On May 21, 2016 the Wall Street Journal published an article called “How the West (and the Rest) Got Rich” written by Dr. Deirdre McCloskey, distinguished professor emerita of economics, history, English and communication at the University of Illinois at Chicago. Dr. McCloskey contends so much attention is being directed at the current economic malaise, that our perspective has become clouded. She suggests we consider what she calls the “Great Enrichment” since about 1800.
“Look at the magnificent plenty on the shelves of supermarkets and shopping malls. Consider the magical devices for communication and entertainment now available even to people of modest means… Nothing like the Great Enrichment of the past two centuries had ever happened before. Doublings of income—mere 100% betterments in the human condition—had happened often, during the glory of Greece and the grandeur of Rome, in Song China and Mughal India… A revolutionary betterment of 10,000%, taking into account everything from canned goods to antidepressants, was out of the question. Until it happened.”
She then provides an overview of competing explanations for this unprecedented worldwide phenomenon. Karl Marx, and those on the left, would say it was capitalist exploitation of the masses whose surplus production was seized and invested in “dark and satanic mills”. Those on the right, including Adam Smith, would suggest savings provided the needed capital for economic development. “A recent extension of Smith’s claim is that the real elixir is institutions.”
Ultimately, the professor concludes, “What enriched the modern world wasn’t capital stolen from workers or capital virtuously saved, nor was it institutions for routinely accumulating it. Capital and the rule of law were necessary, of course, but so was a labor force and the arrow of time. The capital became productive because of ideas of betterment—ideas enacted by a country carpenter or a boy telegrapher or a teenage Seattle computer whiz. The coupling of ideas in the heads of the common people yielded an explosion of betterments.”
Economic philosophies alone cannot explain this miracle. “If capital accumulation or the rule of law had been sufficient, the Great Enrichment would have happened in Mesopotamia in 2000 B.C., or Rome in A.D. 100 or Baghdad in 800.” For centuries China was the most technologically advanced country, but none of these empires were able to spark an economic explosion of such magnitude.
Instead, it was in northwestern Europe where the Industrial Revolution and, later, the Great Enrichment began. “Why did it all start at first in Holland about 1600 and then England about 1700 and the North American colonies and Scotland, and then Belgium and northern France and the Rhineland? The answer in a word is LIBERTY. Liberated people, it turns out, are ingenious. Slaves, serfs, subordinated women, people frozen in a hierarchy of lords or bureaucrats are not. By certain accidents of European politics… more and more Europeans were liberated.”
She then makes a distinction about this burgeoning liberation. “It was not an equality of outcome. It was equality before the law and equality of social dignity. It made people bold to pursue betterments on their own account.” To put it bluntly, it was not a socialist model but rather a capitalist model of free enterprise that birthed this historic development.
In her essay, Dr. McCloskey concludes, “The Great Enrichment is the most important secular event since human beings first domesticated wheat and horses. It has been and will continue to be more important historically than the rise and fall of empires or the class struggle in all hitherto existing societies. Empire did not enrich Britain. America’s success did not depend on slavery. Power did not lead to plenty, and exploitation was not plenty’s engine. Progress was not achieved by taxation and redistribution.” The Great Enrichment was triggered by the expansion of individual liberty and opportunity for those willing to innovate and work hard for personal advancement.
I found Dr. McCloskey’s essay to be refreshing, especially after seeing a recent YouGov survey where respondents younger than 30 years old rated socialism more favorably than capitalism (43% versus 32%, respectively). The “Iron Lady” Margaret Thatcher, Prime Minister of the United Kingdom, famously remarked, “The problem with socialism is you eventually run out of other people’s money.” Winston Churchill shared this insight, "The inherent vice of capitalism is the unequal sharing of blessings; the inherent virtue of socialism is the equal sharing of miseries." During this election cycle, let’s not forget the benefits of individual liberty and equal opportunity that sparked the Great Enrichment as described by Dr. McCloskey.
The views expressed are those of Lindsey Randolph and should not be construed as investment advice. All economic information is historical and not indicative of future results. All information is believed to be from reliable sources; however, we make no representations as to its completeness or accuracy. Discuss all information with your advisor prior to implementation.