A Discussion of Bourgeois Equality Chapter 54 “Yes, It Was Ideas, Not Interests or Institutions, That Changed, Suddenly, in Northwestern Europe” and Chapter 55 “Elsewhere Ideas About the Bourgeoisie Did Change”
In these last 2 chapters of Part VIII of her book, Dr. McCloskey is returning to her main theme that the driving force behind the Great Enrichment occurring in Britain around 1800 was a change in ideas.
Namely, the idea of esteeming the dignity of the common man, letting him test out various ideas in the marketplace, which determines the winners.
Good Ideas Put the Bourgeois in Charge
She does acknowledge that other factors play a role such as demography, interests, and maybe the luck of being in the right place at the right time. (p. 516)
However, she has pointed out other places, like the Netherlands a 100 years before, had come close. Or Italy before that. Both, however, devolved into monopolized interests seeking to close the door on anyone new coming up.
And the New Bourgeois Respect Created Vested Interests Supportive of the Great Enrichment
She uses the popes as examples of the shift towards viewing capitalism favorably.
By the late nineteenth century even the popes commenced favoring ‘capitalism’ over, at least, socialism. Social life without private property is impossible, they affirmed, at any rate in large groups. (p. 512)
She notes such sentiments first being posted by Pope Leo XIII in 1891 and then continuing with the successive popes up to, but not including, the current one.
Two steps forward, though, one step back. I have noted that in 2013 Pope Francis I reverted, as many earnest Christians do, and among them many popes, to a medieval theory of the zero-sum society, two centuries after the economy and its ideology had created progress, liberalism, positive-sum, and modern civilization. (p. 512)
The shift towards commerce by the church was a long time coming.
Yet the Roots of Bourgeois Respect were Christian
The shift away is part of why I am blogging about her book. If we give up what has gotten us here, then we could return to a subsistence, neo-feudal world of poverty. Addressing these forces directly is part of her last section of the book though.
Letting the messy, seemingly chaotic forces of the market allocate our resources is something distasteful for those who think they know better and want the power to implement their ideas.
Industrial policy is when the government decides how to allocate resources, perhaps directing investment into some industries and away from others.
Mercantilism is the theory that trade is a hockey game rather than a square dance, zero sum not positive sum…and still later [came] the ‘industrial policy’ of a wise state picking winners. The trouble is that the ‘success’ we are talking about down to 1815 was a zero-sum extension of trading by way of empire and military victories. (p. 513)
Hubris: Those who think they know better than the market because there is no way for a person or a group to have all the knowledge this is embedded in the market.
F.A. Hayek’s essay explained this knowledge problem — that no one can know all the information necessary to make better allocation decisions than the market.
This gets to the importance of prices as a signal.
Imagine you are putting in new floors in your home. You like the look of wood floors but are indifferent between real wood and tiles that look like wood.
Then the price of wood goes up 25%. You do not have to know why. It could be an increase in demand by others or a drop in supply due to forest fires or trade issues with Canada.
All you know is the price of wood floors are higher than the tile ones. Since you are indifferent, you will go with the tiles.
And that frees up the wood to those who value it more, whether that is in allocating wood to making floors, lumber, or any other use.
How would a government planner know how to allocate the wood? You don’t even necessarily know what your decision would be until you are making it, so they definitely cannot have that knowledge.
That is the knowledge problem, and it is why the government cannot run the economy better than the market.
If a conscious industrial policy had ever been able to achieve a great enrichment, it would have happened before — mercantilism in the small would have sharply enriched ordinary people by a factor of 30 or 100 in imperialist Venice or a protectionist Augsburg or a centralizing Edo. It didn’t. (p. 513)
Things are Looking Really Good. No, really!
The trade tested system of betterment handles shocks and changes better because the information is in the prices, allowing people to make the best allocation decisions.
It also is set up to allow new ideas to come to the market place and see if they are an improvement. In contrast, whenever the government is making decisions, there is an incentive to lobby the government for special perks.
If betterments did not meet a profit test, they died. And it was for the good of the poor people that they should, because otherwise the surviving “betterments” are boondoggles for well-connected chaps, or monuments for the already rich. (p. 522)
Conclusion
Why did the Great Enrichment kick off in Britain? And why around 1800?
…it seems clear, for example, that without the ideas and pen of Adam Smith the rhetoric of betterment would have developed in different ways, if at all…Smith would not have wasted his breath if he had thought ideas were mere reflexes of the interests. (p. 523)
But Adam Smith’s Dismissal of the Transcendent Ultimately Led to the Sociopath Max U
Ideas matter — the idea that the common man should be free to implement his ideas and submit them to the system of trade tested betterment means that you will not allow monopolies and special interests to interfere with progress. Only a commitment to the idea behind the Great Enrichment stops the forces that would work against it.
Reference: McCloskey, Deirdre Nansen, 2016. “Yes, It Was Ideas, Not Interests or Institutions, that Changed, Suddenly, in Northwestern Europe” Chapter 54 and “Elsewhere Ideas About the Bourgeoisie Did Not Change” Chapter 55 of Bourgeois Equality, The University of Chicago Press.
