For most of human history, most people lived in abject poverty and cultural and technological stagnation. Only in the past 200 years or so has humankind seen a flourishing of new ideas that has led to our current state of relative health, wealth, safety, and happiness.
Deirdre McCloskey says the difference lies in the power of market institutions and a burgeoning respect for those that participate in them. Celebrating innovation—not protecting people from it—is the key to explaining this exponential growth.
Aaron Ross Powell: Welcome to Free Thoughts from Libertarianism.org and the Cato Institute. I’m Aaron Powell.
Trevor Burrus: And I’m Trevor Burrus.
Aaron Ross Powell: And joining us today is Deirdre McCloskey. She’s Emerita Distinguished Professor of Economics and of History and Professor of English and Communications at the University of Illinois at Chicago. She’s the author of many books, most recently Bourgeois Equality: How Ideas, Not Capital or Institutions, Enriched the World. Welcome to Free Thoughts.
Deirdre McCloskey: Well, thank you. I’m thrilled to be here.
Aaron Ross Powell: So with this last book Bourgeois Equality, you’ve reached the end of your bourgeois era trilogy.
Deirdre McCloskey: Yes. Praise the Lord!
Aaron Ross Powell: These three books, big books, I mean to say they cover a lot of ground would I think be to understate the matter a bit. For our audience who has not waded into all three or even one of them yet, can you give us a thumbnail sketch?
Deirdre McCloskey: Sure. The three are a defense of what is unfortunately called capitalism and it’s a full board defense. It’s not just economic, although I think you can make a very good economic case in favor of capitalism. But it’s social and political as well.
The kinds of evidence that I use range from quantitative economic calculations right through Shakespeare and Jane Austen.
Trevor Burrus: That’s really the gamut. I know what goes in between those two things. In the middle of it is like The Hitchhiker’s Guide to the Galaxy. Is that on that continuum? So what are you trying to explain in these books?
Deirdre McCloskey: Well, I’m trying to explain modern economic growth. The most important secular event in human history is that in 1800, the average person on the planet earned in modern Washington DC prices $3 a day. Earned and spend $3 a day and now the average American earns and spends $130 a day in the same prices.
Trevor Burrus: What’s the world average?
Deirdre McCloskey: The world average is $33. It’s about the same as Brazil’s in comparison. It’s like Brazil is the average. China is about $20 a day. India about $10. This is just an immense improvement and it’s the central question as the blessed Adam Smith said, the nature and causes of the wealth of nations.
Aaron Ross Powell: What does it mean to say that someone lives on $3 a day versus $33 a day …
Deirdre McCloskey: A hundred and thirty or say $33 for the world average.
Aaron Ross Powell: So when we’re talking about how the world for most of its history lived on $3 a day, that means that they were – on an average day, they purchased what we – an amount of stuff equal to what we today could buy for $3?
Deirdre McCloskey: That’s right. So it allows for inflation.
Aaron Ross Powell: OK.
Deirdre McCloskey: It allows for exchange rates. I mean these figures are very rough of course. But the order of magnitude is not in doubt and there’s no economic historian who will contradict the rough order of magnitude involved. It’s an amazing change and there’s nothing like it in the glory of Greece and grandeur of Rome and Song China and the Italian Renaissance. You might get a doubling but this isn’t a doubling. This is a factor of 30, 2900 percent.
Trevor Burrus: So that fact has been – people have tried to explain this before. Economists are aware of this fact. It’s a hockey stick as you could say.
Deirdre McCloskey: It’s a hockey stick.
Trevor Burrus: And that fact is – as you said, even Adam Smith thought that this was an interesting question of why our nations …
Deirdre McCloskey: Although I must say the sharp awareness of the hockey stick, the amazing – the blade of the hockey stick shooting up, that’s rather recent. That’s in the last say half century or so that people have really seen, “Oh my god! It’s that high?”
Trevor Burrus: Yeah. So it’s a thing my dad once pointed out to me that if you were to take a time machine from maybe 1000 BC, if you were an average person living in 1000 BC and you took a time machine to 1400 AD in say England, you would not have that much to – meaning maybe some – the fashions would be different but it’s still toil is the name of the game. Most people can’t read and …
Deirdre McCloskey: Early death, unable to read, eating a very narrow and unhealthy diet. Housing is terrible. It’s a hut with a hole in the roof with a smoke worldwide, everywhere. Then there’s a tiny group of kings and priests who might live better than that. But even Louis XIV, the Sun King in Versailles, 1700, you know, he was subject to smallpox. When he rode around his carriage, it was bumpy and people waited on him in the great Hall of Mirrors at Versailles. There were no bathrooms. There were no bathrooms in Versailles. So if you had to heed the call of nature, you went out into the stairs and peed.
Trevor Burrus: The king didn’t do that.
Deirdre McCloskey: The king didn’t do that. He had a special place where he would be with all his dukes around him to help him pee.
Trevor Burrus: So that was his great wealth difference between …
Deirdre McCloskey: In fact, yes. In fact there has been an awful lot of talk about inequality recently and I think it’s deeply foolish because the real inequality was in 1800 and before. Rich people in the 18th century in Europe would have orangeries that are in their backyards. They had a backyard. They would have orange trees and lemon trees and so on.
So they didn’t get scurvy whereas if you were a poor person subsisting on black bread, you could get scurvy because you weren’t getting enough vitamin C.
Aaron Ross Powell: So this growth then, you – over the trilogy, you’re giving your argument for why and how this happened, which is a – it’s a subtle and really interesting argument and cause. But you’re not the first to tackle this question.
Deirdre McCloskey: No. To put it mildly, as I said, back to Adam Smith and Marx and Schumpeter, all the great economists and historians have faced this question.
Aaron Ross Powell: So then prior to Deirdre McCloskey coming on the scene, what are the stories that are typically given or most accepted …
Deirdre McCloskey: Well, there’s one on the left, which is Marx and others, which is that the “great enrichment” as I call it, the 19th century was caused by exploitation. The slave trade for example, which has become popular again among young historians or simply exploitation of the workers. We then take the so‐called surplus value and you invested in machines and that causes the modern world. So that’s the left side.
On the right, it’s about virtuous capital accumulation. You abstain from consumption as we economists say and then use that money to invest in ports and carriages and houses and machines. They both – both of these explanations depend in a sense on the word, very word “capitalism,” which as I said earlier is not a very good word describing what the history of the last two centuries has been.
The problem is that sheer piling of bricks on bricks or even university bachelor’s degrees and university bachelor’s degrees reach diminishing returns very quickly. You can build a factory and then can build another one next door and then hey, let’s do a third one and a fourth one and a – you can see that this is not going to work out.
Trevor Burrus: You don’t get the exponential …
Deirdre McCloskey: You don’t get the exponential. What you do is you get declining returns on the next brick and it declines and declines and declines. John Maynard Keynes pointed out that without innovation, you could drive the interest rate down to zero in a generation or two.
So it can’t be just accumulation. In any case, humans have always accumulated. They accumulated Acheulean hand axes by the hundreds when they were in the caves and the Chinese built the Great Wall and then built the Grand Canal and so on. So investment, whether it comes from exploiting the poor or from virtuous savings, can’t be the key.
What has to be the key is innovations. I call them market‐tested betterments. That is an idea like the railway, which is a combination of rails that they used in coalmines to move the carts with coal in them to the head of the mine, with a high pressure steam engine. Not the great, big, slow things, atmospheric engines, but high pressure.
You combine those two and suddenly you have the railways and there has been just this amazing burst of innovation since 1800. My explanation is not this capital accumulation idea or even institutional change. But my idea is that there was an ideological change and that people started admiring market‐tested innovation or indeed admiring markets much more than they had before and that made everyone bold. It made the ordinary person think, “Gee, I can invent a cherry core …” I’m an orchard man in Wisconsin in the 19th century with a lot of time in my hands in the winter.
I can invent still another cherry core taking the – not core. Pitter, taking the pit out of the cherry. So you get this just amazing screw propellers, the bands, the electric motor, the internal combustion engine, blah, blah, blah.
Trevor Burrus: So emergent and I mean – I will use a time and you can correct me, but let’s say 1250, is not respected or – is it they’re not – also an inventor is also not respected unless they’re doing maybe – inventing a new stirrup for the horse for the charge or for the long bow.
Deirdre McCloskey: Exactly. And military innovations were admired. The very word “innovation” as you can see if you look at the history of the word in the Oxford English dictionary, is a bad word until the 1800s. In 1700s and before, oh no, geez, let’s not innovate! God, that would change things. It would disturb the great chain of being from king to family dog. No, no, we can’t do this.
It only becomes a positive word. We all think that innovation is grand. No one in the last hundred years have thought that innovation is a bad idea although actually some of our friends in the left …
Trevor Burrus: Are starting to think that.
Deirdre McCloskey: Well, they always thought that mechanization causes unemployment, which it doesn’t.
Aaron Ross Powell: Is there a difference between thinking innovation as a general concept or as something that happens in the abstract is good or bad versus how you respond to on‐the‐ground individual innovations? Because I’m thinking like – you mentioned our friends in the left. Like they – in general if you ask the other people on the left, like, yeah, innovation is great. But then when there’s on the ground, like we’re going to replace taxi cabs with Uber, well that’s bad.
Deirdre McCloskey: And in Germany, they’ve outlawed Uber. Yeah, the problem is protectionism. You can call it lots of names. You can call it mercantilism. You can call it “don’t do it in my backyard”. You can call it all kinds of things and it’s the impulse to protect John from the competition of Janice. In fact, American progressivism 100 years ago did protect John from Janice, made it much harder for women to be employed and that was on purpose. It was to protect middle‐aged white males, Native Americans, against the women and the immigrants and the blacks and the young people who might compete against them.
So that has been – as you point out, it’s kind of a tension on the left because the left – I mean Marx was a great – had a great vision of improvement of innovation. He believed that the bourgeoisie and capitalism as he called it were the great – were these great improving forces in history and then that socialism would be plucked as the right fruit from this capitalist society.
But his followers have gone back to a much earlier version of economic thinking, namely protect, protect, protect. The way I explained it to my students is I said, look, OK, you want to be protected against Mexico. Why don’t we protect Chicago against the rest of the world? Why don’t we protect the South Loop against the rest of the world? Why don’t we protect my house against the rest of the world and I will make all my own stuff and I will be fully employed?
And then they can kind of see that this is a crazy vision of the future.
Trevor Burrus: So I want to try and connect these two ideas because I’m still trying to figure out – I think these are connected. So merchants and businessmen and it’s an equality of a certain type, middle class, the bourgeois …
Deirdre McCloskey: Yeah, bourgeoisie.
Trevor Burrus: In Middle Ages have a different level of esteem if no esteem at all. And innovation has little esteem but your contention is, is that it’s not that people started inventing and then got esteem or becoming merchants and then got esteem by bringing more wealth. It’s that they first got esteem and then started bringing or was it more contemporaneous than that?
Deirdre McCloskey: Yes. They first got esteem and then they did well and – but of course there is some feedback. I mean you can see this in the talk in the early 18th century England where merchants are rising in prestige. It’s perfectly planned and one of the arguments is precisely that the – it’s a kind of mercantilist argument. It’s a kind of protectionist military type argument. That the profits and the prosperity coming from the merchants make England and Britain stronger in every way.
So there is feedback. Look, if this what I call bourgeois reevaluation hadn’t happened or no – if it hadn’t resulted in economic success in this explosion of income in the 19th century, we would not be talking about how wonderful it is.
In fact, then it took quite a while into the 19th century for trade‐tested betterment to massively pay off for the working class. It’s the origin of socialism.
Trevor Burrus: So the protectionism thing, I wanted to like try and tie this because one thing that I thought when I read – was reading your first volume years ago was some idea that I had about – the one of the most important things that had to happen for markets to be – to thrive was that you had to believe that certain types of harms were not actionable or morally wrong. So competitive harms. I mean this is clearly a harm. You run a butcher. Someone comes in and starts a butcher, puts you out of business. Maybe puts your family on the street.
Deirdre McCloskey: I published a book and I hope that Gordon’s book does worse.
Trevor Burrus: Yeah. But we think that that’s – it’s like it’s all in the game. It’s something like this. That’s a really important idea.
Deirdre McCloskey: John Stuart Mill is very explicit on this. In On Liberty, he says in a sentence, which I can’t exactly reproduce, the state should not take an interest in complaints of people against competitors.
Unless the competitors are using force or fraud, then the criminal law and the laws of contract and property should be brought to bear. But aside from that, if you – if someone builds a better mouse trap and you’re in the mouse trap industry and you don’t get it, too bad for you. It’s a massive change to have that ethic.
Trevor Burrus: Well, that’s why – I think there’s always this tension. I mean there’s a lot – we always talk about Trump in this day and age. But most – competition is tough and very unforgiving. The government has done a lot of things throughout history to just protect people from competition.
Deirdre McCloskey: Absolutely.
Trevor Burrus: But before we even – that was the way – kind of the very broad view. The only thing government was for in the mercantilist, just to protect people from competition. To foster markets, you need to get people to start thinking that competitive harms are not actionable in that way.
Deirdre McCloskey: It would be interesting and I don’t know this enough. I don’t know the history of the common law well enough. I believe that the common law has never viewed competition of that …
Trevor Burrus: Yeah, it had to be unfair.
Deirdre McCloskey: I mean right from the beginning, it had to be violence or fraud or some sort.
Aaron Ross Powell: Is even this change part of this change in the respect we paid to the middle class and the merchants? Because I can see – like thinking about the way that we talk about competitive harm today, it seems like when the person you are in competition with and who is harming you is someone that you respect, that you believe in the dignity of, then we seem to think it’s OK, whether that’s like the merchant down the street or the other sports team and we got the good sportsmanship.
Aaron Ross Powell: But it seems to switch over to that same sort of competitive harm becomes wrong, impermissible, immoral when it’s done by someone we don’t respect like Trump’s Mexicans and Chinese.
Deirdre McCloskey: That’s exactly what I say in this new book. I speak of the two – the two equalities. The book is called Bourgeois Equality, which is a somewhat surprising title for a free market person to use. But what I mean by bourgeois equality is equality of – equality before the law. That’s essential but it’s not sufficient because exactly as you say, you need equality of social dignity or else the equality before the law is eroded.
The history of European Judaism is a case in point where in the 18th and 19th centuries in all the countries of Western Europe at least, Jews get equality before the law. But they don’t in most countries get equality of dignity. This is a point that Hannah Arendt makes and so you see the result. The equality before the law was abandoned in the 1930s in lots of countries.
Trevor Burrus: That’s interesting because what comes from that seems to be – because Jews created so many institutions of economic cooperation because they had a deficit in dignity even if they were on par in the law.
Deirdre McCloskey: For very good reasons, they were nervous about their Christian neighbors interestingly as we come to know their – their neighbors in the Islamic world were much less hostile to the Jews than were the Christians. But the key is equality and to use another somewhat surprising word, the key idea that is very radical in the 17th century, somewhat radical in the 18th century, and becomes less and less so in the 19th and 20th century is liberalism. In the sense of – not in the modern American sense but in the root sense and in the sense it’s still used in most of the world, namely worthy of a free person. A free person is equal before the law and is equal in dignity.
This kind of equality, not equality of result, which I call French equality of Rousseau and Thomas Piketty. Not French equality of outcome, in‐state equality as it has been called, but equality of opportunity.
Aaron Ross Powell: So then the structure of this argument though, let me ask about this. So you’ve – it’s a trilogy of books and the story that you’re trying to tell as described to us is why this economic growth happened. It happened as a result of a rhetorical shift and a shift in …
Deirdre McCloskey: Ethics and ideology and rhetoric.
Aaron Ross Powell: But then the first volume of the trilogy is – how does it then fit into the argument? Because in that one, you are reviving an ethical tradition and explaining it. So what is that ethical tradition and why is that step necessary to then books two and three?
Deirdre McCloskey: Well, I think it’s necessary although when you write a book over ten years, a series of books and you’re thinking about them for 20 years as I have been, your ideas are bound to shift, at least I hope so, because you should be learning stuff as you go. In the first book, I was simply trying to establish that there are commercial versions of the traditional virtues that you can attribute to modern market‐tested betterment as I eventually came to call it or the capitalism.
So I was trying to show that the sneering at the bourgeoisie which is so common, it’s just – reflects for most people in the West and the East for that matter. It’s his big mistake and we should honor innovators and merchants and people buying low and selling high. So it was part of the continuing sub‐theme of all three books which is against socialism, against – well, Gandhi, Mahatma Gandhi in many ways is a wonderful man. He said that to buy low and sell high is the worst possible thing that you could do.
This is crazy because buying ideas low and selling them high is how the economy innovates. If we’re not going to make a profit, a profit that is then eroded by entry of the sort that John Stuart Mill said you couldn’t – wasn’t actionable, then if you don’t have that, you don’t have any progress at all and you stay at one, two or three dollars a day, which is essentially what Gandhi wanted.
Trevor Burrus: How does this relationship work with political institutions in the sense that – do you see it as a – we have to have relative freedom I would say …
Trevor Burrus: If it was illegal to be a merchant, it would be very hard to get people to start respecting …
Deirdre McCloskey: That’s right. If the state is constantly intervening in the economy in various ways, it’s not going to work out.
Trevor Burrus: Were there certain places where there was a fertile political environment for this to happen?
Deirdre McCloskey: Yes. Well, for example, in the first place in Northern Europe where it happened in a big scale was in Holland and this happens in the 16th and 17th century. By the end of the 17th century, the English are so tired of fighting the Dutch as they did three times and being outsmarted by them in trade many times. They finally become Dutch practically, the English do. They get a Dutch king.
Trevor Burrus: They get a Dutch king, yes.
Deirdre McCloskey: A Dutch king. They adopted the Dutch stock market. They adopted the Dutch national debt. My only surprise is that they didn’t adopt the Dutch language. But that’s when England starts becoming bourgeois. A hundred years before in Shakespeare time, everyone is against the bourgeoisie, against buying low, and selling high, against innovation, against trade. Trade is thievery and it shows in Shakespeare’s plays, none of which, even the merchant of Venice, praises the commerce.
Trevor Burrus: So the Dutch – would you – do you try to go back further than that in the sense of – at some point, how well you can bring an explanation – like why Holland? What was happening? The Hanseatic League and then they’re in the Middle Ages. Trading was a part of their …
Deirdre McCloskey: … there’s Northern Italy with its merchant republics which – except for Venice gradually became non‐republics and there’s Barcelona, a town I know and love, which has a long history in the 12th and 13th century of a merchant town, a town that’s into this.
But the scale of the low countries, not just what’s now called Holland but also Belgium and then the scale of England taking this over and Scotland then eventually and then the English American colonies.
Taking over this liberal idea that any person should be equal before the law. Now, don’t get too excited about this because these are – what became the United States as a slave‐holding society. The man who wrote “all men are created equal” and slaved his own son by Sally Hemmings. So it’s not altogether – it’s not complete equality and indeed the notion of equality, that’s born in full political form amongst the – amongst – say the levelers in the English revolution or Civil War of the 1640s is one that keeps being expanded in the West and now we have equality for transgendered people.
I never thought I would see such a thing and gay marriage and women’s liberation and the liberation of colonial people and on and on and on.
Aaron Ross Powell: Are there historical examples where these things don’t go together, where we have the liberalism without the respect for the middle class or the other way around?
Deirdre McCloskey: Well, I wouldn’t define a society that doesn’t have respect for commoners. It’s not just the bourgeoisie. It’s all commoners. Because how are you going to refresh the middle class, the merchant’s class or the innovator’s class if not from the working class. So you have to – all people have to be empowered. All people have to be – in the English phrase, be allowed to have a go.
So I wouldn’t call a society that doesn’t empower people that way a liberal society. For example, we think highly of Athens and I do too. There are lots of people who have this odd affection for Sparta and I really don’t get that.
Trevor Burrus: The ultimate state of society.
Deirdre McCloskey: I know. They love Sparta. They think, boy, that’s a grand idea when we’re – everyone …
Aaron Ross Powell: They even had to eat their food.
Deirdre McCloskey: I mean everyone is a serf. Even the Spartan …
Trevor Burrus: Or kill their babies.
Deirdre McCloskey: Even the free warriors are confined. Anyway, that’s not Athens up the coast. Yet Athens was a slave society, yet women were absolutely unfree, yet if you were a foreigner, you couldn’t vote. Yet, yet, yet! So that wasn’t a liberal society. It was a commercial society. There’s no question about it. What made Athens strong was its commerce.
So you can have commercial success and not get all the way to this modern idea. There’s a great statement by Rumbold, a leveler who was hung by James II I believe in the 1680s. As he was facing the hang man, he said, “I think there is no man and also no woman who is born superior to another, for none comes into the world with a saddle on his back and none comes booted and spurred to ride him.”
That radical idea that every human is equal – not equal again in a French way but equal in dignity and before the law is – took a long time to come on the scene and that’s what made us rich.
Trevor Burrus: So to recapitulate then, the flowchart as you see it – some things are pretty contemporary …
Trevor Burrus: So the flowchart begins with – what would be the first – how you get to the great enrichment. It begins with what – does it begin with dignity or …
Deirdre McCloskey: Here’s what I claim. This is a little unsatisfactory but it has the misfortune of being correct. So I have to say it, which is that there were accidents of European politics from the reformation on, that accidentally made people think that they could have a go. Let’s take the reformation itself, 1517, Martin Luther and all that. It’s not so much his reformation as what’s known as the radical reformation. The Anabaptists eventually in England, the next century, the Quakers or the congregation …
Trevor Burrus: Count the Calvinists too.
Deirdre McCloskey: Calvinists but only if they were Congregationalists. That is if they believed that the congregation should choose the minister, not some hierarchy.
Trevor Burrus: Some of these are very eschatological. You’re talking about this – the Anabaptists are a believer …
Deirdre McCloskey: That’s why it’s Cromwell who invites the Jews back into England who had been expelled in the 13th century because he believes that England is the new Jerusalem and this resounds down to this day in the affection of radical Protestants for Israel but in any case, this matter – it’s not what Max Weber said which was the doctrine of salvation changed. That’s not my argument and I think his argument is wrong and has been shown to be wrong over and over again since it was written in 1905. But what’s really going on is church governance makes people feel empowered.
Trevor Burrus: When it becomes more democratized.
Deirdre McCloskey: More democratized. An extreme example again is English Quakers, in which women and men were equal in the meeting and there was no minister at all. They just sat around and waited for the Holy Spirit to descend on them as friends.
The very phrase, “A Society of Friends,” is crucial here and that kind of equality is what made the modern world and no surprise, an astonishingly high percentage of Quakers excluded from Oxford and Cambridge. So there are certain occupations they couldn’t go into. But an astonishingly high percentage of English Quakers. An extremely small group was successful in business. Cadbury’s chocolate, Roundtree’s chocolate, just to begin with Quaker enterprises …
Aaron Ross Powell: So we have this increasing respect for merchants and the people who are innovating.
Trevor Burrus: Well, actually, I want to clarify because actually that’s a good question. Is that the domino? That’s before …
Deirdre McCloskey: Well before the great enrichment which is really the 19th …
Trevor Burrus: So would the first domino be like the printing press leading to church reformation, leading to equality …
Deirdre McCloskey: I speak of the four Rs, reading, reformation, revolt by which that means specifically the Dutch revolt against Spain, 80 years which ended in 1648 and revolution. The English Civil War/Revolution of the 1640s, the American Revolution and the French Revolution. All of those could have gone the other way very easily. If Charles I and Archbishop Laud had been not such jerks, the English revolution wouldn’t have happened – added to that 1688, the so‐called “glorious revolution” when as I said before England became Dutch.
Add all those together and you have accidental, contingent events that came out in a way that made people bold. The historical job here, the scientific job, is to then compare Europe after 1517 with other societies at the time.
It just so happened for example that China, which was a very advanced society economically and technologically, way in advance of Europe in 1600 or even 1700, it just so happened that under the Qing and even earlier under the Ming – but especially under the Qing after 1644 was very conservative, very hostile to invasion. There was a famous event in the 1790s. The English King George III sends scores of boxes of machinery to the Chinese emperor as a gift, telescopes and steam engines and so on.
The emperor or at least the emperor’s men replies to the King of England. Thank you very much but we’re in no need of gadgets.
Aaron Ross Powell: Well this then brings me back to my question which is, “Does it matter who in the society is respectful or if everyone is?” because – so there’s the date that looms large throughout these books which is 1848.
Deirdre McCloskey: Yeah.
Aaron Ross Powell: And that’s when you date the beginning of the cultured classes, the intellectuals.
Deirdre McCloskey: The clerisy.
Aaron Ross Powell: The clerisy, disdaining innovation and merchants and capitalism. I mean between 1848 and now, there has been an awful lot of economic growth.
Deirdre McCloskey: Well, yeah, that’s right. So why did I write the books? Because I’m terrified that the clerisy’s position – Bernie Sanders is a nice example but so …
Trevor Burrus: And the professors and people who are fans of him.
Deirdre McCloskey: And the professors and the intellectuals on the left. But indeed also Donald Trump and that kind of person on the right if he’s really on the right. They’re very dangerous. But by now, ordinary people have bought into what I call the bourgeois deal. You let the bourgeois innovate and start a new factory. In the long run, I will make you rich. That’s the deal.
Art Carden and I have written and are going to soon publish a popular version of the three volumes which we’re going to call Let Me Do It and I Will Make You Rich: The Bourgeois Deal.
That’s what happened. That’s what has protected us since 1848 against these terrible ideas – nationalism, socialism. Both ideas in minds of intellectuals, journalists, think tanks. And then if you like those two, nationalism and socialism, maybe you like national socialism. So that’s why I wrote the book is to hold back this tide of left and right utopianism.
Trevor Burrus: Do you think that – you talk about growth as you say the great enrichment and the rates of growth.
Deirdre McCloskey: Yeah.
Trevor Burrus: John H. Cochrane from Stanford and today’s Wall Street Journal actually wrote about – the GDP growth rate came out for 2016. It was 0.5 percent. So he said from 1950 to 2000, this is quoting John H. Cochrane, “The US economy grew at an average rate of 3.5 percent annually. Since 2000, it has grown half that rate, 1.76 percent. Even the year since the bottom of the Great Recession since 2009, which should have been a time of fast catch‐up growth, the economy has only grown at two percent.”
Some people will read this and be like, well – I mean growth. OK. What’s the big – we’re all pretty rich. Why is growth so important? Are these differences in number scary? So does this kind of thing scare you? Do you think that we’re starting to paralyze our growth for some methods?
Deirdre McCloskey: Well, you can kill it. You can paralyze growth. Europe and the common market has done an excellent job of this. With absurd regulations. The Treaty of Rome, this is the central question in the vote, in Britain in June about whether or not to stay in the common market. The Treaty of Rome created a big free trade area which was a very good idea. But then Brussels has decided to level the playing field as they keep saying.
Trevor Burrus: Mercantalize it basically.
Deirdre McCloskey: Mercantilizing. They’re going to protect – it turns out that they end up protecting France and Germany. Surprise, surprise. But OK. No, I think that this sky is falling rhetoric that you hear these days from even Cochrane, I’m very surprised. But from Bob Gordon and even Tyler Cowen I wouldn’t have expected it from is premature. I think that we mis‐measure growth. We don’t include enough – of the changes in quality. We can’t measure them very well.
When was the last time you changed an automobile tire? A very long time ago. Things have improved and the consumer price index that you use to get real growth doesn’t adequately allow for this improvement of quality. But what’s more important is that the rest of the world, China and India in particular, are growing like mad because they’re liberalizing. They’re not in Chinese case in politics. But they’re moving in – against mercantilism and towards free trade inside and outside. That is going to spread through the demonstration effect if nothing else.
It will become more and more obvious that the way forward is liberalism and that will make the rest of the world, which as I said is about $33 a day – which by the way was the American income in 1940. The average income in the United States was $33 ahead in 1940. Now it’s $130 ahead per day.
So there has been, as Cochrane points out, a big improvement since – so I think it’s way premature to say that the end is near. There was a cartoon in New Yorker along – not too long ago, which showed a bearded man walking away down the street with a sign, “The end is near!” and this couple had seen him. One says to her, “You know, that was Paul Krugman.”
Aaron Ross Powell: So we at the Cato Institute, our mission is to promote the very ideas that you are promoting to spread the notion that this – the trade and innovation and capitalism and markets …
Deirdre McCloskey: Free societies.
Aaron Ross Powell: That free societies are the ways to improve the state of humanity while respecting people’s dignity.
Deirdre McCloskey: Sure.
Aaron Ross Powell: But I saw a poll just a few days ago that was asking supporters of various political candidates about their views on free trade and first, the overall numbers of people who thought that free trade was overall good were low …
Aaron Ross Powell: Yes. But what was really striking was that every single one of the republican candidates, supporters polled lower on this than the democratic candidates.
Deirdre McCloskey: Isn’t that shocking?
Aaron Ross Powell: We’re used to having this – to promoting the ideas to the clerisy. We’re used to this argument of no, look, it’s – you know, you’ve misunderstood Margaret’s socialism doesn’t work for these reasons. We can show you the historical stuff. But how do we tell this story, sell this bourgeois deal of let me get rich right now and over time I will make you rich to the people on the opposite end from the clerisy, the ones who are say supporting Trump now who are saying – yeah, that sounds like a fine deal except I don’t have the time. Like my family – I can’t find work. My kids can’t find work. I’m hurting right now and what you’re saying is hey, I’m going to get rich and then I promise in a generation or two, it’s going to pay off.
Deirdre McCloskey: Yeah. Well, it in fact pays off much quicker than that. But what people need to understand and they don’t is that international trade has very little to do one way or the other with American prosperity. American prosperity. This is a very big country and most of the lost jobs in Pittsburgh or in Detroit were lost to other Americans, not to a bunch of Mexicans and Canadians and Japanese and so forth.
So foreign trade, foreign free trade, I approve of it. They will take back my economist card if I don’t. But what is really important is internal free trade and it’s internal free trade, to go to your point, that’s being leaned on with excessive regulation and foolish taxations such as the corporate income tax.
So I am – how to persuade them? One way is to get more radical in some ways in the liberal. I want to stop calling myself a libertarian. I’m a Christian libertarian. But I’m going to start calling myself a Christian liberal. What we should be saying is look, the purpose of the Cato Institute is to make poor people rich. That should be its purpose and that is its purpose because its program does make poor people rich.
If we were to say things like let’s have a negative income tax of a serious sort, where the poor are raised up not by the very foolish minimum wage which is orthodoxy in the democrat party, but by giving people money if we don’t like the poverty that they have.
If we were to say that, we would be able to sidestep the absurd claim that Cato or the libertarians are in favor of business and the democrats are in favor of workers. Donald Trump is of course not really a conservative or a republican. He’s a populist. But that’s his claim. He’s going to help the workers by closing down trade, all kinds of trade. This is a terrible, terrible mistake. So I think we’ve got to develop a positive program for laissez‐faire.
Aaron Ross Powell: Thank you for listening. Free Thoughts is produced by Evan Banks and Mark McDaniel. To learn more, find us on the web at www.Libertarianism.org.