Needed: An Economics for Grownups

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Niccolo and Donkey
Needed: An Economics for Grownups

National Review Online

November 22, 2010

Economic history looks, in graphic representation, like a hockey stick. For tens of thousands of years we traced nasty, brutish, and short lives along the shaft. Children anticipated a world no different from their grandparents’. Shakespeare’s audiences had only marginally better lives than Sophocles’. But at the beginning of the 18th century, mankind — beginning with the British and Dutch — hit the blade of that hockey stick, enjoying an unpreceAdentedly sharp and irreversible upturn in prosperity, life expectancy, and health. Ever since, the world has changed more quickly in every generation than it had previously in millennia. By all criteria, human life has improved in ways unthinkable 300 years ago.

Solving the mysteries of the birth of the Industrial Revolution (and, subsequently, the modern world) has been the primary task and test of economic history. And, according to Deirdre McCloskey, all explanations so far have failed. Those failures, in turn, indicate the failings of modern economics. Her magnum opus, an explanation of the birth and flourishing of the bourgeoisie and its subsequent transformation of the modern world, will occupy at least six volumes. This month, Chicago University Press releases the second installment: Bourgeois Dignity: Why Economics Can’t Explain the Modern World .

Traditional economic models — the ones we find in Econ 101 — center on labor, capital, technology, population, etc. McCloskey’s economics incorporates two more factors: dignity and rhetoric. Economics, she argues, has failed be a humane science that accounts for the ways in which things like human speech — rhetoric — influence the way a society lives and works. After a detailed examination of traditional explanations of economic growth, McCloskey concludes that each is inadequate, and that the only explanation for the peculiar birth of the modern world is speech: At the beginning of the 18th century, people in the Netherlands and Britain began talking about commerce as a good thing — a novelty at that time. They gave dignity to the bourgeoisie. And that drove capitalism, giving birth to the modern world.

McCloskey is a renaissance intellectual, with appointments in both the social sciences and the humanities at the University of Illinois at Chicago, and writings on everyone from Euler and Gödel to Plato and Derrida. This ferocious intellect talked with NRO’s Matthew Shaffer about her latest book and the state of modern economics.

Matthew Shaffer : You approach the Industrial Revolution as something peculiar. We who don’t spend our lives thinking about it assume it was inevitable — only a matter of time. But you think it’s weird that this idea — that being economically productive was a good thing — caught on. Are we very lucky? What would the world be like today if bourgeois dignity hadn’t caught on?

Deirdre McCloskey : You got it. We would be at $3 a day, as a good deal of the world still is. It was a weird idea, historically speaking. Especially we Americans, in this most bourgeois-admiring of cultures, don’t notice the ideological water in which we are swimming. Humans in northwestern Europe, and now much of the world, were lucky. It was luck, not some ancient virtue of the English constitution, and least of all some biological superiority of Europeans or Us British or the like. It was not inevitable in 1600. By 1800 it was, and by 1900 everyone not blinded by some millennial fantasy, Left or Right, could feel it.

shaffer : “Bourgeois” and “rhetoric” are, for many, terms of derision. But they are superlatives for you. Explain. In what sense, and in the vein of which intellectual traditions, do you use the words? Hegel and Aristotle?

McCloskey : Aristotle for sure. Plato was disdainful of rhetoric, which he rightly saw as an instrument of democracy. And Plato hated democracy. He wanted the rule of the best, hoi aristoi. That doesn’t leave room for democratic assemblies and law courts, or Fox News or MSNBC.
But Aristotle studied the democratic constitution of Athens with sympathy, and he wrote the book on rhetoric. He defined it as “the study of the available means of [uncoerced] persuasion.” But the hard men of the 17th century turned against it, in favor of absolute, geometric, neo-Platonic Truth. Thus Bacon, Descartes, Hobbes, Spinoza.

I prefer the old sense of the word, which does not have to mean “blather”: We have scores of words in English for bad speech. We need one for persuasive speech, the sweet talk for which one-quarter of us in a modern economy are paid.

As for “bourgeois,” Hegel used the word Burger , which is a cognate; and most of the advanced European thinkers circa 1810 praised the middle class just then emerging. It’s later, especially after the failed liberal revolutions of 1848, that the clerisy turned against the bourgeoisie.

shaffer : Bourgeois Dignity explains the Industrial Revolution’s 16-fold multiplication in average income as a function of rhetoric and dignity — of a society that spoke approvingly of a bourgeois, commercial life. How can you scientifically prove a thesis about soft factors like rhetoric and dignity?

McCloskey : Rhetoric and dignity can be quantified. But I don’t think the only scientific test is quantitative — though quantitative measurements are certainly helpful.
You can measure such factors by finding what’s missing elsewhere. It’s like measuring the acceleration of a falling stone in a non -vacuum. We know the acceleration in a vacuum. So anything slower than that is probably caused by air resistance. It may be hard to measure the air resistance directly . But indirectly, it’s simple, which is the rhetorical plan of the book. I show what all the other explanations are missing.

But, in fact, rhetoric and dignity are rather easily measured, and that is the task of the next book, The Bourgeois Revaluation: How Innovation Became Ethical, 1600–1848 . Stay tuned. You can measure the shifting significance of bourgeois words: honesty, profit, responsibility, monopoly, etc., by looking in historical dictionaries and historical texts in all the languages of commerce, from 1600 to 1848. “Responsibility,” for example, is entirely modern (and thus measurable: It’s zero before 1800, commonplace afterward). The equivalent word before 1800, as one can see from the Oxford Thesaurus (based on the Oxford English Dictionary ), is “duty.” In a hierarchical society, one has one’s duty to one’s master, period. In a modern and bourgeois society, the duty is turned inward and becomes a character trait essential for a modern enterprise: responsibility. It’s a fairy tale of scientism that only prices and quantities can be measured.

shaffer : The most familiar of the explanations that you rebut is the “Protestant Work Ethic.” Why can’t it account for the revolution?

McCloskey : Because one doesn’t see a change in the psychology of businesspeople. Weber’s argument has been under attack ever since he made it in 1905; he himself gave it up after 1905, and never went back to it. It has been shown repeatedly to be false. It’s an anti-Catholic prejudice, unsurprisingly common in northern Europe, to suppose that Catholics didn’t worry about their businesses, or indeed their place in heaven or hell. We have gigantic evidence that they did so worry, and in just the way Weber, on the basis of misreadings of Calvinist texts and Benjamin Franklin, thought was special to followers of John Calvin.

As I say in the book, what people like about the Weber hypothesis is that it combines a spiritual change inside the souls of businesspeople ( Geist was the German word) with a focus on routine investment (savings rates were supposed to be higher among Calvinists). It combined idealism with Marxism. No wonder everybody likes it. But alas, it’s wrong.
What changed was the sociology . That is, what changed was the attitude of the rest of the society toward businesspeople, and with that new attitude came a change in government policy. It was suddenly all right — most clearly in the most bourgeois country on earth, the U.S.A. — to get rich and to innovate.

shaffer : Many journalists wrote up the financial crisis as a failure of the science of economics, or at least of the neoclassical approach. Are they right?

McCloskey : No. As I say in the preface to Bourgeois Dignity :

The Big Economic Story of our times has not been the Great Recession of 2007–2009. . . . 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. . . . Such prediction is anyway impossible: if economists were so smart as to be able to predict recessions they would be rich. . . . 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. . . .​
The important flaw in economics . . . is 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. . . .​

shaffer : How do you evaluate economics today and economists’ function as modern America’s preeminent public intellectuals?

McCloskey : With alarm. But non-economist intellectuals need to understand some elementary economics: There is no such thing as a free lunch; national income equals national product equals national expenditure; free trade is nice; more money causes inflation; governments are not all-wise; spontaneous order is not chaos.

My alarm comes from the economist’s tendency to reduce humans to Maximum Utility machines. We need a humanomics, of the sort that Adam Smith and John Stuart Mill and John Maynard Keynes and Friedrich Hayek and Gunnar Myrdal and Kenneth Boulding and Albert Hirschman practiced. Some current practitioners are Nancy Folbre, Arjo Klamer, and Richard Bronk. It’s an economics for grownups.

shaffer : What should Americans do to preserve bourgeois society, or is our rhetoric so naturally pro-bourgeois that we don’t need to worry?

McCloskey : We need to worry a little less than the average northern European does. Arguments about bourgeois virtue that strike most Americans as pretty obvious (“The middle class, not the clerisy or the state, is the source of good innovation”; “Making money is all right”; “We can solve environmental problems by invention”) are fighting words in the Netherlands or Sweden. Old Europe distrusts innovation. In the United States the task is to embarrass the anti-capitalist Left with facts, without arousing moralistic, anti-innovation fervor on the Right.

shaffer : You spend a lot of time demolishing cherished lefty myths about capitalism. What do you think the Right has gotten wrong on capitalism?

McCloskey : A certain disdain for innovation, or attributing the few good parts of innovation to heroic figures, Nature’s Noblemen. A conservative suspects that innovation will result in disaster, not improvement, unless under the control of Us Aristocrats. Let us not flee to evils we know not of. He is naturally pessimistic. He hates rock music and feminism and everything else that came from the Decade of Innovation, the 1960s. A libertarian, by contrast, is naturally optimistic about change. She sees a spontaneous order in non-hierarchical, unplanned societies. She loved the 1960s as liberating blacks, women, gays, handicapped people, colonialized people, youth.

shaffer : You say that dignity and liberty were “the greatest externalities” of our pro-bourgeois rhetoric for ordinary people. Are liberty and bourgeois dignity tethered? Many point to China, Singapore, etc., as examples of places where economic advance has not produced other kinds of liberalism.

McCloskey : They are correct. The problem is the fallacy of Right Now. In 1969 one would have said the same thing about South Korea and Taiwan, or for that matter about Spain and Portugal. Outside the low, dishonest decade of the 1930s, with preparations in the 1920s, it has always gone one way, since the cats of liberty and dignity were let out of the bag in the late 17th century. Do all the statistical analysis you want, but we “liberals” (19th-century European definition) have history on our side.

shaffer : Now that the march of classical liberalism has proceeded so far . . .

McCloskey : . . . but has miles to go before we sleep, / And miles to go before we sleep . . .

shaffer : . . . and the world accords more dignity to the bourgeoisie than ever before, was our recent rocky passage just a blip in an overwhelmingly positive trend?

McCloskey : I and Matt Ridley (author of The Rational Optimist ) and Joel Mokyr (author of The Enlightened Economy ) agree, as anyone acquainted with the numbers would. We’ve had 40 of these recessions since 1800, and even a half-dozen as bad as this one. We should have acquired in two centuries a cautious faith in the trend, which is up and up and up since 1800 by about 2,000 percent per person, conservatively measured.

shaffer : You say you’re relatively unworried about rapacious public-sector unions. Doesn’t the example of Greece trouble you on this point?

McCloskey : Well, if the police and municipal workers work very hard at it they can bring a society to ruin. But the United States is not heavily unionized. (Sweden, which is heavily unionized, has rational unions, which know that Sweden must trade to live.) And Americans are not willing to leap off a cliff holding hands with the unions, as the Greeks were until this year. In Chicago the city and state just broke the power of the electricians’ union to overcharge exhibitors at our massive McCormick Place for such highly technical tasks as plugging in extension cords. The exhibitors are coming back.

shaffer : Before Bourgeois Dignity you wrote The Bourgeois Virtues . Do you think our debt-ridden culture is a manifestation of a decline in the bourgeois virtues, or is that just romantic nonsense?

McCloskey : Conservative romantic nonsense, similar to the cries in the 18th century that commerce would corrupt the Spartan virtues. Dr. Johnson, who was a conservative but no sort of romantic, said in 1778, “Depend upon it, sir, every state of society is as luxurious as it can be. Men always take the best they can get.” And the blessed David Hume had said in 1742, “Nor is a porter less greedy of money, which he spends on bacon and brandy, than a courtier, who purchases champagne and ortolans [little songbirds rated a delicacy]. Riches are valuable at all times, and to all men.” Of course.

There’s a progressive version of the nonsense, the complaining about “consumerism.”
A more up-to-date reply is that so long as various Oriental protectionists (in the 1970s it was the Japanese, not the Chinese) are so foolish as to send Americans TV sets and hammers and so forth in exchange for IOUs and green pieces of paper engraved with American heroes, wonderful. Would you personally turn down such a deal? If your personal checks circulated as currency, and the grocer was willing to give you tons of groceries in exchange for eventually depreciated Matt-dollars, wouldn’t you go for it? I would, and drink champagne.

shaffer : Do you think bourgeois virtues can be inculcated by public institutions, including schools?

McCloskey : The merchant academies of England in the 17th and 18th centuries raised up prudent bourgeois boys (they were mostly excluded from Oxford and Cambridge because many of the merchant families were not conforming members of the Church of England). The universities in Scotland had teachers like Adam Smith, and raised up boys (they were very young in Scotland) who admired commerce. Our culture, so corrupt and so little reflecting the classical virtues in the eyes of conservatives like Allan Bloom, admires innovation extravagantly in its rock music and its movies and its ethernet. It’s innovation, not respect for hierarchy or love of military glory, that makes for a successful society.

shaffer : Traditionally, bourgeois political life is defined in precise contrast to the ancient state, as one devoted to accommodating citizens’ desires rather than inculcating virtue in them. And yet, you suggest the virtues are the precondition for a bourgeois state.

McCloskey : Not exactly precondition, because I also argue that virtues are generated by a liberal economy and state (“liberal” in the old and still European and true sense, not the sense in which progressives have used the word in the U.S.A.). Markets make us more moral.

shaffer : What should young people who want to study economics your way, your “humanistic science of economics,” do?

McCloskey : In college you got the claim that Greed is Good, and anyway people are Max U sociopaths, regardless of what all the scientific evidence gathered on the point says to the contrary. I would advise them, of course, to read my book How to Be Human*: *Though an Economist , which is advice to young economists about maintaining morale and integrity — and getting the scientific task done while retaining common sense. Beyond that, Educate thyself. Read widely, having acquired somewhere a deep knowledge of an economics of some sort. We have enough amoral idiot savants in the study of the economy. We need some fully educated humans. We need a humanomics, not more freakonomics.

shaffer : Will our intelligentsia and artists come around, and learn to love the bourgeoisie?

McCloskey : It’s hard. The temptation to fall back into schoolyard egalitarianism is great. After about age 20 or so we have often chosen our political identities, and then on emotional grounds can’t change them (though I did, come to think of it). I have a very bright graduate student here at UIC, a humanist, who tells me that rereading Marx makes him “more of a communist.” Oy vey ist mir. And he has a libertarian girlfriend.
President Camacho
This is about the faggiest paragraph anyone could conceive.

It's like Jared Diamond's Guns Germs and Steel for econ.... exactly what is "it" and why was "it" inevitable? And if "it" was so forceful and inevitable then could it not be bound up with other elements of culture and blood?

I wouldn't say Weber was "wrong". Northern Europe carried the Zeitgeist of ascetic Protestantism far and wide, first to the rest of Europe and by the 20th century to the world. I don't know how the appearance of stock-buying Chinamen in the 1980s disproves Weber's thesis in the least bit. These areas have been remolded in the Anglo-American image; they've been conquered. "Dignity" has nothing to do with it.

I've never even heard the argument in bold before in America... Us Aristocrats? The rest of the paragraph is funny though.

And one would still say the same thing about South Korea and Taiwan today; are South Korea or Japan egalitarian societies because they have McDonald's?

It's also worth noting that between 1850 and 1900 Hohenzollern Germany industrialized on a scale so massive that it caught up with Britain, which had been undergoing the same process for three times as long. The Germans from the start directed important industries in coordination with government, encouraged oligarchies and monopolies, and instituted state quality control standards before more "advanced" industrial economies like England. There's more than one way to skin a cat.

I like how the "low, dishonest" 1920s and 1930s are completed discounted from her analysis-- an era which saw liberals across the West reeling backwards for pushing their luck.

Not really worth commenting on...
It's sad to see that Roland has relapsed :thumbsdown:

There are really two tendencies at work in this essay, and they both tell us a lot about System ideology.

First and foremost, there is a categorical denial of the existence of the political sphere, and a refusal to tolerate any consideration that it touches and concerns economic activity. Economics to people like this woman isn't power activity , its simply an instrumentality of progress that is, overtime, tailored to maximize the purported potential, comfort, social ambition, ''dignity'' of all humans. Its a mechanism according to this mythos, in other words, that allows policy planning and human social relations to be extricated from brutal and impersonal forces of history. This tendency owes more to the founding ethics of the 'new left', and its treatment of Marcuse's body of work as gospel than it does traditional Anglo-liberal theory.

As Buchanan has pointed out, its perverse anyway for people who self-identify as free-marketeers, classical liberals, or conservatives to discuss ''capitalism'' anyway; as its a concept that only really is intelligible within the paradigm of Marxist historiography. People like McCloskey are in basic agreement with the guiding ideas of Communistic ethics and social values, what they resent is its disdain for certain uses of productive power, its impersonal reverence for history, and its unwillingness to fully account (in their estimation) for the ''liberating'' effects of certain free market models on victim populations ; women, manumitted slaves, coloreds who were previously under the dominion of White empires, etc.

Secondly, essays like this one re-affirm my believe that women simply cannot conceptualize political life, as they don't experience or perceive it in any meaningful way. A woman contemplating political history is tantamount to a blind man discussing visual art. It would seem to be an insurmountable absence of perception.

This is a good point. There is much befuddlement on all sides as to what capitalism is, and what it's definition is. Depending on the context of the conversation and who I am conversing with, it has different meanings.

My point to the thread: Economics proper is the science of exchange with respect to human action. That's all. It does not speak on morality.
Niccolo and Donkey
We tend to hear two things:

1. The Market is neutral
2. The Market is moral

One cancels out the other so therefore one must choose between the two when formulating an argument.
President Camacho
Perhaps the most succinct way to sum up this woman's essay; she switches perspectives repeatedly without even perceving the contradictions.
Niccolo and Donkey
She's a woman, and therefore flighty.

I think people seem to conflate the inherent efficiency of free market economics with some sort of moral goodness which simply isn't the case since efficiency does not equate to morality.

An efficient free market won't alleviate all suffering or poverty and raise people up from the slums automatically: human nature must be considered and since humans are fallible, some will fuck up no matter what opportunities are given to them.

One need only think of pro athletes who end up in bankruptcy after retirement.

An economic system that is better than others in some ways i.e. efficiency, capital allocation doesn't make it moral even if some economic systems are immoral.
President Camacho
This is an excellent point...
China and India, of course, opened their markets to gain power , because they understood this was required to attain parity with the West. China does not care one whit about its peasants living in Stone Age conditions especially in the western provinces-- except in the sense that their ascendancy can increase its power projection-- or tidy up its "perception" among the gullible Europeans, which is the same thing. India quite obviously feels the same way about its slum populations detached from the few high-tech areas that are incubating India's GDP.​

Thus the biggest story here--the explosion in power and leverage India and China have been enjoying recently over the West-- is completely hidden (willfuly, no doubt) from her. It's all subsumed under a narrative of "increasing dignity" for the "human race" that completely ignores the obvious political tensions that are brewing.​

It's unbelievable she doesn't seem to grasp that economics for the purpose of "the greatest good of the greatest number of people" is still a thoroughly materialistic conception of the world-- more so even than the classical materialists she derides, for at least Adam Smith kept economics and politics separate. Even Lenin understood the distinction between political and economic processes better than her.​
In agreement, 100%. Charity is a necessary virtue to help people who don't get what they need. It's a problem that people presuppose contemporary economics comments on morality. "Pop-economics" does do this a lot. You always hear idioms like "spending is good!" and people will claim that it is a fact of economics.

Instead of coming up with a theory of economics to try to make sense of history, I believe she is trying to make use of rhetoric to come up with a "theory of history". Making a theory of history with some form of economics at is core creates a theory of history or society that is centered around material wealth. It's pretty much Marxism with changes in attitudes towards the bourgeois in language which sparks a change for a group of people towards the next epoch of history. But like most any theory of history, it's subject to the narrative fallacy.
Niccolo and Donkey
It might be a situation in this case where the corrective nature of the free market might be confused with "goodness" or "morality". We have become more familiar with the concept of "moral hazard" in light of very cheap money that has been lent across the globe, so that's where the mistake might come from.

I think your point is bang on.