Deirdre McCloskey: ideas, not capital, are root cause of development

Maverick economist explains ‘why the modern world happened’

September 20, 2015
People walking outside Bank of England, London
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Keep on pushing: ‘spontaneous order of market-tested betterment’ benefits all

It is ideas, not capital or institutions, claims Deirdre McCloskey, which have decisively transformed the lives of people across the globe.

The UIC distinguished professor of economics, history, English and communication at the University of Illinois at Chicago was speaking at London’s Legatum Institute, a thinktank devoted to “promoting prosperity”.

She was introduced by senior adviser Hywel Williams, who praised her “positively Newtonian achievement” in transforming the discipline of economics. He also referred to her “very naughty” 1985 book, The Rhetoric of Economics, which demonstrated that the subject was more “tool of persuasion” than objective science.

For the past decade, Professor McCloskey has been working on a hugely ambitious trilogy, around 1,750 pages in all. The Bourgeois Virtues: Ethics for an Age of Capitalism in 2006 was followed four years later by Bourgeois Dignity: Why Economics Can’t Explain the Modern World.

Next year will see the publication of Bourgeois Equality: How Ideas, Not Capital or Institutions, Enriched the World – after which, she said, she was “hoping for a box set like Harry Potter”.

Although she had been “dragged kicking and screaming to the conclusion that economics can’t explain the modern world”, she told her audience at the Legatum Institute, she now thought she knew “why the modern world happened”.

The central fact to be explained was what she called “the great enrichment”. From the time when people lived in caves until about 1800, average daily income was around £2. Since then it has surged dramatically, so “now the average British person earns, makes and consumes around £80 a day”. What lies behind this astonishing transformation?

“It’s not the accumulation of capital that caused us to become rich in body and spirit,” argued Professor McCloskey. (She now tends to avoids the word “capitalism”, since it wrongly “implies that capital accumulation is at the heart” of modern economies.) Nor should we look primarily to institutions – despite the view of those economists who believe that “you achieve riches by adding institutions and stirring”. Equally unconvincing were theories that stressed “exploitation in the form of empire or slavery – many societies had slavery, but no others had modern economic growth”.

If we really wanted to understand the “completely unprecedented outbreak of innovation or market-tested betterment” we have witnessed over the past two centuries, Professor McCloskey went on, we need to look elsewhere.

Citing Robert Burns’ “great egalitarian poem”, A Man’s a Man for A’ That, she stressed “equality of dignity and equality before the law. [In the societies which have emerged since 1800] everyone can ‘have a go’ – and when everyone has the confidence to ‘have a go’, amazing things happen”.

Describing herself as “a Christian or motherly libertarian” who believes we have “a responsibility to the poor of the world” (and who works as a volunteer at food banks), Professor McCloskey admitted that she would be happy to “string the bankers up” – if that would genuinely help the poor.

Yet she did not believe that “the poor are poor because the rich are rich. The magnitude of improvement to the lot of the poor comes vastly more from economic growth than redistribution…The poor will prosper if we let the spontaneous order of market-tested betterment grind on, and if we let people open chippies – or universities – where they want.”

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