Austrian Review of Dierdre McCloskeys Bourgeois Dignity: Why Economics Cant Explain the Modern World

[DRAFT open for comments] Introduction As Gary North pointed out in his talk How Come Were So Rich?, [https://www.youtube.com/watch?feature=player_embedded&v=wqmZXvDjEBA ] probably the most important historical question is: Why did the world only recently, starting at some time between 1750 and 1800, steadily become richer and richer? Why is 1950 radically different from 1800, but 1600 is fairly similar to 1800? Dierdre McCloskey's wrote "Bourgeois Dignity" to answer these questions. Gary North calls the book profound. The books shows how we live in an increasingly wealthy middle class world and how there has been a vast increase in wealth since 1800. But why did this occur only since 1800, and why did it start in the West? Dierdre McCloskeys book demolishes other explanations, showing Why Economics Cant Explain the Modern World, and substitutes a compelling explanation of Bourgeois Dignity and Liberty than enables innovation. Given the importance of the topic, people who dont have time to read McCloskeys 592 pages, might like to know: What is this book about? How does McCloskeys claim that economics cant explain the modern world relate to the Austrian school? What are potential problems or opportunities for more research?

Overview McCloskeys book work deserves, and is getting, serious attention. It is an excellent, though partial, explanation for the mystery of why the world only recently, starting at some time between 1750 and 1800, steadily became richer and richer. The answer is in the title, Bourgeois Dignity being Bourgeois became perceived as dignified, respectable, worthy, elevated, and virtuous. This enabled people to innovate, which created wealth, transcending diminishing marginal returns. McCloskey uses the volumes 592 pages to explain the title Bourgeois Dignity: Why Economics Cant Explain the Modern World. (The next book is supposed to explain the actual transformation.) While the book does seem a bit wordy, it was easy to quickly read and understand. What is of particular interest is the subtitle, Why Economics Cant Explain the Modern World. McCloskeys work is an attack upon the current dead materialism of typical economic explanations. Her approach and terminology is not Austrian, but it corresponds with the centrality in the Austrian School of the living humanity of the human actor. McCloskey emphasizes the importance of language, innovation, and implicitly imagination in economics, and the failings of scientistic economics or economistics emphasis on the quantitative and exclusion of the qualitative.

McCloskeys Purpose Her goal is to show that there exists a great fact, that in the last 200 plus years vast numbers of people are 16 to 100 times richer than their peasant ancestors, and that typical economic explanations for the great fact are insufficient to explain the recent appearance in history of compound growth. She tackles each of the primary explanations in turn and shows that they cannot explain continual improvement. The typical arguments involve re-distribution or re-shuffling, not a hundred fold wealth creation. Accumulation on its own does not explain it, because of diminishing marginal returns. Foreign trade was not big enough to explain it. Race does not explain it. The common arguments that the west grew rich through exploiting and looting the peasants, workers, and third world, is disposed of by explaining at length that the real and imagined victims never had enough wealth in the first place to enrich the ever larger, ever spreading, ever wealthier middle class. They got rich through internal trade and increasing innovation in productivity and better products that enable capital accumulation. The big change enabling innovation was: Dignity of going in to trade and invention combined with liberty to innovate and trade freely. The paths to respectability lead not just narrowly to Throne and Altar. The great engineer Brunel, son of French immigrants to England illustrate this. In 2002 Brunel came in second in a BBC public poll of "100 Greatest Britons." This explosion of applied innovation, often merely in small mundane details, created wealth. McCloskey stresses that our continued and spreading prosperity depends on sustaining the Bourgeois Dignity and the innovation it enables.

How do we know were so rich? While the reader may be well aware that ordinary people are wealthier, it may be good to contemplate the difference between 1800 and 1950. Imagine no electricity, airplanes, cars, dishwashers, washing machines, refrigerators, or gas stoves. Then imagine no steam powered factories, railroad, or ships, and no telegraphs. Then imagine the difference between 1800 and 1600, whatever the improvements it is hard to imagine that change was as drastic. Compared to 1800, McCloskey says were 10 to 50 times richer. The world supports 6.5 times as many people. Yet less people are starving. In 1800 most people were desperately poor, consuming about $3 a day, and dying young. There was little clothing, or food besides starches. People in Western Europe and the USA are unarguably wealthier compared to 1800. Statistics on poverty in the USA show even poor people have cars, appliances, and plenty of food. Even houses are getting substantially larger. However today, despite population growth, the absolute numbers of poor people in the world are shrinking. Middle class life is becoming a reality for many as developing countries really are developing.

This change has been going on for some time, since about 1750 or 1800. The historian Thomas Babington Macaulay wrote a great essay in 1829 attacking Southey's Colloquies on Society. Southey imagined Sir Thomas Moore would bemoan the state of England. For Macaulay even in 1829 there was obvious progress in England itself, though few others noticed it. In Scandinavia the poor mixed bark in to their bread. Some French peasants had no bread. Despite earlier history of famine, English thought themselves oppressed if they couldnt buy wheat bread. In the days of Queen Elizabeth poore neighbours in some shires are inforced to content themselves with rye or barleie; yea, and in time of dearth, many with bread made eyther of beanes, peason, or otes, or of altogether, and some acornes among. He goes on for some length in the essay and in his History of England about the improvements in roads, medicine, houses, population density, towns, agricultural lands, etc. Yet England and world was about to an even greater change as the industrial revolution broke out. The bottom line is that weve seen steady 2 % growth. It is initially imperceptible, few even noticed its effect in 1829. 50 Years means 270% growth, but 5200% growth over the last 200. The change is enormous.

Why McCloskey thinks the standard explanations are insufficient McCloskey summarized her views follows: Foreign trade was too small and too prevalent worldwide to explain the rising tide in northwestern Europe. Capital accumulation was not crucial, since it is pretty easily supplied. [* Given a social environment of Bourgeois liberty and dignity.] Coal can be and was moved. Empires did not enrich the imperial countries, despite what you may think, and anyway the chronology is wrong, and anyway imperialism was commonplace in earlier times. Likewise, the institutions of property rights were established many centuries before industrialization. Greed didnt increase in the West. In bourgeois countries during the Industrial Revolution the Catholics did just as well as did the Protestants. The Muslims and the Hindus and the Buddhists, or for that matter the Confucians and most of the animists, thought as rationally about profit and loss as did the Christians. Populations had grown in earlier times and other places. Until the eighteenth century many parts of the Far and Near and Southern East were as rich, and appeared to be as ready for innovation, as parts of the West except at length in the crucial matters of the dignity and liberty of the bourgeoisie. Until the seventeenth century the Chinese and the Arabs practiced a science more sophisticated than the one the Europeans practiced. The science of the Scientific Revolution was in any case mostly about prisms and planets, and before the late nineteenth century even its other branches did not much help in worldly pursuits (European science, though, was in its non-normal, revolutionary episodes an interesting parallel in the realm of ideas to the acceptance of creative destruction). [This could be made in a list of bullet points. Maybe some short additional explanations if needed for any items.]

We should note the following. By capital accumulation she means not Mises capital accumulation but Marxist or materialist capital accumulation - routine, getting more money, more bricks. Materialist capital accumulation is not key, capitalist innovation is. Or to put it another way, in order to accumulate the capital we have today you need innovation, which is a form of savings. Similarly she notes that in many cultures thrift is common. People live within their means. Thrift doesnt imply investment opportunities. McCloskey even claims that in England investment rose with investment opportunities. It could also not have been conquest. Conquest is a symptom, and doesnt explain why a culture could have the ability to conquer. Raw exploitation is not answer: Why would anyone steal from the poor anyway, they dont have any money? In order to gain wealth through exploitation you have to have productive people producing wealth to exploit. This begs the question of how the exploited people became productive producers of wealth in the first place. Shortly well go in to the principles of why McCloskey thinks other economic explanations fail to explain. McCloskey believes innovation is the explanation, and Bourgeois Dignity explains the unleashing of innovation.

Rise of the West Models I believe there are some standard explanations for the rise of the West, in books like Rise and Fall of Great Powers, and Guns, Germs and Steel. These include, east to west diffusion of technologies meant Eurasia had the best technology, and the west had access to similar technology as India, Japan, Ottomans, etc. Europes geography made hegemonic power difficult to achieve. After Rome there were competing multiple power centers in Western Europe. Since states with bad economic policies could face relative declines in power, and the migration of productive people to other states, they had an incentive to encourage economic growth. By contrast Japan and China cut themselves off entirely, and the Ottoman Empire and Mughals in India were hegemonic and had little real competition from neighbors or Europe for centuries. This type of model shows the importance of decentralization. However they necessitate some sort of explanation of the cultural, legal, or social order that decentralization enables. Since this order sounds suspiciously value laden, it is not surprising the scholars shy away from it. Ralph Raicos paper on The European Miracle reviews the literature on the topic. [ http://mises.org/daily/2404 ] It emphasizes the importance of decentralization in the middle ages, and the steady resistance to centralization provided by the independent Roman Catholic Church, feudal lords, towns, and the parliaments, diets, estates-generals, Cortes, etc., which served to limit the powers [especially taxation] of the monarch. This still raises the question of why there was such a big permanent change that took place by about 1800. Why was 1950 so radically different from 1800? Why had the pace of change accelerated? Why

was politically fragmented Germany an economic laggard? Why did it later successfully spread throughout the west, and then later to the rest of the world?

Why innovation is so important for past and future progress Explanations that ignore Innovation dont take in to account a key economic fact: Diminishing Returns are implied by Marginal Utility. Without innovations we have diminishing returns, especially from attempting to accumulate capital. Every routine investment replicating the same capital will show diminishing income and eventually capital loss. Having more horses wont create more productivity the way reapers and tractors will. More capital goods are good, but better or more innovatively deployed capital goods are better. We need capitalist innovation, not just material capital accumulation. [Capital accumulation in Mises sense means saving and then spending those savings on labor and intermediate goods that produce income. But diminishing marginal returns means that without innovation the price of the products sold will fall and the price of the inputs will be bid up, which leads to falling income and eventually no opportunity for capital accumulation.] Innovation also means entrepreneurship, organization, and methods, not just material capital. Investment in the same old traditional agricultural technology does not create returns like investment in: "Innovating in clay-pipe under-drainage and plant breeding and forward markets and mechanical reapers and experimental stations and diesel tractors and rail car delivery systems and hybrid corn and farm cooperatives and chemical herbicides does." Only a few agricultural workers are needed today because capital is qualitatively better, escaping diminishing returns from more of the same. In other areas like autos and computers we see innovation today. While cars are an old technology, inexpensive used ones, with AC, Stereos, Power Steering, etc., can last decades. Computers show constant innovation, with a doubling of processor capability every 18 months. According to McCloskey cloth making during the industrial revolution saw similar leaps in innovation. [The example of Japan over last 20 years according to Kel Kelly http://mises.org/daily/5170/The-Myth-of-Japans-Lost-Decades show people are actually increasingly better off. This implies that innovation has allowed a supposedly stagnant economy like Japan to grow. While it might not appear to be accumulating capital, by replacing its capital with better capital it can become better off.] McCloskey believes that if we keep innovation, society can withstand social democracy and the welfare state. Well no doubt discover the answer to this question in a few years as the EU implodes and the USA runs trillion dollar deficits. Hoppe made a similar point about Scandinavia in his Theory of Socialism and Capitalism, despite high taxes the Scandinavian countries basically allowed citizens to innovate and conduct any kind of business. By contrast Italy and France had regimes with complex controls on prices and innovation that created poverty (despite tax evasions status as an honored pastime.)

What explains innovation?

McCloskey says a change in rhetoric led to innovation. The Bourgeois was given dignity and liberty through rhetoric and language. Bourgeois are dignified because they have virtues too. With a new perception of Bourgeois activity as honorable, social and legal pressure on trade, innovation, entrepreneurship, etc. was lifted. [In drafts of the next volume, The Bourgeois Revaluation, she shows how Bourgeois traits needed for capital accumulation, e.g. thrift and calculation, ethical and monetary accounting, became dignified. However capital accumulation, entrepreneurially investing time and capital in to producing more income, was beneath the dignity of honorable and honest Aristocrats.] The old way was what we call a Zero Sum Mentality. Montaigne illustrates this mentality when in Essay 22 he writes no profit can possibly be made but at the expense of another, as Mises [ Human Action p. 600 ] and Rothbard pointed out. [ http://mises.org/daily/4215 Rothbard also pointed out that the scholastics by contrast were well aware that trade was mutually beneficial. Sadly even today people object when prices go up after a storm in response to less supply and more demand.] We should not be surprised that looking for profit or advantage, which is the root of entrepreneurship, trade, and innovation, was seen as exploitative or mean. Hume around 1750 says in Political Discourses Commerce, therefore, in my opinion, is apt to decay in absolute governments, not because it is less secure, but because it is less honourable. [ Bourgeois Dignity P. 346 ] The paths to gaining dignity and advancement lead to Throne and Altar. McCloskey points out that Honest referred to Honor, a martial virtue, not to telling the Truth. The big change McCloskey saw unleashing innovation was basically: There was dignity in going in to trade and invention. This was combined with and made legitimate liberty to innovate and trade freely internally. The paths to respectability lead not just narrowly to Throne and Altar, but encompassed literally the building of statues of people like Watt. This meant that social and legal pressure against innovation was lifted. Ordinary people were let loose. Talented people saw more opportunity too. McCloskey makes the important point that people have to be inspired utility is not inspiring. McCloskey wants us to know that the explosion of applied innovation created our wealth. Our continued and spreading prosperity depends on sustaining Bourgeois Dignity and the innovation it enables.

Innovation and Investment The key to growth is investment in innovations, which is conducted by human innovators not routine processes. Innovators in the book need to be comfortable and secure - they have leisure but dont need vast wealth. Wealth, pooled from others, will fund applications of invention. [History also shows how innovative businesses, e.g. Ford Motors, will self fund expansion from their enormous profits.] Innovation is about improvement, the practical, and especially attention to details, petty details. Innovation isnt just science. Kealey also documented that great steam engine inventors were not 'educated' men, and advances in the field of technology had to be scientifically explained, e.g. by Carnot.

Innovation is speculative. Samuel Johnson declared: "Whatever is attempted without previous certainty of success, may be considered as a project, and amongst narrow minds may, therefore, expose its author to censure and contempt;" This relates to Hayek's theme that 'projects' and by extension free enterprise are (incorrectly) seen as 'irrational' by some elites because they're not certain of success. Hayek also showed that such logic implies that any research in science and technology should be seen as irrational.

Why the subtitle is "Why Economics Cant Explain the Modern World," and why it is important The sub-title is Why Economics Can't Explain the Modern World. The book is an attack on dead materialist economics defined by routine and equilibrium, and in favor of subjective economics of real live people - with innovation and perpetual movement towards equilibrium without ever reaching it. McCloskey shows over and over again that the typical economic explanations in the literature simply dont explain the explosion in wealth. Many economic commentators assume routine property rights and material or money capital accumulation are enough. However, McCloskey points out that without innovation property rights dont lead to much, though without property rights it is hard to have much innovation. Similarly capital accumulation, or even improvement in general, as a routine doesnt explain much. As we noted above Diminishing Returns are implied by Marginal Utility. Economics fails to fully account for that. As she says Investment in the same old traditional agricultural technology does not create returns like investment in innovation. Focusing on economic development through quantitative capital accumulation is illogical, whether your goal is growing economies, taking developing countries out of poverty, or explaining history. Explanations that fail to take in to account diminishing marginal returns are theoretically inadequate. Yet many would rather ignore diminishing returns than abandon materialism. Typical economics sees growth as accumulation of homogenous capital. However it should be obvious that there are diminishing marginal returns to more of the same, be it capital goods or consumer goods. As an eminent physicist pointed out after WWII "If government R+D had been around in the stone age we'd have amazing stone tools, but no metal ones." The point is qualitative leaps in capital goods and products, not just more of the same. Improvement is subjective - though in the case of capital goods it may appear more objective, (e.g. measurable productivity increases,) it is still specific to a historic context. (Electric motors without electric power are useless.) McCloskey supports a subjective economics of real live people. There are people who innovate, and not just because theyre utility maximizers. There is perpetual movement towards equilibrium. Improvement is subjective based on the values of real people. McCloskeys works stands as a rebuke towards economists who see only the material and not the human side of economics.

McCloskeys Terminology and the Austrian School

One might ask, how does McCloskeys attack on economics relate to the Austrian School? To understand the impact we have to keep in mind that she has specific definitions of economics, property rights, and capital accumulation that are different from Austrian School definitions. For McCloskey Economics means materialist economics, characterized by routine and equilibrium. Austrian economics means subjective economics of human actors, driven by non-routine entrepreneurial activity to meet changing demand. In McCloskeys book property rights seem to mean primarily basic land holding and the right to ones pre-existing goods and money. McCloskey sees property rights as necessary but insufficient, and the Austrian School agrees that such a limited definition is also insufficient. The larger concept of property rights, e.g. in Rothbard and Mises, refers to rights to innovate and trade as well. McCloskey does not seem to mean the right to transfer or freely exchange property when she talks about property rights. McCloskey, like the Austrian School, sees older societies as restricting the liberty of the Bourgeois to innovate. In this volume she does not go in to very much detail, but she gives examples like a Chinese village outlawing a more efficient sickle. European history documents rampant restrictions on free exchange, including price controls on goods and labor and banning new products. This restriction on trade contrasts with the strong emphasis on property rights in land and goods in Europe and many other cultures in history. The Austrian School however sees trade as an integral part of property rights if you own it you can trade it. Capital accumulation means to McCloskey the materialist or Marxist economists definition of more things or more money. Mises defines capital accumulation as saving, and spending those savings on specific capital that will produce income, because the capital serves customer demand. [Human Action p. 260-262, 288] As we noted accumulating the same old capital leads to diminishing returns progressively lower income as profits are competed away by replicating successful profitable actions - so one has to innovate to escape. [Also see Mises discussion of declining profits in Human Action p. 293] Mises criticized the Marxist view that capital accumulation is simply accumulating piles of money or non-specific homogenous capital. Mises summarizes his view as follows. The vehicle of economic progress is the accumulation of additional capital goods by means of saving and improvement in technological methods of production the execution of which is almost always conditioned by the availability of such new capitaI. The agents of progress are the promoting entrepreneurs intent upon profiting by means of adjusting the conduct of affairs to the best possible satisfaction of the consumers. In the performance of their projects for the realization of progress they are bound to share the benefits derived from progress with the workers and also with a part of the capitalists and landowners and to increase the portion allotted to these people step by step until their own share melts away entirely. [Human Action p. 295.]

Mises and Rothbard however saw innovation as part of capital accumulation, and saw that the entrepreneurs profits stem from innovatively serving market demand not just routinely piling up capital. Innovation is a form of capital accumulation and savings - time is invested in study, experimentation, and innovation. All profit is also subjective, invisible not material. Capital for Austrians is also not the homogeneous mass it is for materialist economists, it is a made up of specific things that add value within a historical and subjective context of living men and women. In fact Mises goes so far as to say that capital is basically imagined. The idea of capital has no counterpart in the physical universe of tangible things. It is nowhere but in the minds of planning men. It is an element in economic calculation. But a changing industrial economy cannot do without economic calculation and its fundamental concepts of capital and income." [Human Action P. 511.] Both McCloskey and Austrians agree that is incorrect to scientistically reduce unmeasurable quality to quantitative measurements, when the qualitative, (subjective value in the Austrian School,) is what drives economic activity. Mises in Human Action [ Pages 8-9 and Pages 613 ] offered an explanation for the industrial revolution. It was the ideas of the classical economists that removed the checks imposed by age-old laws, customs, and prejudices upon technological improvement and freed the genius of reformers and innovators from the straitjackets of the guilds, government tutelage, and social pressure of various kinds. It was they that reduced the prestige of conquerors and expropriators and demonstrated the social benefits derived from business activity. None of the great modern inventions would have been put to use if the mentality of the precapitalistic era had not been thoroughly demolished by the economists. [P. 8 http://library.mises.org/books/Ludwig%20von%20Mises/Human%20Action.pdf ] Like McCloskey, Mises sees a change in prestige and mentality as important factors in change. Mises on page 9 of Human Action points out that economic freedom was not the ideological superstructure, an effect, but rather the cause, the ideological foundation that growth depended on. Similarly McCloskey sees Bourgeois Dignity and Liberty as the condition for innovation and wealth. We see how in the Austrian School version of economics, property rights and capital accumulation do explain growth, but not in materialist economics. McCloskeys work even appears to expand the insights of Mises and Rothbard in to the origins of the industrial revolution. Austrians can benefit from McCloskeys work, emphasizing as it does the qualitative and subjective aspects of human action and the failings of mainstream notions. Without free innovation and qualitative subjective improvements we cant escape diminishing marginal returns.

McCloskeys Innovation

McCloskeys big innovation is probably to push hard on the idea that language and rhetoric and ideas matter, and changing rhetoric has big impacts. Ideas have consequences. Economics tends to ignore language especially. "It is a materialist prejudice common in scholarship from 1890 to 1980 that economic results must have economic causes. But ideas caused the modern world." [ http://www.deirdremccloskey.com/weblog/2009/09/25/the-argument/ ] "If you think of language as being merely a transparent system of signs to convey representations of pre-existing things you overlook its persuasive slant." p. 258. Materialist economists dont think that the material "can have an ideal and rhetorical ultimate cause." p. 267. As we pointed out above, Ludwig von Mises did not agree with this point of view. He also said "It [Capital] is a product of reasoning, and its place is in the human mind. It is a mode of looking at the problems of acting, a method of appraising them from the point of view of a definite plan. *p. 512+ One obvious issue with thinking the material has no ideal cause, is that anyone reading this is probably surrounded, not by a natural world, but by material things transformed by humans in to their present shape material copies or versions of an ideal. On top of this, language can help affect what we think those things are. (Even our concepts of thing and to be can and did change over time.)* [* See Owen
Barfield, Saving the Appearances. Basically under the influence of natural science things, or rather our representations, became dead and material, even man himself, whereas primitive man saw phenomena as obviously not dead. Being and things had the connotation of energy, breath, spririt, living process, etc. The root of to be meant not dead stasis but to grow and breathe.

Language is between people, and creates a shared reality. If our reality changes were not living in the same apparent world anymore. (This isnt to say ideas dont have consequences. If our shared reality supports totalitarianism we get all the genocidal consequences of that reality.) If the Bourgeois and their innovative activities and accumulation of wealth is perceived and spoken about as worthy and dignified, then custom and law will reflect that and give them liberty. However if the activities are seen as unworthy or vaguely criminal, liberty will be less respected. Macaulay made the point that activities deemed vices are usually more vicious, and less vicious when not deemed vices. McCloskey points out that apparently people acted better seeing their activities as respectable, and found ways to be respectable. People will also avoid the cost of activities deemed undignified. (Interestingly today more glamorous/creative fields tend to attract people willing to accept lower pay vs. say plumbing.) Honor for status and governmental positions, e.g. priest, officer, large land owner, noble, bureaucrat, usually crowded out innovation activities. Similarly there has to be real demand by other people for innovative goods, both capital and consumer. Investment in human capital i.e. oneself and one's skills, ability, knowledge, technique, etc. are wrapped up in social and self evaluation.
Barfield see our lived reality as imagined.]

Part of what is extraordinary is that ordinary people can have bourgeois dignity. Opportunities are created for extra-ordinary people of ordinary backgrounds, people who otherwise would be limited or compete for limited status positions before Throne and Altar. Her six volume work is itself a rhetorical project to support the dignity of being bourgeois and the opportunities that has given to ordinary people.

Spontaneous Order and Bourgeois Dignity Interestingly language, (common) law, custom, extended chains of trade, capital accumulation, are all similar phenomena. They are terms referring to the real social interaction of individual people. Theyre un-designed or spontaneous social orders. The order is often difficult to articulate, e.g. children follow grammar without being able to explain grammar, and in the case of economics order is often invisible to observers. (Not surprisingly as it is not directly visible, but must be imagined.) The behaviors are imitative and changing over time, and the order develops unintentionally. On a meta level, stable underlying rules or principles can also lead to social change. If a change in language led to changes in the other areas, one could also presume an iterative process from other areas changing language. Since language is close to the root of how we view the world, it is probably key. Many buy in implicitly to the Marxist conflation of Mercantilism (Accumulation of Capital under a Regulatory State) and the Free Market in the concept Capitalism. They see no incompatibility between private ownership and censorship, tariffs, price and wage controls. Markets though imply exchange, and free markets imply free exchange. Free markets and private property enable innovation, and McCloskey is using innovation and its benefits as an explanation of our wealth and to thereby justify free markets and reinforce liberty.

Potential Problems McCloskeys book focuses on the fact of a change and why materialist economics cant explain it, and why Bourgeois Dignity could explain it. However it does not provide a detailed enough explanation of the historical change, which begs questions which will hopefully be dealt with in the next book. This book is theory, the next book proof. It seems like many people are naturally innovative, they have to be suppressed. How was this accomplished? What was the political and social mechanism? Or did our world view change from one where people were blind to the possibility of innovation? I didnt feel the book fully answered this, though the next volume may. Why didn't Italy and Netherlands see industrial revolution earlier? What suppressed them? (The innovative people didn't have sufficient dignity? The local town power structures suppressed innovation? Why didnt townspeople have Bourgeois Dignity?) Or were they in fact they leading edge and innovating? How was the nascent industrial revolution and innovation nipped in the bud? Similarly couldn't portions of populations been steadily innovating? Critical mass had to be reached and people adopted it. (Why didn't they adopt it earlier?) Maybe too they were victims of constant suppression. (History does seem to show steady regulations restricting free exchange and suppressing innovations, though respecting property rights in land and gold.)

There seems to be plenty of evidence in Shenoys Towards a Theoretical Framework for British and International Economic History: Early Modern England. A Case Study that England post 1500 saw large increases wealth and innovation and integration of the population in to the market and extended chains of production. (Macaulay saw enough noteworthy progress to devote an entire chapter, Chapter III, in his History of England to the Great Change in the State of England since 1685 .) There is also a concept called the Agricultural Revolution to address the large increases in agricultural productivity in England prior to the industrial revolution. It seems quite difficult to show that there was not steady progress on one level, and yet contrasting the period 1800 to 1950 vs. 1500 to 1800 seems to show an acceleration in need of explanation. McCloskey implies that the economic was tangled up with political and social. This intriguing thought wasnt articulated. If people didn't realize it was something separate and capable of improvement, they'd be less likely to try to improve it. This would be a good area for further work. It is known that there were all kinds of legal suppressions, especially at the local level, of free exchange and innovation between 1500 and 1800. [Human Action pages 8-9. http://library.mises.org/books/Ludwig%20von%20Mises/Human%20Action.pdf ] For instance apparently in England it was illegal for 'foreign' merchants who weren't residents of a town to trade with each other when visiting that town. Goods traded could be confiscated. *Shenoys Towards a Theoretical Framework for British and International Economic History: Early Modern England. A Case Study p. 509 ] This legal regime felt insufficiently explained. Im surprised this is not in fact a standard economic explanation, even among materialists, in fact I think Ive encountered it. I believe it is called The Free Market. I find it hard to understand how a bourgeois liberty is not clearly a legal change, yet McCloskey seems to resist this idea focusing instead on dignity. It seems like what was missing was transference of property by consent - one of the three things, besides private property and the keeping of promises embedded in contracts, that Hume said was necessary for civil society. [David Hume, A Treatise of Human Nature. Book III, Part II, SECTION VI.: Some farther reflexions concerning justice and injustice.] This implies, unlike non-transferable private property rights, the right to sell new and innovative products and services. Much innovation and growth took place in the interstices, initially areas outside feudal control, and areas not regulated by the State or by towns. Stiff English price controls and regulations on innovation were often avoided by setting up enterprises in uncontrolled rural areas, as international trade restrictions were avoided by smuggling. It seems like there are some similar known arguments that cumulatively run as follows: Roman Empire dissolves. Multiple kingdoms, feudalism, and an independent Western Church in the Holy Roman Empire provides competing powers. This spurs innovation in military affairs and technology. Middle ages werent stagnant. With the rise of states, states that overly suppress economy cant support military affairs, suppressed and skilled populations move elsewhere. States also depend on some taxes and therefore a money economy. There was in fact progress and innovation. However there was also plenty of suppression of innovation and free exchange by feudal, city, and state elites though confiscation of landed property and gold was not generally practiced as in some other areas.

The Netherlands in particular though did manage to form a stable level of freedom sufficient to show the advantages in wealth and power relative to its small size, (though it was too small to avoid being attacked and damaged by France during Louis XIVs reign.) England and others saw the wealth in the Netherlands. England adopted many liberty ideas, and was protected by water. At a certain point even land barons and mercantilists began to see the value of innovation and increasing their productivity and wealth. Burkes patron Rockingham for example was noted for improving his vast estates. England grew very powerful compared to its small size, basically financing the wars against the French Revolution and Napoleon. Over time legal changes occurred that increased economic, and other, liberty. Those states that didnt provide sufficient liberty stagnated in an obvious way and given the large number of states there was competition. This particularly came to a head in the 18th century. Mises argued that people saw too clearly the gains from freer markets to resist the trend. As mentioned before, Ralph Raicos paper on The European Miracle reviews the literature on the topic. [ http://mises.org/daily/2404 ] Rothbard argues in Left and Right: The Prospects for Liberty that liberal inspired revolutions partially smashed the old order of throne and altar, removing restrictions on ordinary peoples daily life and creating vastly freer markets. This created unprecedented prosperity, despite attempts to re-construct the old order. People now expect prosperity and arent willing to go back, and as this old order is smashed in 3rd World countries they too would prosper. [ http://mises.org/daily/910 ] It is not clear if McCloskey really takes in to account lengthening production processes. Infrastructure to produce LED bulbs is way more complicated than making candles which can be done presumably on a farm. Bulbs require trade and machines that make the machines that make the machines. Part of society creates capital goods and lengthened chains of production, and then sells to other people improved capital goods, or build factories increasing capital base and driving up wages / productivity. McCloskey does point out that sectors with smaller productivity increases, can still see gains by purchasing the cheaper products from those becoming relatively more productive over time. If progressive sectors are more productive, we can anticipate huge increases from them without increases in employment. However inefficient sectors, like hand sewing workers and house servants could increase because the productive sector produces enough to support more of them. (Todays service economy come to mind.) Related to this is that saving to replenish capital is not capital accumulation, e.g. saving seeds for the next sowing. However replacing capital with improved capital is capital accumulation, though a materialist may see no increase in capital. (People seeing the death of manufacturing may wish to keep the above in mind. See also The Myth of Japan's Lost Decades http://mises.org/daily/5170 ) Innovation is a lengthening of the production process - innovation for the future - and also includes finding better ways to use existing capital goods in the future. This implies a future oriented and change oriented mentality. This could tie back in with language. For example, contrast a mentality that takes language or things as given and unchanging, in that case the idea of a world that changes, where the future or past is substantially different may be very hard to grasp. The obvious explanation for growth that seemed left out of the book was The Free Market - Humes transference of property by consent, entrepreneurship, and free trade in goods and services on a local level and on up allowing innovation. This was clearly not a given in most times and places, but is a feature of growing economies and especially the high growth sectors. It is also popularly thought to be a

well known conclusion of Economics that Free Markets are good and responsible for prosperity. I suspect McCloskey did not bring up this point for two reasons. The first is to mercilessly pillory todays Economics for being materialist and ignoring the qualitative in favor of the quantitative; despite diminishing marginal returns implying that prosperity, including quantitative improvements, is inexplicable unless derived from qualitative improvements. The second is that the explanation of innovative free markets begs the question - what caused the innovation and free markets to be accepted? McCloskeys explanation is Bourgeois Dignity society accepted that these activities have dignity and hence everyone should be at liberty to conduct them. This creates another problem, why was Bourgeois Dignity accepted? This idea came from the Netherlands, and its success in the Netherlands led other countries starting with England to imitate the Dutch. So why did the Dutch come to believe in Bourgeois Dignity? Gary North proposed an idea in his talk How Come Were So Rich?, * https://www.youtube.com/watch?feature=player_embedded&v=wqmZXvDjEBA ] . He asked what was the source, the spring, of this new rhetoric in the Netherlands. Preachers might be an obvious source as they were a common denominator spreading ideas. What did they preach? North proposes three key themes. [North thinks you need reasons but you dont just need reasons. Offering people a different way to look at things may not necessarily be reason as much as poetry. ] 1. Personal wealth is legitimate [including when derived from trade.] It is good to become more prosperous, that is a sign of god's favor and confirmation of the covenant for ethical behaviour. (Dueteronomy 8:17 And thou say in thine heart, My power and the might of mine hand hath gotten me this wealth. But thou shalt remember the Lord thy God: for it is he that giveth thee power to get wealth, that he may establish his covenant which he sware unto thy fathers, as it is this day.) 2. Optimism for the future. Postmillenialism - the spread of Christian Ethics will usher in a golden age, the kingdom of god on earth. This is secularized as future preference. 3. Self interest is also socially beneficial. Serving your enlightened self interest by serving the customer is socially beneficial and transforms the social order. This links themes one and two. We shall see if McCloskey or anyone will be able to prove the cause of belief in Bourgeois Dignity. However it is plausible that these themes would certainly legitimize the Bourgeois. There is still much to research.

Conclusion McCloskeys main point in the series is to defend the Bourgeois and by extension our existence. In this volume it is to show that materialist economics is insufficient to explain and defend the Bourgeois order

from its enemies. Materialists have eyes and see not. Materialist economics is a dead idol, and needs to be smashed. Innovators work in the material world, but they build the future in their image. Entrepreneurship and innovation starts with an act of imagination, not mechanical decision making. While de-anthropomorphizing the natural world makes sense, economics is about humans and cannot be inhumane or de-personalized. Only people imagine and then decide to act. What is needed is humanomics, economics in the tradition of the Austrian School and the Scholastics with moral, acting, valuing, and speaking humans.