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Explaining, Again, the Most Important Chart in Economic History
A lovely explanation of the above chart from Deirdre McCloskey in the New York Times over the weekend:
What, then, caused this Great Enrichment? Not exploitation of the poor, not investment, not existing institutions, but a mere idea, which the philosopher and economist Adam Smith called “the liberal plan of equality, liberty and justice.” In a word, it was liberalism, in the free-market European sense. Give masses of ordinary people equality before the law and equality of social dignity, and leave them alone, and it turns out that they become extraordinarily creative and energetic.
The liberal idea was spawned by some happy accidents in northwestern Europe from 1517 to 1789 — namely, the four R’s: the Reformation, the Dutch Revolt, the revolutions of England and France, and the proliferation of reading. The four R’s liberated ordinary people, among them the venturing bourgeoisie. The Bourgeois Deal is, briefly, this: In the first act, let me try this or that improvement. I’ll keep the profit, thank you very much, though in the second act those pesky competitors will erode it by entering and disrupting (as Uber has done to the taxi industry). By the third act, after my betterments have spread, they will make you rich.
And they did.
Ideas matter! And if you are looking for more info — in addition to McCloskey’s work — on what it was like before the West became a business and entrepreneur and innovation admiring civilization, this piece on how the loathing of capitalism has ancient roots might be of interest.
Published in Economics
The loathers of capitalism (which is no longer understood to be merely the sum total of individual economic liberty) have got the upper hand. Watch the US curve’s inflection over the next 20 years.
It is the tragedy of 2016 that the Republicans nominated a man who not does not support many classical liberal ideas, but is openly contemptuous of them.
May I go off on a slight tangent here? I’d like to play devil’s (or rather, pope’s) advocate here and question whether the Reformation really belongs with the other three R’s in getting credit for jump-starting the great economic miracle. Hey, I’m Lutheran, so I’d be happy if it were true. I’m just askin’.
I don’t know. I think the Reformation belongs on this list. I question why the French Revolution is on it though.
I think that the Reformation and Revolutions lead to all kinds of intellectual development but we’re kind of tough on the participants.
The Reformation was about de-centralizing power.
I’d like to recommend a TV miniseries that might explain this phenomenon better than a dry lecture. It’s called The Tudors and was on Netflix recently, I believe it’s still there or on Amazon streaming. It shows how the battle between the Church and Henry the VIII, then Elizabeth destroyed the old order and freed up lands and capital that were locked up in unproductive church uses and put into production by the developing bourgeoisie. I think it’s a pretty good entertainment and you get to see the lovely Natalie Dormer before Game of Thrones playing Anne Boleyn.
Ms. McCloskey’s primary point is that the great enrichment came about once the cultural conversation shifted to celebrating people improving the lives of others via providing products and services for money (the bourgeoisie). This lifted Europe (and other regions) from middle ages poverty to current incredible riches.
She has a three volume treatise on the topic that is well worth reading. That said, I first learned of her work on the site http://cafehayek.com/ where Don Boudreaux generously invests his time to create clear examples that illustrate economic concepts.
tigerlily, Steven Seward, I think it’s too soon to understand the meaning of the French Revolution.
Am i the only person who finds it weird that the data stops around about 2000AD?
Also is the GDP per person an average or a mean? it makes a difference.
As I recall, McCloskey argues in Bourgeois Dignity that the Reformation had the political consequence of detaching the middle class from the old feudal order and thus jump-starting the innovation revolution but points out that once underway, this ideational change also took place in Catholic countries so Protestantism was not a requisite ingredient.
Good answer. This is on my mind because right now I’m reading The Gothic: A Very Short Introduction and one thing I’m learning is how the sack of the monasteries in England and the resulting ruins led to the association of Gothic architecture with decay, destruction, chaos, death, and melancholy–which led to the “Gothic” as the aesthetic category we know today. Henry VIII had a lot to answer for.
I would not credit Tudor rapacity turning church property into political spoils for newly minted aristocrats as a big factor in middle class liberation. Henry and Elizabeth had traditional aristocratic contempt for the merchant class. Henry despised those we now might call low-church Protestants and they are the locus where this innovation revolution would begin.
I too would like to see the author make a further defense of why the Reformation is on the list.
Great Chart James!
A little quibble with the four R’s though.
First off, the chart goes ballistic at the time of the American revolution, not before. The ideas of the American revolution had an immediate impact around the world. America, even before the revolution, had perhaps the most prosperous because even then it was a land of opportunity. But the Bill of Rights codified the freedom of expression and with it the freedom to dream and try new things. This new found freedom led to innovation and new ways of thinking which drove our economic growth.
Our freedoms also challenged the established social and political hierarchy which also encouraged those on the bottom rungs of society to strive and dream of things they thought never before possible.
Yes, the stirring of the middle class had begun centuries before , even before the Reformation and the Renaissance, which did help improve the lot of millions. But according to the chart, those changes did not help much until the America revolution.
Throwing off the yoke of feudalism took a long time, with a lot of resistance from those in power. Europe well into the nineteenth century was still lagging in freedom and as a consequence economic growth.
But the huge takeaway from this chart should be that freedom and the ability to innovate without interference drives economic growth as well as the inverse – the curtailment of freedoms will curtail innovation and economic growth.