Book Review: Bourgeois Dignity

Warning: Similar to her first book in this series, The Bourgeois Virtues, Bourgeois Dignity is an extremely difficult—even painful at times—read. It's dense; long (450 pages); packed with scholarly citations; it rambles, and wanders, sometimes aimlessly, with 41 pages of footnotes that take you even farther afield; it probably should have been cut in half by the editor; not to mention in places it will give you an incredible migraine.It's also brilliant. I loved it.But I dread trying to summarize the argument because it's so complex and expansive in scope. For, as usual, McCloskey has looked at the hypothesis from every possible angle. This is the second book in a planned six-book series, which sets out to answer this question:

What caused the spectacular growth in the economy from the late 18th century to the present day, going from an income of approximately $1 to $3 per day to $137 today?

It's even larger than that if you take into account the quality of goods and services available today versus then. One simple example is antibiotics. Simple infections that once killed incredibly wealthy people can now be cured with $5 and a trip to the drugstore.Estimates put the growth in the quality of goods and services at a factor of 40 to 190—I believe even that is an understatement.In 1875, the average family spent 74% of its income on food, clothing and shelter. In 1995 they spent 13%. This is one reason why my colleague Ed Kless says he'd rather be poor anywhere in the world today than in 1800.This is an incredible accomplishment, and historians, economists, sociologists, poets, along with many others, have offered a plethora of explanations to explain it. McCloskey explores them all, but she reaches a totally different conclusion than most economists. In fact, the subtitle of the book is "Why economics can't explain the modern world."McCloskey believes that economic change depends on what people believe—their talk, their ethics, and their ideas, especially as related to dignity and innovation. It's what Alexis de Tocqueville called "habits of the mind."Yet "ideas about ideas are unscientific" and largely ignored by economists who naturally gravitate towards materialist explanations for growth and dynamism. McCloskey writes:

To be able to detect the dark matter we will need a new, more idea-oriented economics, which would admit for example that language shapes an economy.

Words MatterOne of our favorite lines discovered recently is Werner Erhard's "All transformation is linguistic. If we want to change our culture, we need to change our conversation."McCloskey's argument is this on steroids. In other words, our conversations about dignity and liberty changed, launching the Industrial Revolution. Here's how McCloskey expresses this phenomena:

A big change in the common opinion about markets and innovation, I claim, caused the Industrial Revolution, and then the modern world. The change occurred during the seventeenth and eighteenth centuries in north-western Europe. More or less suddenly the Dutch and British and then the Americans and the French began talking about the middle class, high or low—the "bourgeoisie"—as though it were dignified and free. The result was modern economic growth.That is, ideas, or "rhetoric," enriched us. The cause, in other words, was language, that most human of our accomplishments.

McCloskey here is using the word rhetoric in its ancient sense, "the means of [unforced] persuasion," which includes logic and metaphor, fact and story. She's written many books on this topic, criticizing economists for not telling better stories, two of which I thoroughly enjoyed: The Rhetoric of Economics, and If You're So Smart: The Narrative of Economic Expertise.In the spirit of words being crucial, she's attempting to rid the world of the dreaded "Capitalism," preferring "Innovation" instead to explain the wonders of a free market.Not the CauseThe heart of the book is a deep analysis of why all the traditional explanations of the Industrial Revolution fail to explain the caus. To contrast these viewpoints, consider the book by William J. Bernstein, The Birth of Plenty. This is a fairly representative example of how most commentators explain the origins of the Industrial Revolution, though McCloskey doesn't cite this work.Bernstein, like McCloskey, concludes it's not geography, climate, exposure to microbiological agents (as Jared Diamond has argued in his books), but rather four factors:

1. Property rights
2. Scientific rationalism (positing and falsifying theories)
3. Capital markets
4. Improvements in transportation and communication

Which of the four was most important? All of them are like ingredients to a cake, all are equally important to produce a just dessert. It's not physical objects (materialism) that matters, but rather institutions, according to Bernstein.This sounds very plausible, but not to McCloskey, and she debunks every one of these factors. In chapter after chapter, she definitively falsifies the following list of reasons often cited as the cause of the Industrial Revolution:

• The Weber Thesis—The Protestant (particularly Calvinism) ethic
• Michael Porter's thesis of competitive strategy of nations (this is deftly ripped apart by McCloskey, and R.I.P. as far as I'm concerned)
• Rise of rationality
• The exchange of ideas. Ideas having sex, in Matt Ridley's apt phrase from The Rational Optimist. It helps, but it's simply not large enough to have caused the Industrial Revolution
• Education. In fact, too much education can impair growth. An interesting discussion is provided by McCloskey, and Thomas Sowell's work as well
• Thrift (savings accumulation)
• Investment (capital accumulation)
• Economies of scale
• Division of labor
• Greed
• Expropriation or imperialism
• Human capital. Not that this is unimportant, but McCloskey would argue (using our lingo) that social capital—specifically, our conversations and beliefs—are more important. I think Rabbi Lapin would call this "spiritual capital"
• Transportation
• Foreign trade. This simply reshuffles goods and services, it doesn't discover or lead to innovation
• Geography. Jared Diamond's thesis is thoroughly shot down
• Natural resources. McCloskey believes there's no such thing as a natural resource, except the imagination of man
• Unions
• Eugenics
• Institutions. No doubt important, but no way did they cause the spectacular growth, and mostly were formed afterwards
• Property rights. Again, they are important, but they existed in all sorts of places prior to Great Britain (China, e.g.)
• Science. This is more a result, not a cause

Thankfully, she also takes down the happiness literature that's beginning to sprout up in economics, which is just so much hokum.One discussion that runs through the narrative is the "California School"—why so many scholars (who tend to be disproportionately located in California universities) believe that numerous discoveries were originally from China, giving error to the idea of European exceptionalism.McCloskey is more and more convinced of the findings of this school of thought, and so will you after reading about it.Bowing to her colleagues, who love to express economics in mathematics, McCloskey offers this rather innovative "model" (not a theory) to explain the function for national product:

Q = I (D, B, R) • F (K, sL)In which I is the Innovation function, depending on D, the dignity accorded innovators, and on B, the liBerty of innovators (the letter L is need for labor), and on R, the rent or profit to innovation.The innovation function multiplies a conventional neoclassical production function, F, depending on ordinary physical capital and land, K, and on raw labor, L, multiplied by an education-and-skill coefficient, s.It was anticipated by [Adam] Smith, whose Theory of Moral Sentiments (1759) treats the D variable of dignity, and whose Wealth of Nations (1776) treats the B variable of liberty (amongst a great deal also about F(.)).

And as example of how erudite this book is, where else could you read about Frédéric Bastiat's idea of a "negative railroad." Bastiat is on of my favorite economic thinkers because he takes arguments, especially those advocating protectionism, to their logical and absurd extreme.In 1845 he wrote a petition of the candle makers against the unfair competition (think "dumping") of the light of the sun, arguing that the law should require curtains to be drawn during the day.He also argued that if exports would good and imports bad (think our completely meaningless "balance of trade" deficit, which describes accounting, not economics), then countries should sink their ships at sea, creating exports with no imports. Brilliant!He was probably among the best thinkers to explain that job creation is not the purpose of an economy. In another spoof, he argued that the King should cut off everyone's right arm, since then it would take twice as long to accomplish any task, create all sorts of jobs, and wealth.Well, the "negative railroad" is just as funny, and only politicians would be dumb enough to fall for it (think "Wright Amendments" for flying out of Texas). Here's how McCloskey explains it:

A railroad was proposed in the early 1840s from Paris to Madrid. The city of Bordeaux, at a third of the distance, demanded that the railroad break there, on the argument that the break would "create jobs" for porters and hotels and cabs [big cities like Paris, London and Chicago have always had the trains go into them and end].Bastiat noted that according to such "job-creating" logic every town along the route should see its opportunity and take it. Every few kilometers, at every country village, the railroad on the way to Madrid would end at a Gare du Nord to be resumed as a Gare du Sud, after job-creating expenditure for freight and travelers en route.All the national income of France and Spain would come to be "generated" by the Paris-to Madrid railroad, at the cost of all other forms of production and consumption. Jobs would be "created." It would be a negative railroad, a triumph of protectionism and industrial planning achieved through what economists would later call "rent seeking" by the politicians of Bordeaux or Ablon-sur-Seine.

Think Obama's "investment" in Solyndra to "create" green jobs.In the final chapter, she summarizes the "Bourgeois Deal":

Give a woman some rice, and you save her for a day. Give a man some seed and you save him for a year. That's the plan of investment in capital, tried for decades in foreign aid, without much success.But give a man and a woman the liberty to innovate, and persuade them to admire enterprise and to cultivate the bourgeois virtues, and you save them both for a long life of wide scope, and for successively wider lives for their children and their grandchildren, too. That's the Bourgeois Deal, which paid off in the Age of Innovation.

Does the idea of conversation, words, and talk, changing the course of civilization sound too simplistic? Think about this: Why have out-of-wedlock births skyrocketed in the past 50 years?Even during the worst years of slavery, the black family was largely intact. And, as Charles Murray documents in Coming Apart, out-of-wedlock births are increasing dramatically among the white population.Why? What changed? Was it our conversation about this issue? Removing the stigma and shame associated with "bastard" children?If not, what? Even Murray doesn't completely blame the welfare state, concluding it exacerbated and enabled, not caused.I find McCloskey's work compelling, and it certainly has changed my worldview on the causes of the Industrial Revolution. It truly gives weight to the saying "all transformation is linguistic."If you'd like to follow this line of thought, you can visit her site here.The planned six-book series is as follows:

1. The Bourgeois Virtues
2. Bourgeois Dignity
3. Bourgeois Revaluation, how innovation became virtuous 1600-1845, where she will attempt to measure dignity, and even liberty
4. Bourgeois Rhetoric
5. Bourgeois Enemies, mostly intellectuals (no surprise there, see Thomas Sowell's Intellectuals and Society)
6. Bourgeois Times, present day views on topics such as globalization, environmentalism, etc.

I look forward to each of these works, even though I know I will be in for a McCloskey headache.