People believe, for example, that imperialism explains European riches. Or they believe that markets and greed arrived recently. Or they believe that "capitalism" required a new class or a new self-consciousness about one's class (as against a new rhetoric about what an old class did). Or they believe that economic events must be explained "ultimately," and every single time, by material interests. Or they believe that it was trade unions and government protections that have elevated the working class. None of these is correct, as I hope to persuade you. The correct explanation is ideas.
A Sixteen-fold leapAt the center of her argument is a dazzling fact that we too often forget. The industrial revolution was not an incremental improvement in the $3 a day or so living standards that most people had been condemned to since the beginning of recorded history. Living standards improved at least sixteen times over. Growth in income had been flat more or less forever, and then in a few short decades turned up almost vertically like a hockey stick. Other proposed explanations have to account for the sheer scale of the increase, and explain why it happened at that time in northwest Europe, as well.
Economics, though, can't explain the rise in the whole world's (absolute) advantage from $3 to $3o a day, not to speak of $137 a day. That is the main scientific point of the book. Economics can't explain the blade of the hockey stick. It can't explain the onset or the continuation, in the magnitude as against the details of the pattern, of the uniquely modern-the widespread coming of automobiles, elections, computers, tolerance, antibiotics, frozen pizza, central heating …Indeed, an increase of sixteen in income may substantially underestimate the actual improvement in tangible living standards. People spend much less on basic needs, as calculated by Nobel winner Robert Fogel:
Fogel calculates that in 1875 in the United States the average family spent 74 percent of its income on food, clothing, and shelter. In 1995 it spent 13 percentAnd if you calculate the improvement in the quality of many things we spend money on, the improvement is larger still. For example, she says, William Nordhaus calculated the cost of light from earliest firelight through candles to electric light. He estimated the cost fell over eleven millennia by a factor of 417,000. So,
Nordhaus concludes that from 1800 to 1992 in the American economy the real wage-the money wage divided by the prices of things, but properly corrected for their improving thingness-grew not by that conventionally and crudely measured factor of thirteen, but anywhere from a low estimate of a factor of forty to a high of a factor of 190. One hundred and ninety.And despite claims of increasing income disparity, the system is still working:
Most economists reckon that on account of quality improvements the inflation rate conventionally measured was overstated in the period by about 1 percent a year (and continues to be overstated by about the same extent)." When allowing for the better quality of goods and services, therefore, the period of nominal stagnation in real wages witnessed (at 1 percent per year and no other improvement) a rise of about a third in the properly corrected real wage, which is what matters."
Eliminating other explanationsWhy? Or, to put it more emphatically, WHY?She systematically examines the usual explanations put forward for the huge leap. If none of the other explanations work, she says, the answer must be in what is left over - and that is a change in ideas about bourgeois dignity and liberty in tne late eighteenth century. The leap forward cannot be explained in purely material or prudential terms, she says. It must involve other virtues as well, especially courage and hope.
Toward 1800 many northwestern Europeans, and toward 1900 other Europeans, and then toward 2000 many ordinary people elsewhere, came to accept the outcome of the market with more or less good grace.But ideas, not mere trade or investment or exploitation, did the creating and the releasing. The leading ideas were two: that the liberty to hope was a good idea and that a faithful economic life should give dignity and even honor to ordinary people, to My Sovereign Lord Cheeseman as much as to Your Grace the Duke of Leicester.One thing she does not do, as we shall discuss, is explain why a change in bourgeois dignity could make such a vast difference to outcomes. That is presumably left until future books, or perhaps she does not have a full explanation yet. In fact, I think there is a neat dovetailing between what she says and some of the results of recent evolutionary theory, as we shall see.As usual, we'll split the discussion into several posts to make it more tractable. When done, I'll put links to the other posts [here]. I'll use direct quotes a bit more than a print review would do, to be fair to the author and let her speak in her own words. It's worth reading the whole book, of course.