an institution.”

“Incentives explain very little of the huge gaps in wealth cross the world.” Yes. Put it down as a settled scientific finding. “In case after case we find, deep in the 10,000 years of economic stagnation, fully incentivized market societies.” Yes again. So Greg and I and Mokyr and Goldstone want economic historians, and especially economists, to stop claiming that rationality is new, or that activating it explains the modern world, or that an economic growth in the bourgeois countries over the past two centuries of 2000% (conservatively measured) can be explained by routine responses to routine incentives that any bright second-year student of economics could draw a nice diagram of.

But Greg claims that Mokyr and I have “no account for why the Industrial Revolution waited so long.” Oh, yes we do. We say that social ideas changed in a thoroughly liberal direction for the first and only time in history during the seventeenth and eighteenth centuries, first in Holland, then in England and Pennsylvania, and then Massachusetts, Scotland, and the world. They changed for reasons that were sometimes material (London was unusually big and strong when the bumbling Stuarts came to the throne) and sometimes non-material (Voltaire, Montesquieu, Hume, and Smith lived and wrote as they did) and sometimes both (Protestant presses vied with Catholic ones for new readers). Bourgeois Dignity has a chapter on Greg’s worry/criticism that liberalism might fade. But we all agree—Ridley, Clark, Mokyr, and I—that the cat of liberty is hard or impossible to put back in the hierarchical bag once the accidental liberals around the North Sea let it out, and especially once it resulted in the 2000% percent or more increase in human scope. For which praise God.

Greg is not comfortable thinking about our full human culture and commences sneering at it as codpieces and platform shoes. I recognize the feeling. I too was once a materialist and scorned ideas, even while busily propounding them. I’m not an anti-materialist by disposition. I’m a disappointed materialist. Greg wants Mokyr and me to have a Deep Explanation for the liberal revolutions. He favors very long-run evolution, even genetics. But it doesn’t make a lot of sense. The old way of saying it, which Greg has got beyond, is that We English are after all anciently special, and just naturally suited to ruling the world. It doesn’t seem so, not in the actual historical science done in the past decade. Many students of the matter, such as Jack Goldstone or Kenneth Pomeranz, and Mokyr and I, have concluded that in, say, 1492, or 1649, or even in many ways in 1707, no sensible person would have bet on England to have made the modern world. It was an accident, a happy accident of bourgeois dignity and liberty, a new thing under the sun.

Reply to Greg Clark on China’s Dishonesty

Greg Clark says that cheating in China means that the “bourgeois virtues” I touted in the book of the same name (2006) aren’t the ticket. But cheating was rampant in England in the early seventeenth century, as it is in most poor countries. Look at the Bard’s obsession with dishonesty, in honest, honest Iago, say, or Falstaff’s robbery and exaggerations, or Shylock’s contract and Portia’s quibble. Late in the seventeenth century Quakers and other worthies drove dishonesty underground, and gave us the modern world. The very word “honesty” changed in meaning, from “aristocratically glorious” to “sober and truth-telling.”

To say that China is a counterexample because it “seems set soon to take its place among the developed countries” is strange. At a daily production of $13 a head (the United States now is at $130 a head), it’s going to be a long, long time before China looks “developed.” A German businessman told me that his company finally gave up trying to make a deal because the Chinese kept reopening the negotiations — after the signing. My prediction? Like Japan and Korea and the United States and England, a future China will get very rich when it gives up its rampant culture of “old fashioned greed” — about the same time it gives up its rampant culture of tyranny.

The Same Anti-Economic Project of Creativity: Reply to Jonathan Feinstein

Jonathan Feinstein I think somewhat misunderstands what I am about, and my relation to the more usual history and the more usual economics. He has read, I know, all 500 pages of The Bourgeois Virtues: Ethics for an Age of Commerce (2006), for which he deserves some sort of reading medal. But he has not had the chance to read the whole second volume still forthcoming (soon, soon), Bourgeois Dignity: Why Economics Can’t Explain the Modern World, and I guess he has not wandered in my website, deirdremccloskey.org, which adumbrates the whole, crazy project of six books (four to go). He therefore is critical of a project that is not mine, that of “most economists” — when my actual project is more or less identical to his: namely, bringing into alignment, with a well-formed model of creativity, and some actual history of it to boot, the values and the creative potential of innovation.

It’s conventional, for example, for non-economists (which Feinstein is not) to complain that economists think the present economy is “hunky-dory.” But that’s not Deirdre McCloskey’s opinion. True, I think that creativity has been unleashed by the new “pattern of life” established first in Holland in the seventeenth century and then extended with spectacular results to England, Scotland, and British North America in the eighteenth century. But in the essay I only claimed, with John Mueller in Capitalism, Socialism, and Ralph’s Pretty Good Grocery (1999), that it’s “pretty good” — though I reckon that a rise in human creative scope from the year 1800 to the present by a factor of anywhere from 20 to 100 may even be a little hunky, if not dory.

And it’s conventional for non-economists (though I repeat: he’s an economist) to complain that economists don’t acknowledge how productive it is to “discuss your creative interests with those around you” and to work so that “society encourages everyone to engage in their own personal process of creative development.” The non-economists who complain so are I suppose unacquainted with Austrian economics, which acknowledges exactly such processes of discovery. Feinstein would find the Austrians interesting, I think, and relevant to his own work. My book is a Samuelsonian economist’s discovery of the Austrians, from Joseph Schumpeter through Friedrich Hayek to Israel Kirzner. The next book (and I’m quite sure that Feinstein hasn’t read that one) will show a “Bourgeois Revaluation” among the Dutch around 1600 and among the English and Americans around 1700 that depended on discussing creative interests with those around them, in the new coffee houses and newspapers and parliaments. And the fourth book (stop me before I write again) will make a theory of economic language, something that almost all economists ignore. Feinstein and I, though, don’t.

So Feinstein’s project and mine are the same. Our project is to shift attention away from the allocative answers that economists love, and that have corrupted business schools under the heading of “agency theory,” and towards the creative questions that have in fact dominated the economic history of the world since 1800, with beginnings around the North Sea after 1600. He calls it “the process of creative development.” I call it the Bourgeois Revaluation arising from a new Bourgeois Dignity and liberty, expressed as a change in the Bourgeois Virtues, and resulting in the Great Fact of wider scope for creativity in the Bourgeois Era. Same thing.

Bringing Values In

Although most economists — and most people — would agree that creativity and innovation are central to the workings of a free society and the modern economy, the fact remains that creativity and innovation have not been central to the development and dogma of the field of economics. We can trace many reasons for this, but more important is to define a research program to rectify this state of affairs.

My own research program focuses on developing formal models of how individuals come to be creative. I study creativity as a process of development — what does someone choose to learn, what experiences do they have, what life paths do they follow, what conditions do they find themselves in, that spark ideas and insights? It turns out that to do this requires modeling the knowledge and cultural environment — the conceptual world — within which individuals function. In turn, this increases the complexity of the models, in particular through embedding individuals in fields defined by knowledge structures (often described as lattices), but that suits me fine, since I am committed to the view that every individual has a unique life path and makes a unique contribution to society. With modern computers we can handle the complexity and develop richer models.

Ms. McCloskey is right to allude to the Austrian School of economics as a tradition in which creativity and innovation are recognized as central. I have learned a lot from this tradition. But whereas the Austrian School has generally opposed formal modeling (perhaps on valid grounds of the tendency towards over-simplification) I believe formal modeling is the best approach for its clarity and will raise the standing of creativity and innovation.

I understand Ms. McCloskey as focusing specifically on the values that promote creativity and innovation and their historical emergence. I agree this is important. Indeed as several of the participants have noted, values — many different values — are crucial as underpinnings of modern economic systems. Anyone who works in taxation and public economics as I have knows how important honesty, lack of corruption, and trust are to tax compliance, government operations, and business contractual dealings. Like creativity, values deserve much greater study in economics. Values are best thought of in groups, constellations that fit together to define a cultural order. We really have as yet very little understanding of how this works, for example why certain sets of values are more stable and lead to more productive life, and what tends to destabilize values. Any light Ms. McCloskey can shed on the topic is welcome. Like creativity, our understanding of values gains from formal modeling, and values will gain prominence by being incorporated into formal models.

To appreciate and depict the value of liberty I am convinced requires approaches that model what individuals learn, experience, know, imagine, create, and decide down to a level of individuality and precision beyond what has been standard heretofore in the field of economics.

Coal Is the Wrong Materialism

Matt Ridley calls for a materialist account of the Industrial Revolution. Coal — and thus geography — he thinks is the crucial factor. I agree with him against Deirdre McCloskey that we need a materialist account. But coal is the wrong material.

Coal has long exercised a powerful magnetism as the key to the Industrial Revolution: see the accounts of E.A. Wrigley and Kenneth Pomeranz, as well as that of Robert Allen. Coal output surged in this period. And one of the features of modern growth has been a dramatic decline in the relative cost of energy. The chart below shows the cost of energy relative to the wage from 1230 to 2000 in England.

Relative Cost of Energy

But coal cannot explain the upturn in innovation rates that the Industrial Revolution represented for several reasons.

The first is that without a single ton of coal being dug from the ground in England 1760-1860 there would still have been an Industrial Revolution. As Deirdre herself demonstrated in the 1980s, the majority of economic growth came from textile innovations that in no way depended on coal. Steam power was in no way essential to such mills. There was plenty of water power available in the years before 1850.

Later in the nineteenth century coal became important in the extension of the Industrial Revolution. But the process was well underway before this.

You don’t need coal to develop the elaborate canal system that the English constructed in the late eighteenth century — horses do fine. You don’t need coal to remake 21,000 miles of inland roads with all-weather surfaces by 1830. You don’t need coal to introduce threshing and reaping machines in farming — horse power again. Improvements in sailing ships, not coal, were responsible for most of the decline in the costs of international transport before 1850.

A second reason coal cannot explain the advent of British ingenuity is that the coal of Northumberland and Durham, from which Matt Ridley’s ancestors prospered, was as close to Amsterdam and Antwerp as to London. Cheap coal was not a monopoly of the British. Once you got it on a ship, the Dutch also could partake of this bounty of nature. But they did not.

Coal thus shaped the later Industrial Revolution. But to claim coal created it would be the equivalent of claiming that the coffee that fueled this contribution is the source of modern thought. For my more detailed and somewhat technical analysis of the role of coal in the Industrial Revolution, see here.

Coal Sustained the Industrial Revolution

I concede Greg’s point, namely that cheap energy played a small role in the starting of the British Industrial Revolution, which like the Dutch, Italian, Chinese, ancient Greek and Phoenician booms was about technological innovation spurred by trade. Absolutely true.

But what was unique about the British Industrial Revolution — and Deirdre and Greg have taught me this as much as anybody — was that it got a second wind, and literally did not run out steam. Indeed it went on to infect the entire world with the habit of fast growth. In the mid-19th century, when constraints of labor, water, wood, and other factors would have led Britain to begin stagnating and suffocating under piratical and parasitical depredations, as Holland, Italy, Greece, China and — I’m guessing here — Phoenicia eventually did, at that point Britain engaged another gear thanks to coal. And this was at exactly the moment, according to Greg, that real wages had at last begun to show growth. My point is that without coal, Britain would be just another flash in the pan, a golden age that produced some luxury and culture and science but no real transformation of living standards.