A Discussion of Bourgeois Equality Chapter 11 “Poverty Cannot Be Overcome from the Left by Overthrowing ‘Capitalism’”
I will admit, I struggled with this chapter, not because I think she is wrong but because there is a lot of nuance to the matter.
Her basic argument is the word, “capitalism,” is problematic. It does not properly characterize the Great Enrichment. Guess I need to change the title to my chapter 3 review…
Capitalism and the Hockey Stick
So what is wrong with the term?
McCloskey says it misleads people.
…the very word “capitalism” (is) supposing that its mainspring is the accumulation of capital. The mainspring is rather new ideas for progress, which make some new, targeted accumulation profitable. (p. 95)
The word is too focused on capital accumulation rather than the mechanism that leads to the Great Enrichment.
She cites economist, William Easterly, as criticizing
“capital fundamentalists,” those who mistakenly believe that the piling of brick on brick is what poor countries need. (p. 94)
I have used his book, The Elusive Quest for Growth, in class before. In it, he described the various theories development economics has used over the years to explain economic growth.
In the early 1960s, capital fundamentalism was preeminent. Poor countries were poor because they did not have money. So, give them the money and capital (equipment, machinery, etc.) and then they will grow.
Yet, it did not work, usually for a variety of reasons. To sum it up, the reason there were no capital investments was a lack of incentives in place to attract investment. In such a case, just putting money and capital into the system did not fix the underlying problems.
Capitalism Puts the Emphasis in the Wrong Place
So you may see what I mean about nuance. I am used to using the word capitalism to mean the system that has led to the Great Enrichment, but McCloskey says it is a bad choice of words because it puts the focus on the accumulation of capital.
She is saying we need a word or phrase that captures the driving mechanism because the word itself may impact the way we think about the process and the policies we put in place.
She even makes the point that innovation is not precise enough because you can be innovative and useless at the same time!
She prefers betterment to restrict the label to useful innovations.
And the test of useful is trade. That is, “Are people willing to pay for it?” (p. 95) Hence, her use of “trade-tested betterments” in the earlier chapters.
Why this Matters
She then writes about the origin of the word, capitalism, and suggests it is wrapped up in a “just-so” fable that has left us with a wrong impression of history.
Capitalism, educated people have believed since 1848, emerged in the 16th century. Accumulation proceeded until it yielded the Industrial Revolution of the 18th century. It corrupted all who touched it, said the left. It automatically enriched people through physical and human capital accumulation, said the right. (p. 96)
The Left-Right debate then is wrong on both sides.
Both left and right are enchanted by the just-so story that the Industrial Revolutions was a “take off” and that physical accumulation, not ideology, was its fuel. (p. 97)
Thus, we need to move beyond the word, capitalism for 2 reasons.
- It inaccurately implies capital is the central cause of our Great Enrichment, which has caused a false understanding of the drivers of our economic growth.
- It takes the focus off of the ideology that did cause the Great Enrichment.
Conclusion
Essentially, if we abandon the word, then perhaps we can move beyond the “chronically erroneous fables that go with it.” (p. 99)
She then tells of a fable about the free-market economist, Milton Friedman, that I had learned from an article I wrote about recently.
It Was Never Only About Profits
The fable comes from the title of an article Friedman wrote in the New York Times Magazine in 1970: “The Social Responsibility of Business Is to Increase Its Profits.”
That headline presumably came from a sentence in the article. From that title, it seems like Friedman is arguing for a focus on profits, period.
However, a look at the full sentence paints a different picture. There is a qualifier to the profit-maximizing goal that a business should
…make as much money as possible while conforming to the basic rules of the society, both those embodied in law and those embodied in ethical customs.(p. 100)
Thus, greed, fraud and other unethical practices are not OK just because they may profitable. Quite the opposite of the way Friedman is often portrayed.
And the idea that profits are all that matters has seeped into our world and caused great damage.
Food companies focus on producing tasty food that makes a lot of profit, even though the highly processed product is damaging to our health.
Our health care system is now a drug system that makes money for the pharmaceutical companies. Changing your diet and adding exercise is not profit making enough.
We would be much better off if these industries, and others, added ethics to their profit making decisions.
Why this tangent? We are supposed to be talking about capitalism.
McCloskey is saying that words and history matter. And when a false history gets attached to an imprecise word, we are taken away from the truth.
And here the truth is it was trade-tested betterments coupled with the ideology of the Bourgeois Deal she outlined in chapter 3 that has achieved the Great Enrichment.
I don’t know that the phrase could catch on — seems a bit clunky. But if it gets rid of the tired Left-Right argument about capitalism, I am ready to promote it.
Reference: McCloskey, Deirdre Nansen, 2016. “Poverty Cannot Be Overcome from the Left by Overthrowing ‘Capitalism’,” Chapter 11 of Bourgeois Equality, The University of Chicago Press.
By Ellen Clardy, PhD on .
Exported from Medium on December 15, 2022.
