©Deirdre Nansen McCloskey | COPYRIGHTED MATERIAL

"Dismal no more? McCloskey on modern economic growth"
by Pat Hudson, with comments by McCloskey inserted

November, 2010
Filed under editorials/ comments/ articles related to speaking engagements

Dearest Pat,

An author can ask for no more than serious engagement, and I thank you very much for doing it here!

I wish I could persuade you to rise above the headlines and the "pious" (your word) conventionalities of the leftish clerisy, as I try to get my friends on the right to rise above their own and opposite pieties and conventionalities. I haven't succeeded, but will keep trying—trying to get the Rare Pat Hudsons of the world, whom I love and admire, to consider, as Cromwell said to the Presbyterians, to think it possible in the bowels of Christ that they may be mistaken!



PS: In aid of the conversation I'll be distributing my few replies at the session.

It is more unusual to be an optimist about modern economic growth than at any time since the eighteenth century. For this reason alone McCloskey's current volume, (and the other five, one published, the rest in prospect that flesh out his dear, dear! thesis), must be read and enormously enjoyed. It is erudite but it is also witty and, by academic standards, very personal. Some po-faced academics will object to the style but many pages put a smile on my face for days. . . .

Your full, generous, and accurate summary of my argument that came at this point I omit here to save xeroxing costs!

. . . . Fundamental to McCloskey's case is the need first to destroy the gradualist orthodoxy and to prove that the industrial revolution was sufficiently 'astounding' and 'bizarre' to warrant an astounding explanation. For this she engages Nordhaus multiples (which reflect the value of better quality or entirely new goods) to suggest that the past two centuries have seen average living standards in advanced economies rise not by the 13 fold or so that might be estimated according to conventional real income or HDI measurements, but by up to 1,700 %! This is taking Nordhaus's principles well beyond the limits for which they were intended.

To counter, on a similarly broad and subjective scale we might suggest devaluing conventional measures of growth to allow for the disutilities of modern society and the externalities created by industrialism (such as the threat of mass nuclear incineration, biohazards, global warming, species extinction, and much smaller things like grotesque Western overindulgence or the hell that is modern food or fashion shopping; But what about the corresponding spiritual disutilities of life before industrialization, the dirt, the cold, the uncertainty, the massive environmental damage from hunting-by-fire, the insolence of hierarchies, the haunting fear of death, the chances of entire racial extermination by disease, the mass murders at the hand of crusader or Mongol, the ignorant terror of superstition, the brutality of gender relations, the beating of servants in husbandry? We historians can get people to realize the evils also of the good old days, can't we?) . We might then start to think (as most humanists already do), that we survivors of modern economic growth may be much better off than our ancestors, but nothing like as well off as Deirdre likes to insist But it's a matter of scope—that did increase by a factor of 100. It's our job and teachers and intellectuals to urge people to use the scope in humanly wise ways.

Innovation is not always and unequivocally a good thing Yet give me credit for facing the point head on, as I do in Chapter 9, yes? yet its beneficence is the bedrock of McCloskey's thesis. After 1994 with the ideological changes that led to a decline of protectionism, Kellogg's cornflakes could be bought in New Delhi for the first time. But is this a clear cause for celebration (as treated on p. 226) — that India should embrace a product which has less nutritional value than the cardboard in which it is packaged? A trivial example maybe but to make a larger point that technological creativity and innovation might cure cancer and create the internet, but it can also father the unthinkable: fast food, calamitous substitutes for breast milk, water boarding, nuclear missiles, the bureaucratic machinery of the holocaust.

If the pace and trajectory of modern development is seen as less astounding, it might be accounted for by less astounding explanations: trade expansion, institutional developments, capital accumulation, human capital, even relative factor prices, alongside shifts in aspirations and ideas. And, if these other explanations (any of them or in combination) can be seen as sufficient to spark innovation, or to encourage significant change in bourgeois culture, then McCloskey's case is of course undermined and we must return to giving at least some weight to material forces. No. The pace of scope is clear, and astounding, no matter how one measures it. So your point is mistaken: that you and I don't like daytime soap operas on television says nothing about the bizarrely enlarged ability to received entertainment in one's home that TV after all is. Further, the features of modern life that you disdain are not to be included in the measuring of scope, but are offenses to the consumption tastes of (as you admit) we members of the clerisy. Now, I agree with your disdain for the vulgar way that people consume, and say so in the book: I do wish, for example, that they, vulgar fools as they are, would buy and read more copies of serious academic books about economic growth and the modern world. But the opportunities for a fully human life, you must admit, are vastly greater than they ever have been. By a factor of 20 at the least and 100 more probably. I would argue that in fact people have taken advantage of the scope and opportunity in humanly desirable ways well beyond what the racist view of The Poor would have expected in 1750—you and I, for example, are the descendents of just those Poor. . . and look at us!

The demolition of North and the questioning of endogenous growth theory are both important and will hopefully move the historiography forward in a very positive way. North's view that the pace of economic growth is set by the removal of constraints and thus the enhancement of incentives to profit seeking has sparked some interesting and important work but it has also strengthened the authority of neoclassical analysis and endogenous growth models much more than it has promoted cultural explanations. As McCloskey points out, as soon as we talk about constraining human behaviour we are implicitly acknowledging that there is some basic human nature (across the world and across cultures, as well as over time) to be constrained. North's most recent work is something of a missed opportunity in further exploring the cultural and temporal specificities that lie behind economic motivations and aspirations Yes, and even in Doug's own terms, which he repeatedly enunciates (what people think is important), then keeps putting back into a "removal of constraint," Prudence-Only, Brain Science, Max U framework. McCloskey quickly Oh, not so quickly: I spend four chapters on it dismisses North, Acemoglu, Grief and others not on these grounds but by suggesting that 'if the demand curve is whizzing out for sociological or political reasons, leading to massive innovation, the story of incentives is for the most part scientifically irrelevant.' (299)

But the devil is also in the detail. In a case too rarely made McCloskey argues that 'North has not consulted the work of historians using primary sources' (322). In North's view, the Glorious Revolution of 1688 and the Settlement of 1689 ushered in the commitment of secure property rights and opened the way to national debt and other institutional changes that reduced transaction costs, asymmetries, moral hazard all such wasteful things. But it has long been clear that 1688 for England (certainly not Britain) and the short 17th century for Western Europe did not provide the turning point claimed in property rights that can explain the subsequent rise of the West. As I say, yes? The significance of the Restoration in particular has been exaggerated. In fact the increased power of the state after 1688 made property more vulnerable to expropriation, abolition or redefinition and certainly to heavy taxation.

McCloskey rightly reminds us that property rights in Britain were pretty secure well before 1688, and that the appropriations of medieval and early modern monarchs appear miniscule compared with the power and 'predations' (her term) of present states whose rule over private property commonly extends to between a fifth and a third or more of GDP Really more like a half, right? . Neither does the timing of institutional change in England (and elsewhere) fit well with chronology of economic change thus 'It does not seem ... that changes in institutions had much to do with the industrial revolution.' (354) Such wicked heresy Deirdre people were burnt at the stake for less! But I like it.

What I like much less is McCloskey's belief that (and I quote directly):'What chiefly made the modern world was the ... roughly egalitarian distribution of the spoils in the long run driven by the invisible hand of entry and competition.' (265) This is optimism and wishful thinking gone mad and it does not bear close examination with respect either to national experiences and certainly not internationally, unless the long run includes faith in a future trajectory beyond our own lifetimes. If relative differences in income or well being are the focus here, the statement is hard to justify even within modern economies Now, now: look at the income distribution in Britain 1600-2010; and anyway look at the absolute welfare of the poorest, your ancestors and mine. When one turns to consider inequalities in income distribution internationally the claim simply cannot be sustained Yes it can, and I talk about it: sure, if North Korea refuses to have a Bourgeois Revaluation and South Korea celebrates it, then inequality between North and South will increase. Most of the rises in inequality have such a cause. Countries that have accepted capitalism have done very well, and not at the expense of those who have not—merely in comparison with those who have not. I regard the statement that '...the poor of the world have been the largest beneficiaries of the escape from the Malthusian trap.' (273) as a sleight of hand. In what ways and by what criteria? Is this because they are less likely, in most places No, in every place on earth, according to Cormac's new book, to be wiped out by famine? Partly because of this, there are many more people world wide living on as little as the bulk of our ancestors in preindustrial times True, sadly, but with prospects. And even life expectancy, although it has risen on average and in absolute terms, is no less geographically and socially unequal now than in earlier centuries. What's this? If everyone doesn't gain in life expectancy at the same time you want to cast out the gain entirely? Aren't you letting equality in misery become your lodestar? But, as you know, in fact life expectancy has increase literally everywhere by comparison with, say, 1800. Everywhere. No exceptions, rich and poor. And by gigantic amounts. We are properly appalled by the cholera in Haiti right now; but in the 1880s thousands more died in Chicago from it; and Haiti has not had a cholera epidemic for many, many decades. Why is that? The Age of Innovation.

The '...invisible hand of entry and competition' is also wishful thinking. McCloskey herself sees development, in some parts of the globe now and at different times in the past, stalled by the absence of free markets (institutions as well as ideas). McCloskey argues that 'If Brazil and South Africa can be persuaded to adopt the liberal economic principles that are presently enriching China and India (and that enriched Britain and Italy more slowly and therefore less obviously), there is no reason why in forty years the grandchildren of presently poor Brazilians and South Africans cannot enjoy something pretty close to Western European standards of living.' (p. 123) Well, maybe, unless, as seems equally likely, they and we get caught up in global economic instability, currency wars or ecological catastrophe Why should we rationally expect such an outcome, considering the history of the past 200 years? So people said about China and India quite recently, and so said Malthus about Britain. All of them were wrong. The pessimists have been wrong every single time for two centuries, and yet you wish to accord them the palm. I don't get it. In 1830 Macaulay asked, "On what principle is it that, when we see nothing but improvement behind us, we are to expect nothing but deterioration before us?" On what principle indeed, and now after 180 more years of improvement for the poor? . The denudation of the Amazonian rain forest is probably the best example of the rapid disappearance of a finite resource encouraged by and impacting upon the rest of the world but constraining the future development of Brazil in particular I agree. Privatizing the rain forest would help (it stopped the overhunting of elephants in Africa, as one of numerous examples), and short of that I approve of regulation to stop it—though by the way the sea is a vastly greater source of CO2 absorption than the forest, as it happens, and we can do something about its rate. In the contemporary global environment each invisible hand is cuffed by exogenous, political, economic and environmental policies and forces. Environmental constraints are too important to be dismissed as the concern only of pious and misguided environmentalists I do wonder if you agree that they are pious and misguided, as some of the examples I give surely are (Paul Ehrlich, for example) . That McCloskey sees environmentalism as arising, like the 'pathologies of nationalism, socialism and national socialism' and 'neo-eugenics' from lapses of faith in the triumph of liberal innovation is deeply disappointing Yes, I realize it is: but stop to think it through) . This is particularly so because one part of the modern world that economics certainly cannot explain is the absence of accounting for the environment, present and future and the social costs of externalities. There is a major failure of markets or invisible hands in this aspect of life. And the solution is. . . ? More governmental action to move the incentives further and further away from the right ones?

McCloskey invokes Ireland as an example to prove that religion is unimportant compared with the commitment to economic liberalism. 'Ireland is the most thoroughly liberal example with very low corporate taxes and therefore it went from being one of the poorest countries in Europe in 1979 to having in 2002 the second highest per capita real income in the world/ and the Irish Catholics still go to church...' (144) With unemployment currently at 13.5% , an EU rescue package being discussed, and a recent government decision to give each family a free block of cheese, this section may need rewriting Now, now: we're historians, and we above all should not be spooked by headlines and the short run. Irish national income will be back to among the highest in the world shortly—Ireland, mind you! The place we all viewed c. 1968 as hopeless! . When the Irish Agriculture minister last week had occasion to term the bulk of the population 'amongst the most deprived citizens of the EU community', having the 'second highest per capita real income in the world' for a moment in history (and without consideration of the distribution of that income The distribution of income in Ireland was not bad, as one can see for example from the enormous number of unskilled immigrants it for the first time in its (once) sad history absorbed. Anyway, I repeat: what's the welfare criterion here, that equality trumps average level every time? That doesn't seem to make a lot of ethical sense, and anyway would be rejected by any actual poor people but the Russian peasants I cite (pluck out the neighbour's eyes). You would want to examine the opinion of the poor themselves, right? Africans and Asians try to get into Britain not because it is an egalitarian paradise but because they can increase their average incomes by a factor of 20 by doing so) seems like a pyrrhic victory indeed. There are severe pains as well as bourgeois pleasures when the state rolls back to allow a free for all in labour and capital flows, in property building and speculation. Perhaps Deirdre should heed her own warning (155) about mixing up financial wealth and real wealth. If real wealth is 'a house, or ship, or education' Ireland's (and Iceland's) game in the last several decades may have generated little of lasting value. That's mistaken: the building boom, after all, built and improved the Irish housing stock.

From the standpoint of an American ex Samuelsonian, still somewhat Friedmanite No name-calling, now! I'll promise not to call you a communist! academic of the early 21st century, at a time when Anglo American academic orthodoxies are stronger globally than every before (encouraged by the internet and Western monopolies of prestige journals, academic presses, research and conference funding and global university training ) it is easy to be persuaded that the triumph of bourgeois ideology, driving constant innovation via profit seeking, and the liberalization of markets, is the key to world development past and future Yes, it's easy. But you are implying that my book offers no evidence, merely ideology, and that's not so. But does the world wide chronology of change in the past two centuries really fit with 'Bourgeois revaluations' and are both modern economic growth and the bourgeois ideology on which it is based, of the same essence everywhere? Perhaps McCloskey has missed a trick in assuming that modern economic growth takes the same form and is always driven in the same way across space and time I just say it is always driven by innovation. What's so controversial about that, among economic historians? It's Schumpeter. If so how do we explain the uniquely labour intensive patterns of Asian development and the fundamental differences between the bourgeois values of Japan, China, or India and the West? Are bourgeois virtues constant? Is the same prime mover at work now as in the early nineteenth century, despite vastly different global circumstances?

Amartya Sen recently argued that western historians and social scientists these days generally write from the perspective of the 'End of History'. In other words they think within the assumption that Western 'capitalism' and associated traditions of 'freedom' and 'democracy' have so triumphed globally that alternative paths or patterns of economic, political and cultural I said nothing against South Asian or any other culture growth and change, and the insights that these may generate, are generally inferior and have little to offer. Deirdre's thesis fits this bill. But so does Amartya's. He wants a liberal world, too. Ask him.


As McCloskey notes: 'Economics as a science grew up in the Age of Capital (when the leading sectors were very capital intensive)... Naturally therefore economists such as Mill or Marx or Marshall or Keynes became obsessed with physical accumulation.' (157) By the same token however, Deirdre has come of age in her post Samuelsonian incarnation at a time when an idea and a computer is all you need to make a killing. Thinkers and writers evolve and change over the life course and in relation to the world around them. Deirdre has evolved and changed more than most: she has moved from the cellar to the attic in a unique way. I like the latest incarnation much the best and find persuasive her stress upon cultural factors in the rise of the West. I would like to see more attention to the differences and specificities of bourgeois virtues, aspirations and motivations in the processes of economic growth in the varying and different cultural contexts of the rise (or otherwise) of the Rest. And I find unconvincing her dismissal of all pessimists, stagnationists, conservationists: her belief that innovation will perpetually come to the rescue and keep the Bourgeois Deal rolling I do not know why you think the evidence shows anything else. You admit that the material scope of human life has gigantically risen since 1800. You would admit, if we sat down and chatted for an hour or two about the cultural accounting, that the scope has allowed a cultural flowering, such as massive participation in specifically Japanese cultural practices (sumo wrestling, flower arranging, one could go on).

So I will keep spending high opportunity cost time separating my rubbish for a recycling technology that few innovators are trying to improve because the pay off in 'personal glory and profit' is insufficiently high. To chuck all the packaging, poisons, batteries, plastics in the same bin and live in hope (or use the excuse) that all this rubbish will be mined by our descendents and recycled into precious resources at some point in the future is an act of faith rather than reason People always attack "faith" (with an anti-religious subtext: I did it myself before I became an Anglican!) when they want to contradict another person's sober empirical conclusion. Faith (as I write in the book) is a noble virtue, devalued by such talk, and a necessary virtue for all of us, whether in religious or secular form. Do you really believe that my optimistic conclusions are matters of faith while your pessimistic ones are matters of reason? . I am impatient with any thesis that encourages such thinking We all applaud reason: I offer 500 pages of it, for example. If all parts of the globe keep growing in this zero plus game Huh? What zero sum? Do you claim that growth since 1800 has been zero sum? what of the implications? That these will be solved by innovations that we cannot currently envisage (presumably by interstellar travel and planetary conquest For Lord's sake, dear, stick to things I actually said! As it happens I regard the space program as a silly waste of money. But anyway I work for improving this world, and innovation since 1800 has done so is optimistic in the extreme. That the dismal classicists did not foresee or predict the force of future innovations is cold comfort because they were living in an entirely different world. Stagnation, deflation, involution are just as reasonable for us to expect as perpetual innovation and growth All right: on what evidence? Or is it a matter of "faith"? . Less pessimistically so are other buoyant futures which are not dependent upon resource hungry materialism and consumer excesses The usual sneer of the clerisy, you'll admit. . If culture can change so fundamentally once, it can do so again. In the long run of world history the last three centuries may well come to be seen as 'bizarre' in the sense of being an exception in human history, not the rule.

Amongst her many adversaries, McCloskey reserves a particularly demonic spot for Karl Polanyi. I give Polanyi plenty of attention, btw, in Vol. 3, soon available at deirdremccloskey.org: I attack (as you should, too) his shockingly bad economic history and praise his very important assertion that economies are embedded in societies. But Polanyi has long been misunderstood and McCloskey may be dismissing a potential soul mate. Although he was entirely pessimistic about it, Polanyi recognized the power of ideas, words and ideology, in arguing that the triumph of neo classical economics from the later nineteenth century was strong enough to become a self fulfilling prophecy. If people believe in bourgeois dignity as a driving force, the beneficence and primacy of liberal markets and the invisible hand, they will develop policies to encourage this, models to understand it and stories of its emergence that fit the bill.