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Open Peer Review on Qeios
Liberalism Caused the Great Enrichment
Deirdre Nansen McCloskey1
1 Cato Institute
Funding: Cato Institute, Washington DC USA
Potential competing interests: No potential competing interests to declare.
Abstract
Any innovation—mechanical, biological, institutional, scientific, artistic, personal—begins of course as a new idea in a
liberated human mind. The point is obvious. But it has not been prominent in economics. The agent in economic
models does not have agency. He merely accedes to a budget line or to a law or to a custom or to a habit of thought
facing his already known utility function. He does not create, that is, but reacts in requisite fashion. Human action, the
liberated will, is absent. He is a vending machine, not an innovator, or not even an ordinarily choosy consumer
exploring her tastes.
Therefore the unprecedented economic growth since 1800, a Great Enrichment of a fully 3,000 percent increase in real
income per person, has been traced by economists not to “innovism,” as one might call it. The Enrichment has been
traced rather to various routine and intermediate and largely material causes—investment; exploitation; the rule of law.
Some of these are necessary, but none is sufficient to explain our enrichment. They are ancient. They are often trivial.
They are sometimes necessary, but never have the great oomph to explain the Great Enrichment.
The creation of new ideas in human minds, in other words, has been firmly set aside by economists. The non-
economists who might save the ideational day, meanwhile, have seized on the wrong ideas, such as the labor theory of
value or disenchantment or the Enlightenment or sheer modernity.
The economic trouble with the economist’s non-ideational causes such as investment and institutions or exploitation is
that they are merely allocative, and are, further, subject to sharply diminishing returns, and are commonly indeed zero
sum. They are routine, not transformative. They are small potatoes beside the 3,000 percent increase in human
material welfare.
And the historical trouble is that most of them, and even most of the non-economist’s ideational causes, are of very,
very long standing—in ancient Mesopotamia, commercialization; in ancient Athens, enlightenment; in ancient Rome,
good property rights; in ancient China, long canals; in medieval Italy, skilled craftsmen; in early modern Japan, long
peace; in 18th century Prussia, cameralist policy; in pre-1860s Sweden, Protestantism; in Russia 1917-1989, fierce
pursuit of profit; in China 1948-1978, fierce pursuit of central planning. Yet no Great Enrichment ensued in such places.
Early on, the cause of the Enrichment was said to be piling up physical capital, emphasized by Adam Smith, with the
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division of labor. Then it was indeed an ideational cause, put forward on the left or right of politics by anti-economists,
such as the rise of “capitalism,” or “possessive individualism,” or “secularized asceticism.” All have all been rejected in
later research. Then it was the alleged routinization of innovation, such as Joseph Schumpeter came to believe,
against his early belief in human creativity. Then it was human capital, from elementary education to craftsmen’s skills.
Then it was institutions of various sorts, from legal to scientific.
But all of them depend of course upon ideas conceived in somebody’s mind—and foundationally on her ideas about
ideas, such as ethics, ideologies, political philosophies supporting the liberated imagination. The change of ideas in
human minds, that is, seems a more promising hypothesis.
The ideational change is called liberalism. The idea of a non-slave society, it can be shown, has the oomph and the
novelty to account for the 3,000 percent. I propose here, mathematically and quantitatively, by historical comparison
and by the paradoxical logic of creativity, to offer, that is, a fresh ideational explanation for why the modern world
became so very rich—well, “my” explanation is as “fresh” as can be a restatement of the 18th-century promise of human
liberation.
The crux, I claim, was liberalization at the level of ideas in the Netherlands and then in Britain, favoring a culture of
somewhat free speech and an economy of quite energetic enterprise. It was followed during the next century by actual
liberalizations and a consequent explosion of creativity—in the U.K the civil emancipation of Catholics, the abolition of
Jamaican slavery, the free importation of wheat from Kansas and Ukraine, and then similar liberalizing measures in the
U.S., Sweden, Italy, Japan, and the rest.
Adam Smith and Thomas Jefferson and Mary Wollstonecraft had put forward in the Anglophere the then-bizarre notion
that no one should be a slave, that all people are created equal, and should be permitted liberated speaking and
liberated voting, and liberated buying and selling. Richard Cobden and John Stuart Mill in the mid-19th century
extended the idea. The equality of permission in liberalism proceeded to erode the inequalities of hierarchies anciently
stultifying. It made people bold to venture. As the British say in their sporting manner, appropriated by the economic
historian Peter Matthias, ordinary people were permitted by liberalism for the first time, after 1776 or 1789 or 1848 or
1865, to “have a go.” And go they did. Liberalism was gradually implemented in northwestern Europe, as lately it has
been, at any rate in the economy, even in far China and India. And the Great Enrichment came.
Both economists and their critics, in other words, need to understand the conditions for the flourishing of liberty and its
fruits in novel ideas for enrichment, and to see that good laws and long railways and honored science and skilled
craftsmen and strong institutions are all good, but are not themselves originating. Creativity depends on liberty and its
ethical accompaniments, every time. Liberation in ethics and ideology yielded an innovism, not a “capitalism” that one
can find in Mesopotamia in 2000 BCE or in England in 1066 CE or Mesoamerica in 1492 CE.
To use a mechanical image, the gearing in the historico-economic watch was, to be sure, investment and institutions,
necessary for any economy at any time, from the caves of Lascaux to the caves of Wall Street, or for that matter in
Crusoe’s cave. But liberal thinking was the new and largely sufficient spring imparting motion to the old and stiff gears.
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It happened in Britain, but not immediately in, say, France. It could have happened in Japan or the Ottoman Empire,
but in the contrived corridors of history it did not.
The implication for policy is straightforward. Ideas in human minds, as Keynes said, largely rule the world. The
Ukrainians defend themselves for the idea of liberty, not for the policies of left, right, or middle. Encouraging a loving
and responsible liberty, with its mighty material and spiritual consequences, should be our chief aim. Coercive, illiberal
nudges and taxes and subsidies and regulations and fines and imprisonments, of which policymakers are so very fond,
are not the path forward. The liberal path of an honest and competent but restrained state, under which ordinary people
are permitted without let or hinderance from other people to have a go, has already led in much of the world to a
stunning enrichment of the poorest. It’s the Bourgeois Deal: “Leave me alone and I’ll make you rich.” In the next couple
of generations, it promises to permit the rest of the wretched of the earth to raise themselves up.
The illiberal path of statism, by contrast, leads to the radical populisms of left and right, to Maduro and Putin. And even
its middle path of well-meaning regulation and redistribution it leads adults back into childhood under the masterful
state. It turns back to the subordination that characterized agricultural societies until 1776, and to its corresponding
poverty of body and mind and spirit. Liberalism worked to overcome such childishness and subordination.
It works yet.
Washington DC: Cato Institute, forthcoming 2022.
Swedish translation Stockholm: Timbro, forthcoming 2022.
Deirdre Nansen McCloskey1
The Great Enrichment was Very Great
The enrichment of humans has been recent and gigantic. It was caused, I argue here, by a sustained ideological change
in northwestern Europe in the 18th and 19th centuries. It spread to the rest largely through the ideology of liberalism, that
uniquely recent notion of equality of permission—much disdained in these latter days by the left and the right, by the
Pikettys and Deneens, not to speak of the Putins and Muduros.
During the millennia from the caves down to 1800 the average person on the planet earned and spent in today’s prices
some $2 or $3 a day, as now in the Central African Republic. By 1800 the average person in the richest countries, such as
Holland and Britain and Britain’s newly independent daughter in the New World, had attained perhaps $6 day, as now in
Afghanistan. Pitiful.2
But in the 19th century, after a precarious beginning during the 18
t, h century in Britain, a Great Enrichment transformed
western European countries and many of their offshoots. Later, of course, enrichment spread to more and more of the
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planet—not by policy, I claim, but by ethics and ideology. In 1800 John Bull’s Other Island, Ireland, for example, had not
shared in the recent comparative prosperity of Britain, even at the $6 level, and as late as 1970 it was still notably lagging.
Yet Ireland today, after adopting liberal economic policies, is the fourth or fifth richest substantial country in the world. The
Chinese, who not so long ago were thought to be trapped in an Asian Dilemma, adopted liberal economic policies after
1978, and therefore radically enriched. India, too, did so after 1991, and then was enriched for the poorest by a factor of
upwards of 10. The Chinese now, enriched by a factor of upwards of 20, earn roughly $45 or $50 a day per person. It is
the level of Brazilians—which is roughly the World Bank’s reckoning of the global average. The global average is a factor
of 20 of enrichment over that $2 or $3 a day worldwide in 1800. The numbers are dizzying, and gratifying.
They make the recent obsession on the left with inequality within a country look strange. Seizing in France the riches of all
the people like the disgraceful Liliane Bettencourt, the ethics-less heiress to the L’Orćal cosmetics fortune, and giving it to
the poor people of the country might do as much as double their incomes. Good, if politically unattainable. But instituting
an attainable liberal equality of permission, as against the equalities of outcome or of opportunity unattainable in political
practice, increases incomes by a factor of 20, or much, much more. it has recently in Hong Kong or Botswana or Italy, and
in France itself from the time of les misćrables.
There is little chance that the Great Enrichment will now stop, unless we try hard—as for instance we did beginning on
July 28, 1914, ending on September 2, 1945, and by a longer count ending on November 9, 1989. A less violent way to
stop the world’s enrichment than the European Civil War 1914-1989 is to fall prey to imagined fears, finding every couple
of years a new “headwind” requiring urgent tacking by the ship of state. The economist Robert Gordon in 2016, for
example, though admitting the astounding achievements in U.S. history of people permitted to have a go, pointed to
headwinds to justify extensions of statist policies for the future. And the economist Tyler Cowen in 2011 and 2013 worried,
too, about the headwinds, though with less enthusiasm for statist tacking.
Neither Gordon to Cowen note that internationally there is, covid 19 aside, no evidence of a slowdown in growth. The
World Bank expects long-term growth in world income to be about 2% per year, indefinitely. At such rates, real incomes
will double in one long generation. If we can avoid stopping growth with bloody war or panicked policy, a continued Great
Enrichment bids fair in the next fifty or one hundred years to bring every human out of history’s poverty.
Why did it happen? The timing, location, and magnitude of the Enrichment sets tight limits on possible scientific
explanations.
The deepest question is why it happened at all. Yet economists and economic historians tend to focus on asking why
growth varies a little or a lot from place to place, as in the old debate over British as against American and German growth
in the late 19th century, or in the recent econometrics of convergence, or in the history of the Great Divergence of the
West from, say, a lagging China (Landes 1967; Durlauf 1996; Pomeranz 2000). Such a turn is like the atheist’s claim that
an account of what happened after the Big Bang serves to refute a theistic account of why there was anything to bang in
the first place. The Divergers are looking in the wrong places for the answer to the question why the Enrichment
happened at all. An answer to this deeper question is what matters for understanding the one reason nations succeed, as
against the myriad of ways they have found to fail. All happy families are alike; each unhappy family is unhappy in its own
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way.
One needs to attend closely to the findings of economic history. It does not suffice to call on fairy tales from school or from
the movies, or conveniently stylized though erroneous facts, as non-historians so lamentably tend to do. For instance, that
the economic big bang happened only after 1800 strongly suggests that, say, variations in geography or common law or
savings rates or skill levels were not ultimate causes. All of these, along with numerous other putative causes, were
ancient and commonplace. Serbia underneath the enactments of the Ottoman sultan, for example, developed a local
common law, as many other societies have. Focusing on longstanding commonplaces would be like explaining a fire in
the barn by stressing the existence of oxygen in the Earth’s atmosphere.
That the Great Enrichment was located at first in Britain and its relatively liberal offshoots suggests likewise that science or
Christianity or overseas empire, which were common to much of Europe, were not ultimate causes. The dry straw piled in
the barn was where little Joe was smoking his first, stolen cigarette, dropping it and running away when he heard his
father approach. That was the cause.
That the Great Enrichment banged on to an astonishing factor of 20 or 30 or more suggests, too, that railways or banking
or education were not ultimate causes. They are too small in effect, if measured in sober economic terms (as by Fogel
1964). The burning of the wooden cart standing inside the barn or of the paper receipts from milk sales or of the school
text lying there, after all, even if added up, do not reveal the scientifically relevant origin of the fire, or, it turns out, very
much about its astounding size.
Only the sharp ideological swerve originating in Holland and then England and especially Scotland during the 18
th century
called “liberalism” appears to survive scientific scrutiny. Slowly thereafter it affected to a greater or lesser extent all of
Europe and its offshoots, inspiring from France to Ukraine great swathes of the populations. Little Joe’s dropped cigarette
eventually caught the whole barn on fire. Crucially, the resulting inspiring of the masses to have a go does have, unlike
the others, the quantitative oomph to explain a factor of 30. The non-liberalism causes fail. The liberal fire once started
caused the very timbers of the barn to explode into an innovative conflagration.
What made the modern world, then, was the gradual fall of ancient hierarchies, the shocking idea, entirely new in its
prominence in the 18th century, that ordinary folk should be full adults, without physically coercing masters. It grew in
northwestern Europe at first only in the minds of a few theorists such as Locke and Voltaire and Montesquieu, and
tentatively then in the policies of a few politicians, in Britain from the Younger Pitt to William Gladstone, and in the U.S.
from Benjamin Franklin to President Cleveland. The liberalizing work of course goes on, against nowadays a looming
threat from left and right of anti-liberal populisms. By now the threats to liberal democracy are beginning to look
comparable to those of the 1920s and 1930s. Let’s not.
Yet scientifically speaking we have a reply to the tyrants, which should assuage our recent anxieties: that the first and
sustaining cause of modern economic growth and modern enlightenment was the shocking, liberal idea of democratic
equality of permission to have a go at the ballot box and in the economy and in personal life. The idea is understandably
popular with ordinary people, protesting tyranny in the color revolutions of Eastern Europe and in the Arab Spring, or in
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1789 in France, or in 1642 at the Putney debates in England. When implemented, the liberal idea has been enough to
start and to sustain astounding growth, as in Britain after the Younger Pitt, and then in Russia after Count Witte and
before Stalin, and in Hong Kong before Xi Jinping.
Modern liberal equality of permission, to put it another way, was the spring in the machine of growth. As Alexis de
Tocqueville, a canny observer of the new spirit of equality of permission, wrote in 1835, “Looking at the turn given to the
human spirit in England by political life; seeing the Englishman... inspired by the sense that he can do anything... I am in
no hurry to inquire whether nature has scooped out ports for him, or given him coal or iron” (Tocqueville 1835, p. 116).
Sweden had the charcoal rom wood and the iron ore in Dalarna to make iron, but lagged economically until its
liberalization in the mid-19th century. The free states in the U.S. made iron also with charcoal, instead of the advanced
technique from coal developed a century earlier in Britain. But they began liberalizing in their economies a half century
before Sweden, with a corresponding big bang beginning. Liberalism was the spring. Orr, if you prefer a culinary image, it
was the secret sauce. The usual economic explanations are the routine gears in the watch, or the spaghetti to hold the
sauce—necessary for knowing the time or enjoying the meal, but nothing like sufficient, even if the old necessary causes
are present, as they commonly have been since Adam and Eve.
Tocqueville later wrote, observing the spread of political democracy (which is a liberalism of genuinely equal permission in
a voting booth), that “the sentiments, the ideas, the mores [moeurs]... alone can lead to public prosperity and liberty”
(Tocqueville 1853). He was linking prosperity to liberty in ideas—not merely to parliamentary statutes and administrative
decisions. Five years later in far Illinois a rising star of the new Republican Party declared, “With public sentiment, nothing
can fail; without it nothing can succeed. Consequently he who molds public sentiment goes deeper than he who enacts
statutes or pronounces decisions. He makes statutes and decisions possible or impossible to be executed” (Lincoln 1858
[1894], p. 298). The liberal age of a democratic and republican sentiment made the Great Enrichment.
It was Not Merely the Industrial Revolution
In implied duration and character, it should be said, the old term “the Industrial Revolution” is not up to the scientific task.
The popular understanding of it was spoofed in 1931 in Sellar and Yeatman’s 1066 and All That: A Memorable History of
England: “Many remarkable discoveries and inventions were made [in the early 19
th century]. Most remarkable among
these was the discovery (made by all the rich men in England at once) that women and children could work for 25 hours a
day... without many of them dying or becoming excessively deformed. This was known as the Industrial Revelation”
(Sellar and Yeatman 1931 [1932], chap. 44, pp. 92–93).
The phrase “the Industrial Revolution” was introduced into English in Lectures on the Industrial Revolution of the
Eighteenth Century in England, published in 1884, and delivered a year before his death at age thirty-one, by a university
lecturer and ardent enemy of commercially tested betterment, Arnold Toynbee (1852–1883; he was an uncle of the
professional historian of that name).
The lectures depended on the genre of tragedy and triumph put forward decades earlier in The Communist Manifesto.
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Toynbee declared for example that “as a matter of fact, in the early days of competition, the capitalists used all their
power to oppress the labourers, and drove down wages to starvation point. This kind of competition has to be checked....
In England both remedies are in operation, the former through Trades Unions, the latter through factory legislation“
(Toynbee1884 [1887, 2nd ed.]).
Nothing in his account is factual. No one starved, except in decidedly non-industrial Ireland, like the decidedly non-
industrial Finland twenty years later. There were no “early days of competition”—competition, which consists of allowing
consumers or laborers or capitalists to choose where and what and with whom they wish to buy or sell, is common in any
society of even approximately free trade. Its enemies, such as the medieval guildsmen, sharply realized so, and did
something about it (Ogilvie 2019), as at a broader political level the nation states of early modern Europe did, too.
Competition in supplying a customer with bread or offering a worker a job baking it comes from competitive entry, which is
human—or you might say biological, as Darwin realized—and is not especially modern. True, competitive entry is irritating
to the vested interests. But that’s good for the working class, not bad. Tough luck, one might say to the toffs earning rents
from their schemes such as patents and other state-sponsored monopolies preventing competition.
And competition from entry, setting one entrepreneur against another for the benefit of hoi polloi, should be encouraged,
not” checked.” Supply and demand, not “[bargaining] power,” is what determines wages, as economists have known since
at the latest John Hicks’ The Theory of Wages (1932), and as can be seen in the ups and downs of real wages in
response to population downs and ups during the age of Malthus before 1798. The workers in the “Industrial Revolution”
did not find their real wages reduced, and, the economic historians agree, did not starve, or become excessively
deformed. That’s why the workers moved eagerly to industrial cities, even though Manchester and Lille and New York
were still death traps of waterborne disease. Wages were in fact rising, though not so sharply as they commenced rising
after Marx and Engels and then Toynbee wrote, and after Europe began comprehensively to liberalize. Children were
being taken out of English factories by their parents before the legalization of trade unions, and before factory legislation
began seriously to bite. In any case, children in countries still at $2 or at best $6 a day worked as hard in the old
agricultural village or the quarry or the big house as they did in the new cotton mill. In none of these place (I bring the
news from economic history) did they work 25 hours a day.
Yet about the Enrichment, Marx and Toynbee in earnest and 1066 and All That in jest still motivate guilt. Non-historians
credit such eloquent reactionaries as Thomas Carlyle or Charles Dickens or John Ruskin as scientific authorities about
how very lovely was the world we have lost, and how very terrible the conditions were in the first era of the dismal
science. Terrible they were, but tterrible conditions were routine since the caves, and then radically improving.
The guilt has reechoed in the recent academic and journalistic and political fascination about allegedly rising inequality,
overlooking the profound equality of real comfort coming from the rise of the average, bringing humans out of $2 or $3 a
day to $50 or $100 or higher. As was shown for a popular audience by the Swedish professor of public health, the late
Hans Rosling, building on decisive scientific evidence, we’ve never had it so good (Rosling and others 2018; and Bailey
and Tupy 2020). In recent decades even the poor countries have been catching up to the West. In 1960, 4 out of the 5
billion people on the planet lived at the ancient wretchedness of $2 a day. Now it is 1 out of over 7 billion, and falling
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sharply. The world we have gained since 1800 or 1960 is the end of history, as the political scientist Francis Fukuyama
once declared. The last two centuries have been, as teachers of literature might put it, a comedy, not a tragedy
(Fukuyama 1968, 1992; McCloskey 2020).
The historical sociologist Jack Goldstone noted twenty years ago that the Industrial Revolution 1750-1850, unlike the
Great Enrichment that followed it, was not in fact unprecedented. It was merely the last of many “efflorescences,”
desirable if temporary increases, sometimes a doubling of average incomes, such as it may be the Quattrocento in
northern Italy—but nothing like the 3,000 percent which followed the last one. As the economic historian Joel Mokyr put it,
what was bizarre about the past two centuries was that growth did not peter out after this last efflorescence. It did not
revert to the human fate of $2 pr $3 a day determined by Malthusian forces, as had all earlier cases, such as the
innovation of the wheat-oil-wine economy during the early 1st millennium BCE in the eastern Mediterranean, or the
numerous mechanical and commercial innovations of the Song Dynasty in China 960-1279 CE.
During the vaunted Industrial Revolution in Britain 1750-1850 real income per person increased by 60 percent—very
welcome to be sure, yielding as early as 1800 that world-beating, if still-not-very-good, $6 a day per person (Broadberry
and others 2015, pp. 241, 244). But what was bizarre, going far beyond efflorescence, is that British real incomes per
person then proceeded in the late 19th century and beyond to double in each long generation, and to redouble, up to well
over $100 a day in Britain now, and likewise in Switzerland, Sweden, Finland, Japan, and other formerly wretched places.
The ability of the average person to buy goods and services is expressed (as well as one can over such a stretch of time)
in those sane prices of the daily $6 or $2 past. The U.S., from roughly the same base as Britain in 1800, has risen to $170
a day per person. Switzerland, once exporting its young men to die as mercenaries, is now at $200 a day. The
Enrichment, I say again, was assuredly Great, and wholly unprecedented. It was not the Industrial Revolution.
The factor of many-tens-of-times more goods and services, admittedly, is hard to feel on one’s pulse. Yet think of open-
heart surgery versus bleeding therapy, 95 percent literacy versus 5 percent, jet airplanes versus sailing ships, McDonalds
versus potato lazy beds, skyscrapers surfaced with glass versus two-storey thatched cottages with bottle-blown
windowpanes, if any.
Recently a major Swedish capitalist (Sweden, of course, is thoroughly “capitalist”) invited to breakfast a professor of
economic history, on the strength it seems of her alleged expertise in how commercially tested betterment works. He
wanted historico-economic tips from the professor on how to stop improving, the better to lead a quiet life. The professor
replied, “I’m sorry, sir, but you are our servant. Like the Red Queen’s advice to Alice, you need to run faster and faster to
stay in the same place.” The capitalist was depressed by the news from economic history, though not entirely surprised,
and went back to innovating.
By the time in 1901 that the redoubling of modern incomes over each generation in liberal countries was coming to be
expected, the American economist John Bates Clark predicted that “the typical laborer will increase his wages from one
dollar a day to two, from two to four and from four to eight.” It was an accurate prediction in real terms down to the
present, though its magnitude does not entirely allow for the radical improvement in the quality of goods and services,
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such as in the cleanliness of food and the efficacy of medicine. “Such gains,” Clark continued, “will mean infinitely more to
him than any possible increase of capital can mean to the rich.... This very change will bring with it a continual approach
to equality of genuine comfort” (Clark 1901 [1949]). There came to pass an equality of enrichment instead of an equality
of misery.
Liliiane Bettencourt had diamonds and yachts aplenty out of her $40 billion of wealth. Yet the poor man in France has
ample food and some education and a decent home, all denied to his ancestors. And the French rich and poor both have
access to anti-depressants and cell phones denied even to a billionaire as late as1960 (Boudreaux 2001, 2013, 2014).
The big story of the modern world is not inequality, which has declined even in purely financial terms since the days of
dukes with 800-year-old names. T he story is Clark’s “equality of genuine comfort,” or another Clark’s Farewell to Alms
(2007). The diamond bracelet in the bottom of Mme. Bettencourt’s jewelry box was to be sure a vulgar, blameworthy
waste. For Lord’s sake, you imbécile égoïste, give the money to the Fantines of Les Misérables! But for genuine comfort,
what matters is the 3,000 percent improvement in the average Fantine since 1830.
Real income per person grew in the United States 1800 to the present at a little below 2 percent per year, mostly from
technological and organizational innovations such as selective breeding of cotton plants in the slave South, not by capital
accumulation or by slavery’s horrors (Olmstead and Brode 2018). Two percent doesn’t sound like much. But at such rates,
I have noted, the ability to buy goods and services doubled every 36 years. Later enrichers such as Japan and Finland
and Hong Kong, and now China and India, grew three or four times faster, as they caught up to American ways of hard
driving their blast furnaces or French ways of organizing their department stores or Swedish ways of running their local
governments or Norwegian or Greek ways of owning and operating their ships.
Recent studies by a magnificent Maddison Project have detected a bit of growth in Europe and elsewhere in the centuries
before 1800. But it was an order of magnitude smaller than what happened after 1800 (Bolt and van Zanden 2014). The
growth rate 1272-1800 in England was about 0.2 percent per year, which is to say that real income doubled every three-
and-a-half centuries (Broadberry and others 2015, pp. 237,242). Good show, at any rate compared with zero percent. But
it was a doubling every twenty generations instead of every one or two.
The aerodynamic metaphor of “take-off” that W. W. Rostow long ago introduced into the literature implies a long runway,
centuries long it would seem. The “roots” of growth, to use another popular metaphor, are also said to be deep. But
aerodynamic or arboreal metaphors do not provide an actual explanation of the Great Enrichment. The metaphors do
sharpen the question of why so many poor people have become in the past two centuries so very rich. But they do not
provide an answer.
Likewise, attaching the Great Enrichment to various particular causes many centuries earlier in Europe, such he Black
Death of 1348-50, is scientifically questionable. After all, the Black Death originated in Mongolia, with similar levels of
deaths in among the Han Chinese, and the same temporary rise in real wages, until Malthus got to work again. And yet
China did not experience presently (that is, four and a half centuries later) a Great Enrichment. Questionable, too, is the
Eurocentric belief, prominent in conservative circles, of an ancient superiority of melanin-challenged Volk back in the
Black Forest. And to mention one of the alleged English particularities, all European countries in the Middle Ages had at
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some level a common law, judge-or-chieftain-found-and-made, not legislated or much codified at the center. Christianity,
too, existed far beyond the northwestern corner of Europe in which the Great Enrichment began (McCloskey 2022b). And
it is also questionable, though popular, to claim that recent Europeans are more individualistic than other peoples, or than
earlier Europeans. Consult Japanese bourgeois short stories, or the Mahabharata, or European fairy tales. Jack climbing
the beanstalk to steal from the ogre does not look like a docile member of a closed corporate community.
The Great Enrichment was qualitatively different from what came before, which tells against the metaphors of airplanes or
trees or running up to bowl, or the elevation to causal prominence of factors common to other times and places, such as
property rights and national debts and fractional reserve banking—the old timbers of the now brightly burning barn. And
relative to the 3,000 percent they were anyway small in economic oomph.
We Often Miss It
The Great Enrichment is the second most important secular event in human history, second only to the domestication of
plants and animals causing cities and literacy from Sumer to Tikal. The very Great Enrichment, though, is news to most
educated people, and to some few economists, and even to a (very) few economic historians. Hans Rosling emphasized
how little most people know about the overwhelmingly good news, 1800 to the present, or even 1960 to the present—
such as that places like Bangladesh have seen recently a falling infant death rate, falling birth rates, rising literacy, rising
real income (Rosling and other 2018.). Rosling surveyed people to the number of 20,000 in his various live audiences
concerning how much of the news they knew. They were embarrassingly less accurate than, literally, a gorilla would be
throwing darts at the survey.
Even the economic or historical experts among his audiences were strongly biased, as ordinary citizens were, in favor of
the pessimistic, anti-modern, Marx-Toynbee-1066 story. The historical sociologist Immanuel Wallerstein, an eminent man
of the left, declared boldly in 1983 that “it is simply not true that capitalism as a historical system has represented progress
over the various previous historical systems that it destroyed or transformed” (Wallerstein 1983 [1995], p. 98). Even
considering the less developed state of the quantitative evidence in 1983, such an opinion was untenable by a serious
scholar.
Likewise the distinguished historians Kenneth Pomeranz, and Steven C. Topik in The World That Trade Created (2006)
tell many interesting and accurate stories about the destructive side of “creative destruction” (a phrase coined by the
Marxist economic and social historian Werner Soimbart a century ago, and made famous by the un-Marxist Joseph
Schumpeter). Pomeranz and Topik are not mistaken to note the exploitation of workers when, say, increased demand for
twine to bale the straw of American wheat led to Mayan and Yaqui first nations being physically coerced in the Yucatán to
harvest cactus to make the twine (Pomeranz and Topik 2006). They are mistaken, though, when they assign the
exploitation to the innovation itself—in this case the prolific mechanical bailers of wheat—rather than to the pre-liberal
structures of physical power that allowed tyrants to exploit in evil ways the opportunity to trade in twine or coffee or cotton
or sugar or rubber or bananas. Such pre-existing evils—exploited of course in other evil ways before the alternative evil-
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yielding opportunity appeared in a new market—were often eroded in such places by the very liberalism and its markets
that Pomeranz and Topik detest. And liberalism produced the rising tide of world real incomes per person since 1800, and
the political power that it often brought to ordinary people, and at the least the new opportunities for exit from the poor
places to the relatively rich places. None of this is mentioned by Pomeranz and Topik. Measuring the destruction without
including the creation gets the history of the past two centuries radically wrong.
It was the British liberal and evangelical bourgeoisie, after all, which supported, early and uniquely, the ending in 1807 of
the slave trade and in 1833 the ending of slavery itself in the British Empire. It was such advocacy of abolition that so
irritated the hierarchical tastes of Carlyle against the “dismal” liberals such as his friend Mill. The liberal political
economists were adjudged dismal because they didn’t support slavery at the time and did not look back with favor upon
medieval serfdom, in both of which according to Carlyle lovely masters ruled grateful subordinates (Persky1990; Levy and
Peart 2001).
It was the American gentry and bourgeoisie in 1789 which supported the new liberal protections for free speech and
religion, as in the First Amendment to the Constitution. (Admittedly the fine words about free speech were dead letters in
practice until other bourgeois such as Holmes and Brandeis started to take them seriously a century and a half later
(Robert McCloskey 1961). And it was the French bourgeoisie which supported the various comprehensive liberties that
overturned the ancien régime in that other dawn.
Nowhere in their book, in short, do Pomeranz and Topik, in common with many academic enemies of “capitalism,”
emphasize the gigantic betterments for ordinary people arising from liberalism and its Great Enrichment. The oversight is
typical of the literature on inequality and divergence. Pomeranz’ best known book, The Great Divergence, documenting
the failure of the Qing Dynasty to keep up, was seized on by inequality-minded scholars to emphasize, speaking
statistically, the routine variance of income over time and within a country. But the variance is pretty much invariant. The
brilliant leftish economist Samuel Bowles discovered in 2016 that the Gini or Pareto coefficients have been similar in all
sorts of human societies. Yet the astounding explosion of the average, by that factor of 30, has been set aside by the left.
The implicit sentiment, if seldom explicit (considering the embarrassing evidence to the contrary), is that it is simply not
true that capitalism as a historical system has represented progress over the various previous historical systems that it
destroyed or transformed.
The question, further, why nations fail (as Daron Acemoglu and James Robinson put it in 2012) is not the fundamental
scientific question, though perhaps useful to ask in deprecation of the grosser stupidities of states. A typical piece of
advice to a failing state would be, Don’t exile all your best craftsmen and entrepreneurs—as Louis XIV and Colbert did
after the Revocation of the Edict of Nantes; Don’t shoot everyone wearing eyeglasses—as did the Pol Pot régime in
Cambodia; or, Don’t expel all the oil drilling and refining engineers—as did the Chavez/Maduro régime in Venezuela. But
the fundamental question, I have noted, is why there was for the first time after 1800 a prospect for any nation that
equipped itself with a liberal ideology to succeed.
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Innovism is the Secret Sauce
The explanation of the Great Enrichment must lie of course in people. It is people with particular ideas, ethics, ideologies
—not classes or institutions or for that matter nations—who discover innovations and buy them. The fact is admitted in so-
called endogenous growth theory, but then its theorists turn immediately to materialist explanations, such as urbanization
or skill improvements, said to drop mysteriously onto England in the 18th century, and not onto, say, China, (Romer 1990).
The same is true of neo-institutionalism, as for example in Acemoglu and Robinson’s book of 2019. In it they do recognize
occasionally that people matter, but then hurriedly revert to materialism (McCloskey 2021). China a thousand years ago
had the materialisms of peace, science, education, and enormous cities at a time when Europeans were huddled in small
groups behind protective city walls, or in isolated villas similarly militarized. Yet Chinese education and skills and
economies of scale were not productive of a Great Enrichment.
On the contrary, it was the ideas people began to entertain seriously after 1776 that mattered to the Great Enrichment.
From the inspiring master idea of liberalism—the crazy idea of equal permissions to have a go—people became mightily
creative. The ideas that people consequently discovered for commercially tested betterments, such as railroads and
interchangeable parts and better cotton plants, exploded (Fogel 1964; Rosenberg 1972; again Olmstead and Rhode
2018).
Only such widespread permissions have the explanatory force to explain a factor of 20 or 30. Humans had of course
always innovated, from the lovely but pointlessly polished stone tools of the Neolithic era to the clanking but businesslike
steam engines of the modern era. But until 1800 the humans innovated slowly by recent standards. They were even
forgetful of their inventions. The proto-aborigines in Australia forgot the use of the bow and arrow when they came across
the Wallace Line from New Guinea. The proto-English people forgot the use of coal and the potter’s wheel when the
Roman legions left and the Anglo-Saxons came. Humans before 1800 innovated so slowly that Malthusian pressures
overwhelmed the promise of each fresh efflorescence, windmills in Persia or acupuncture in China or place-value for
number systems in India and Central America.
After 1800, however, innovation in liberal countries commenced propagating in what Matt Ridley calls “ideas having sex”
(Ridley 2010). The production for the masses of metal goods had sex with elegance of design provided earlier only for the
elite (Berg 1998, 2004). The steam engine had sex with rails used earlier only for underground mines. Then the babies of
such innovations had sex with each other, and the grandbabies did, too, in the unique and ramifying innovations of the
Great Enrichment. Consider a mere two score of them out of literally millions: AC electricity, cardboard boxes, the little
black dress, The Pill, cheap food, literacy, asphalt, antibiotics, airplanes, screw-making machines, research universities,
cheap steel, sewers, tooth fillings, plate glass, forward markets, zippers, universal literacy, running water, science,
reinforced concrete, secret voting, bicycles, automobiles, window screens, ball bearings, limited access highways, free
speech, artificial rubber, washing machines, detergents, air conditioning, plastics, containerization, jet engine, free trade,
radar, computers, the cloud, smart phones. And all these were embodied designs pleasing to the senses, like polished
stone tools but immensely more common, the curve of plastic boxes, the elegance of faux-oriental rugs, the ear-candy of
music in the age of mechanical reproduction.
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The Great Enrichment was expressed also in less famous but nonetheless crucial multitudes of free lunches prepared by
the mobile worker and the liberated shopkeeper rushing about inspired by the sense that they can do anything, each with
her own little project for profit and pleasure. Sometimes, unpredictably, the little ventures became big, such as John
Mackey’s single Whole Foods store in Austin, Texas resulting in 479 stores in the U.S. and the U.K., or Jim Walton’s
single little Walmart in Bentonville, Arkansas resulting in 11,718 stores worldwide, revolutionizing retailing (Carden and
Courtemanche 2016).
Such unexpected if hoped-for free lunches and fresh designs are what modern growth has been about. It has not been
about the normal investments earning routine, predictable returns, which characterize the economy of ancient
Mesopotamia as much that of modern Manhattan. The routines are necessary to keep what we already have, repairing
roofs or making cars or darning socks. But as necessary as such routines are, growth has been about discovery, not about
optimal reshuffling in full view of opportunity cost.
The ingenious economists Dale Jorgenson and Zvi Griliches were quite wrong in 1967: contrary to what they claimed,
productivity change is not reducible to an investment rewarding at routine rates its opportunity cost, as for example they
claimed about hybrid corn rewarding U.S. investment in land-grant research centers in agronomy and genetics. Creativity
—not “capitalism”—is the point, being involved in, say, the Nobelist Barbara McClintock watching lovingly her little corn
plants growing (Keller 1983).
The liberation of such creativity is what economists and economic historians should be studying, but aren’t. A hired
manager, noted the University of Iowa economist Frank Knight in 1921, can carry out optimal shuffling or maintaining or
copying, a routine job for a routine reward. As put in 1976 by the economist and rabbi Israel Kirzner (who cannot be
accused of not understanding opportunity cost), “the incentive is to try to get something for nothing, if only one can see
what it is that can be done” (Kirzner 1976, p. 84, compare Spender 1989, 2014; and Diamond 2019).
Before liberalism, the getting of something for nothing by creative thinking was routinely obstructed. Until the 19
th century
the very word “innovation” signified religious changes dangerous to the soul. The new equality of permission in liberalism
for people to implement their ideas for betterment was the crux.
Observe that no one has seriously thought otherwise about non-commercial activities, such as music or painting or
science or friendship or language. No one doubts that obstruction or regulation or central planning of these—of jazz,
sculpture, architecture, biology, novels, poetry, movies, dance, rock music, friendships, hobbies, exercise, knitting,
whatever—would yield anything but dreck. Think of Fascist Italian literature or Soviet Russian biology.
Yes, self-imposed rules of form item-by-item, such the haiku, or the Petrarchan sonnet, or the jazz standard, or the
Palladian rules for neo-classical buildings, or conventional experimental controls in science, can of course be creative
constraints. Or not. One can’t say for sure. It’s not mechanical. There’s no routine and predictably fruitful Method of art or
of science (Kuhn 1962, Feyerabend 1975, Mulkay 1985, Collins 1985). But what is clear is that when someone outside the
conversations of art or science or business presumes to plan art or science or business, as in socialist realism or Marxist-
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Leninist biology or industrial planning or illiberal populism denying vaccination g, disaster regularly strikes (Polanyi 1951;
Kealey 1996; McCloskey and Mingardi 2020; Collins and others forthcoming).
In the economy of Britain after 1800 and then the rest, I am saying, what caused enrichment was massive creativity
coming from the ideology of liberalism—Adam Smith’s “obvious and simple system of natural liberty,” “the liberal plan of
[social] equality, [economic] liberty, and [legal] justice” (Smith 1776, 4.2.9, p. 456.; and, 4.9, p. 664). The extension of
equality from the individual soul to the secular citizen arrived suddenly in the 18th century, without much in the way of
anticipation within a decidedly non-liberal Europe. The Oxford English Dictionary on Historical Principles speaks of liberty,
sense 3a: ”Freedom to do a specified thing; permission, leave” (italics supplied). In the opinion of radical liberals in the
late 18th century such as Thomas Paine or Mary Wollstonecraft, the hierarchies of lord and servant, priest and
parishioner, husband and wife, which had seemed natural to an agricultural society, were to be overturned, as never
before. Equal permissions for the generality were to be laid on in all directions.
Equality of Permission was New
In medieval English the plural “liberties” meant inequality of permissions. Thus sense 6a in the OED’s entry on “liberty’’ is
“chiefly in plural. A privilege, immunity, or right enjoyed by prescription or grant.... Now chiefly historical.” Thus the English
Magna Carta of Liberatum (genitive case of “of liberties”) affirming in 1215 baronial privileges against the king. Compare
the southern Dutch Groot Privilegie in 1477 affirming local privileges against Burgundian centralization. In the plural sense
a particular person or a particular city was to have certain named and limited privileges, to run a market with a specified
frequency or to be exempted from specified taxes. Not the generality. General, as against one-by-one special liberties for
enclosing open fields and forming a limited liability corporation, date from the liberal 19th century (Wallis 2022; Shilts
2004).
The liberal turn among theorists in the 18
th century was so to speak from “liberties” to “liberty,” from unequal privileges for
some few to equal privileges for all (though in fact at first in politics the liberty applied only to the few liberated males
having substantial property). Such a liberalism promised an equality, I note yet again, of permissions.
It is not, as the middle of the conventional political spectrum says without thinking about it very much, an equality of initial
“opportunity” (equality at the starting line). Nor is it, as the left says without thinking about it very much, equality of
outcome (equality at the finish). (The right of course says, “To hell with any equality! Stay where you are born, you natural
slaves!”)
Equal opportunity is impossible to implement, because equal money incomes do not suffice to achieve it. Full equality of
opportunity would require defacing handsome people and taking good parents away from lucky children and putting
weights on fast runners, like racehorses. Just such a dystopia of equal opportunity is spoofed in a short story by Kurt
Vonnegut, Jr., in 1961:
The year was 2081, and everybody was finally equal. They weren't only equal before God and the law. They were
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equal every which way. Nobody was smarter than anybody else. Nobody was better looking than anybody else.
Nobody was stronger or quicker than anybody else. All this equality was due to the 211th, 212th, and 213th
Amendments to the Constitution, and to the unceasing vigilance of agents of the United States Handicapper
General..... The television program was suddenly interrupted for a news bulletin. It wasn't clear at first as to what
the bulletin was about, since the announcer, like all announcers, had a serious speech impediment.
Vonnegut 1961 (1978).
And equality of final outcome is paying brain surgeons the same as someone whose output is much less valuable to
others, or paying someone equally who chooses not to be valuable to anyone. It is like Melville’s Bartleby intoning “I would
prefer not to” work. It violates St. Paul’s declaration to the Thessalonians (3:10) that he who does not work should not eat.
Equality of final outcome, as John Rawls conceded to the economic liberals, shrinks the expanding social pie that saved
the poor.
When implemented—if fitfully—the liberalism of equal permission encouraged, honored, permitted an ideology of
innovism. ”Capitalism,” Max Weber noted a century ago, is ancient. “Capitalism appeared in China, India, Babylon, the
ancient world, and Middle Ages” (Weber1904–1905 [1920, 1958], p. p. 53). “Innovism” by contrast describes what is
economically and scenically and artistically modern about modernity. The C-word makes the erroneous suggestion that
the modern world was initiated by and keeps growing by piling brick upon brick, bachelor’s degree upon bachelor’s degree
—and that such a “capitalism” did not exist when Homo erectus accumulated Acheulean hand axes by the hundreds or
when Homo sapiens traded over hundreds of miles for shell ornaments or when the Chinese and Romans organized
massive divisions of labor to make silk cloth and fish sauce, not to speak of the Grand Canal and the Appian Way. Capital
accumulation is fine for sustaining the routine, I have noted, keeping the rooves from leaking, fixing the roadways, growing
the usual crops. Rice cultivators in east and south Asia invested gigantic sums in terraced and irrigated fields. Medieval
European peasants saved perforce upwards of a quarter of their grain crop for seed, because the yields per unit of seed
for wheat or barley (unlike for rice) were pathetically low. The ancients, that is, engaged in big-time “capitalism.” The noble
project of permitting the wretched to raise themselves up, by contrast, requires entirely new ideas to be found for the use
of labor, capital, and land. Such progress would be recommended by an all-wise central planner as it is by a roughly wise
market. It is progress in technology and organization saving the poor, whether state-planned or market-spontaneous, not
“capitalism,” that entails the destruction in creative destruction.
Piling up physical or human capital without a new and profitable idea will face rapidly diminishing returns. The Dutch
learned it in their enormously expensive project after 1927 of damming and then draining their Zuider Zee (“inner sea”) in
order to make more agricultural land (“God made the sea, but the Dutch made the land”). By the late 20th century the
project had not come close to justifying its expense, because by then the Netherlands was no longer chiefly agricultural.
The Chinese will soon learn a similar lesson about their enormously expensive if politically exciting high-speed rail system
and their faux-imperialist Belt and Road Imitative. The Nobelist W. A. Lewis declared in 1954 that “the central fact of
economic development is rapid capital accumulation.” But in the same decade this apparently obvious truth was shown by
Robert Solow and Moses Abramowitz to be false (Solow 1957; Abramowitz 1956).
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Innovism is the piling up not of capital but of ideas, which then justify the particular accumulation of capital, the particular
reallocation of labor, the particular use of the legal system, the particular exploitation of natural resources. As the
economist Julian Simon put it, human creativity is the “ultimate” resource—not the so-far-identified natural resources that
non-economist believes to be so important. In Latin America they say, mistakenly, “The land is rich [in resources]; but we
are poor” (that is, someone is stealing it). Natural resources are only made valuable by human ideas, Simon pointed out
(Simon 1981 [1996]). Leakages of Pennsylvanian oil from the gerund were merely irritating obstacles to agriculture until
people with a little chemistry thought to make them into kerosene. Rare earths were just elemental dirt until ideas made
them inputs into computers.
The claim here, that liberalism led to innovism and thence to the Great Enrichment, is highly testable. For example, it can
be tested by comparing places with liberal encouragements to innovation with places with oppressive hierarchies,
England after 1800 compared with, say, England before 1700. Test cases would be China, Japan, Moghul India, and the
Ottoman Empire in 1492, when all of them were more promising than the miserable and quarrelsome nations of the
extreme northwestern corner of the Eurasian continent. All those non-European places had more peace and craftsmen
and scientists, and better enforced property rights and often better tax systems, than Holland as late as 1600, or England,
Scotland, and some of the English colonies as late as 1700. Yet they did not enrich. They lacked liberalism, and liberalism
alone.
Or one could follow innovators in biographies in Victorian England, say, comparing each innovator with a matched
individual in non-liberal regimes, such as Elizabethan England. Did blacksmiths or the sons of blacksmiths in the late 16th
century become makers of marine chronometers or of magnetic-electric coils? Did the son of a glover become a
playwright flattering the Queen—good stuff, to be sure, and after all Shakespeare was an innovative manager of
playhouses, too— or did a descendant three centuries later turn instead to making better soap or bicycles, and his
grandchildren then able to turn like Hanno in Thomas Mann’s Buddenbrooks back to high art, too.
The historical materialist in all of us after Marx nonetheless demurs. Surely, she exclaims, innovism cannot come out of
mere ideas! The psychologist Steven Pinker, for example, though wisely emphasizing recent human progress, announces
as an historiographic dogma that “the most satisfying explanation of a historical change is one that identifies an
exogenous trigger” (Pinker 2018, Preface)—by which he means a materialist one, not a social psychological, or rhetorical-
ideological, one. Well, why so? Are we doing historical science or historical materialism?
Liberalism is Not Essentially European
The enriching liberal idea itself came out of the accidents of European reformations, revolts, and revolutions 1517 to
1789, in a Europe of hundreds of independent political units, such as the Dutch cities in their Golden Age, or the
Kleinstaaterei of the German lands. Ordinary people were made bold by the success of the accidents of reformation,
revolt, and revolution—accelerated in public opinion by the technology of printing, as the internet does now (though, by
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the way, the printing press had centuries earlier been invented and used massively in China, without such revolutionary
results; liberal ideology is the spring, the secret sauce).
The liberal outcome did not arrive necessarily and logically, but contingently and factually, justifying the word “accidents.”
Similar, or even the very same, accidents sometimes instead made the illiberal rulers of Europe bold, too, and resulted in
the top-down ideology of the new nation states, inspiring the divine right of kings and the elevation of urban protectionism
to national policy, and finally to central planning, the rule of the Party, and world wars. Such illiberalism could have killed
innovism. It tried.
The turmoil in Europe eventuating in 18th-century liberalism, in other words, could easily have broken bad. The Radical
Reformation, as against the Magisterial one of Lutherans and Anglicans, was that of the Anabaptists, Mennonites,
Congregationalists, and latterly the Quakers and Methodists. The leveling radicalism in church governance could have
been crushed by a more successful Counter-Reformation or by stricter enforcement of the laws against a non-conformity
to the established rites of the magisters. But the precarious success of the radicals let ordinary people for the first time
take charge of their religious lives—and by analogy their economic lives. Witness the Massachusetts Puritans. And back
in the home country witness the tiny group of English Quakers made Lloyd’s insurance, Barclay bank, Cadbury and
Rowntree chocolate. The economically significant force in the religious case was not, as Max Weber eloquently but
erroneously claimed, the doctrines of Calvinism (which would not describe Quakers or Methodists), but a flattened church
governance. No bishops. Choosing your own minister mattered for inspiriting people to have a go, and to take
“responsibility”(a new word in the modern sense emerging in the late the 18th century [Haskell 1999]). Less hierarchy.
Quakers do not even have an assigned minister.
The Dutch Revolt 1568–1648 likewise re-enforced a leveling idea of civic autonomy against the imperial hegemon of the
time, Spain—and by analogy against other hegemons, international and domestic. Contrast the success of the Tokugawa
shogunate in bringing the daimyos to heel in Japan. The Dutch Revolt could have failed. Its success, after 80 years of
attempts by the Spaniards to re-occupy the northern Low Countries, was a close call, an accident. Had for example the
Spanish Armada of 1588 succeeded in landing the best army in Europe on the south coast of England, crushing the
pathetic English army gathered in Tilbury Field to hear Elizabeth promising “a famous victory over these enemies of my
God, of my kingdom, and of my people,” it would have made England again Roman Catholic, and would have left the
Dutch even more exposed. Such an accident would have turned out badly for liberalism.
Likewise, during the English Civil War 1642-1651 the successes of the Parliamentary armies suggested to some ordinary
people that they could begin the world over again—though the gentry-general responsible for the successes, Oliver
Cromwell, argued explicitly against their ideas in the Putney Debates, and developed as Lord Protector into a tyrant. By
accident, he died of malaria, and his experiment in crushing even a republican liberty was sidelined. The liberal idea was
reborn a century and a quarter later in British North America, and meanwhile had begun to flourish it Brtain.
And so forth. By such accidents the idea of a society without naturalized subordination prospered in northwestern Europe,
and especially in a formerly highly illiberal England. The core idea was expressed by one of the Levelers in the Civil War,
Richard Rumbold, from his scaffold in 1685: “There was no man born marked of God above another, for none comes into
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this world with a saddle on his back, neither any booted and spurred to ride him” (Rumbold 1685). Rumbold’s claim was
laughable in a hierarchical society possessed of an ancient and contrary ideology of the Great Chain of Being. In 1685
many in the crowd gathered in Edinburgh for the entertainment of seeing him hanged would have snickered. By 1785
such equality of permission, a daring thought of certain intellectuals, was being put into practice only in the Swiss and
American confederations, and highly unevenly even in those places. By 1885 in liberal Western Europe and its offshoots,
Rumbold’s claim was a solemn cliché. And by1985 worldwide it was appropriated by régimes without the slightest
intention of carrying it out.
Efficiency is not he Point
The more predictable and less creative result was what has been called Smithian growth (Boettke 2020). People were
permitted to reallocate their labor or capital to where they knew from existing routines it would be the most productive,
yielding the routine increases of efficiency we talk about in most economics. It was Adam Smith’s chief analytic
contribution to point out such arbitrage, for both capital and labor. People recently built apartment blocks in gentrifying
neighborhoods on Capitol Hill in Washington, D.C. because they knew that demand was brisk and the annual returns to
the building would be normal or even a little above normal. People went to North Dakota during the oil boom there 2006-
2015, because wages were high and known. Fargo to this day has a mass of eager entrepreneurs. People moved in the
1890s from Sweden to the U.S. because wages in Minnesota were high and known. Minnesota has to this day a mass of
entrepreneurs, too.
A classic example in U.S. history is supposed to be the Kuznets Effect, the alleged doubling of income achieved merely
by moving from agriculture to industry (Kuznets 1957). It is dubiously sensible in its magnitude net of transaction and
transport costs, because such an enormous, $300 bill sitting unused on the sidewalk in 1880 is hard to believe as even an
approximate equilibrium. Why didn’t everyone move to Chicago? They did not. In 1900 a third of U.S. families remained
down on the farm. But if true, it is a spectacular example of the gain from routine reallocation internal to the U.S. The
external Smithian cause of growth was the re-peopling of the New World by Europeans, Africans, and Asians. It has been
plausibly calculated by economists that allowing people to move freely worldwide would increase world income per head
in Smithian fashion by a startling 50 percent (Clemens 2011). Thus the Blessed Smith,
Yet we are seeking not an explanation for 50 percent or even 100 percent, but 3,000 percent. The 5 to 50 to 100 percent
yield of efficiency from Smithian growth in liberal markets is a fine thing. It is what we teach in economics for a couple of
weeks at the beginning of the term, devoting the rest of the term to devising lovely models, if never tested against facts, of
dozens and dozens of “imperfections” in the market—monopoly, informational asymmetry, inadequate aggregate demand,
consumer ignorance, and on and on. (Most academic economists leave to the political scientists in the other building the
teaching of the perfections in the coercive state the economists assign to offset the so-obvious economic imperfections in
voluntary markets.) Such teaching gives the false impression to the students that their teachers must have collected
voluminous quantitative evidence that the imperfections bulk large in the economy, accounting for how very wretchedly it
performs (McCloskey 2018a). Meanwhile, outside the university precincts, the wretchedly imperfect economy of equal
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permissions produced a Great Enrichment of 3,000 percent. It enriched not by reallocations but by innovations, which in
turn justified the reallocations. In the Yiddish formula, with such “imperfections” who needs perfections?
Economists and economic historians have known for a long time that efficiency gains from reallocation are small on the
scale of modern economic growth. This is so even if one considers their allegedly dynamic if mechanical secondary
effects, such as re-investment of the proceeds, or economies of scale. In the jargon of economics, Smithian efficiency
yields only “Harberger triangles” (Harberger 1954; Hnes 1999). In 1964 the economic historian and Nobelist Robert Fogel
established the fact for U.S. railroads. Many others have used the argument after Harberger invented it for monopoly and
Fogel applied it to social savings from innovations. To put Fogel’s application in a three-line proof:
1. Take the share of an industry such as railroads in national income,
2. multiply the share by the percentage fall in costs in the industry, such as falls in transport costs along rail routes,
3. and then multiply by the share of the new part in the industry, such as the half or so of transport accounted for by
railroads.
The product will be the national percentage gain in national income. QED
Thus, value added on railroads in the U.S. in 1890 was about 10% of GDP, the fall in cost was about 50% on rail lines
(compared with old rates on such routes by water and wagon), and the share of revenues from railroads in all transport
was by 1890 about 50%. That is, (10%) x (50%) x (50%) = 2.5%, the percentage increase the GDP per head from the
invention of the railroads alone, which was Fogel’s finding. (Fogel, it must be admitted, when I proposed it to him in the
Solarium of the Quadrangle Club at the University of Chicago in the early 1970s, did not approve of my simplification; he
insisted on laboriously calculating counterfactual canals.) The modest rise in GDP was a Smithian, Harbergerian triangle
of efficiency gained, about a year’s worth of U.S. growth.
If you believe Fogel’s number has to be larger because land rents along the routes of railroads would also rise, you have
not understood the double counting that would be involved. It was the very fall in transport costs that raised the land rents
in, say, Iowa, which has except along its east and west borders no navigable rivers. Adding up such rises in rents by
themselves, the economic logic implies, arrives at roughly the same low estimate of the impact of the railroad on national
income (Ransom 1970).
If you believe, because you have taken a microeconomics course in which imperfections are over-studied, that
externalities and economies of scale would make the result much bigger, you need to show it empirically (Fogel 1979).
Furthermore, you need to explain why externalities and economies of scale in, say, hypothetically expanded transport by
canal or road would not in the counterfactual world have had their own positive externalities and economics of scale.
If you believe that the rise of Chicago—“Hog butcher for the world, Tool maker, stacker of wheat, Player with railroads and
the nation's freight handler” sang the poet Carl Sandberg, son of a Swedish railway worker—was a net gain to the nation
attributable to railroads, you need to understand that shuffling resources from St. Louis and Memphis to Chicago is not
“net.“
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If you believe that the romance of the Iron Horse proves that it was important, you need to consider unromantic cost and
benefit.
Here is the economic problem with Smithian growth as an explanation of the Great Enrichment:
3
Note the arrow in the diagram of “Factor of 30 or 100, 1800-present.” That’s where the world-historical, Schumpeterian,
Bourgeois-Era action is. The Harberger triangle to be had from better allocation is merely the triangle Gain. If applied to
pre-existing sources of imperfection, such as taxation, it is a trapezoid instead; but it is still trivial compared with the factor
or 30. The triangle/trapezoid is dwarfed by the outward/upward explosion of the marginal product of labor.
Nor is Capital Accumulation
The railroad age accustomed us to think in terms of capital/output ratios as the way to wealth. Students of development
economics were taught so in the 1960s. Consult W. Arthur Lewis or W.W. Rostow. Yet the yield on sheer capital
accumulation is small in the absence of commercially tested betterment, those innovations that do account for the Great
Enrichment. As Keynes said in 1936, diminishing returns to investment are sharp: “a properly run community equipped
with modern technical resources... ought to be able to bring down the marginal efficiency of capital in equilibrium
approximately to zero within a single generation” (Keynes 1936, Chp. 16). To repeat, physical capital accumulation,
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contrary to most economists from Adam Smith to even a good many now, was not the spring in the mechanical watch.
Nor was the secret sauce the accumulation of human capital. The doyen of the economic history of education in Britain,
David Mitch, notes that in the early 19th century elementary education in England (if not in Calvinist Scotland) was poor by
comparison with, say, Sweden’s or Prussia’s (Mitch 1992, 2003). And the cross-section yield of human capital implies at
most a 50% gain from getting a university degree compared with a high-school degree. To say it yet again (I apologize,
but if you don’t keep the great magnitude in mind you are never going to get beyond Smithian growth): we are seeking
3,000%.
The word “capitalism,” as I have noted, is a scientific problem. Immanuel Wallerstein can again be quoted, as a useful
locus of erroneous assertions about economics and economic history. He wrote in 1983 that “the word capitalism is
derived from capital. It would be legitimate therefore to presume that capital is a key element in capitalism” (Wallerstein
1983, p. 13). No, it would not. Even though the first part of the word “astrology” is derived from the Latin for “star,” we
would not be wise to presume that stars are a key element in human fate. What we say about the world does not by virtue
of the saying become true. That we insist on ruminating on something called “capital” does not imply that its accumulation
was in fact unique to modernity, as it assuredly was not. The rumination and modeling and calculating does not make true
the Master’s words: “Accumulate, accumulate! That is Moses and the prophets” (Marx 1867, chap. 24, sect. 3). Marx was
noting that such was the opinion of the classical economists, whom he was criticizing. But he heartily agreed with them on
the centrality of capital and its accumulation “endlessly” (a characterization going back to Aristotle, and figuring too also in
Weber).
The word “capitalism” emerged in the late 19
th century on the left of European politics, and eventually—in a turn the Dutch
call a geuzennaam (literally, a “beggar name,” assigned by your enemies, such as “Quaker” or “Tory” or “Whig,” but then
adopted by you, proudly—was adopted proudly by the liberals and especially the conservatives. An American business
magazine calls itself Forbes: Capitalist Tool.
Once the lineup of the politics has been settled, people on the left and on the right reckon that they already know the
merely corroborative detail about the actual economic history backing the politics. “Capitalism,” as educated people have
been believing erroneously since 1848, emerged in the 16th century. Accumulation proceeded until it yielded the Industrial
Revelation Revolution of the 18th century and early 19th century. It corrupted all who touched it, said the left. It
automatically enriched people through the sheer accumulation of physical and human capital, said the right. Left-wing
scholars to this day believe that Marx and Engels in 1848, long before the full professionalization of history, had somehow
discerned the story pretty much correctly. Right-wing scholars have joined them in the same erroneous stylized facts—so
much less troublesome than actual facts—such as the non-fact that enclosure drove workers into the arms of the mill
owners. Both left and right are enchanted by the just-so story that the Industrial Revolution was a “take off” and that sheer
physical accumulation, not the liberation of human creativity, was its jet fuel.
Once a liberal economy has created new productive forces, tyrants can take advantage of its innovations, making by
coercion for example a considerable amount steel, as Stalin did in the 1930s. It is orthodoxy in historical materialism to
praise bourgeois society for producing the ripe fruit of monopolized and rationalized industry that the dictatorship of the
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proletariat can then pluck. Lenin wrote in 1917 of making “the whole of society...a single office and a single factory, with
equality of labor and pay” (Lenin 1917 [2014], p.141). Note that the industrial engineer and the sweeper are to be paid the
same. They are equal in God’s eyes, yes—but not in the economy’s’ if it is to work for the enrichment of us all, even
approximately. The cause of increasing enrichment is not the routine management or the Gosplan but the ideas for
typewriters in offices and for assembly lines in factories and for stock trading in Wall Street that enable latter-day
constructivists like Lenin to have something to imagine they can so easily construct, moving a piece on a chess board.
Nations will vary in their uptake. A political tyranny like British Hong King or independent Singapore or China in the care of
the Communist Party can copy liberalism in its economy, and then maybe even start innovating a little beyond the
technological frontier—at any rate if within its state bureaucracy there is liberty for the engineer, say, to have a go. But
letting people have a go in the economy or within the enterprise or even within a government office is the secret sauce.
There is reason to believe that without political or personal liberties, the liberty to have a go also in the economy will
wither. It happened in sad Russia again and again. In Taiwan and South Korea, by contrast, the shift from tyranny to
liberty led on to still grater economic gains.
But such variation, I repeat, can mislead as to how it all began. The barn burned because of little Joe’s carelessness. Not
much is to be learned about the cause from variations in the rate at which different parts of the barn then burned. And the
fire, once lit, can easily spread to other buildings on the farm, from the British building to the Russian building. Or not. A
forest fire is the same story. We wish to know why a fire in California started close to Pacific Gas and Electric Company
transmission lines. Once the fire started, though, nothing is to be learned about that original cause, and not much about
how to stop such fires from happening in future, by knowing that far away from the power lines the fire moves faster when
the wind is blowing hard against a wooded slope with plenty of drought-dried ground cover. True, one can learn about
these later causes of spread, just as one can learn that shooting people with eyeglasses will lead a nation to fail. But to
learn the spring, the secret sauce, the jet fuel, the great alteration in moeurs that led to the modern world, one needs to
attend to little Joe and his purloined cigarette.
We Learned that ∆K is not It, or Even ∆Property
Many economists and economic historians therefore have slowly, with difficulty, come to question the notions that thrifty
saving or predictable reallocations or the ”peace, easy taxes and the tolerable administration of justice” of a Smithian sort
are ways to explain “more massive and more colossal productive forces than have all preceding” (Smith 1755; Marx and
Engels 1848, Chp. 1). In 1960, when Solow and Abramowitz and Edward Denison were questioning it (an economic
historian, G. T. Jones, a student of Marshall, had already done so in 1933, but economists were not listening), Friedrich
Hayek also questioned “our habit of regarding economic progress chiefly as an accumulation of ever greater quantities of
goods and equipment” (Jones 1933; Hayek 1960, p. 42). In 2010 the economic historian Alexander Field reinforced the
original insights of the 1960s with his calculations of productivity change in the United States during the 1930s, showing
that technology was the ticket, not private capital accumulation—which at the time was small to vanishing (Field 2002,
2011). In 2006 the economist Peter Howitt arrived at a similar conclusion, even from somewhat beside-the-point cross-
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country studies (Howitt 2005, p. 7).
And the Great Enrichment did not start in Britain through improved property rights, either. Common law is commonplace,
I’ve noted, and an improvement in it didn’t happen at the right time in England to explain the Industrial Revelation. English
common law, with other common laws elsewhere, as in northern France, or in Iceland with its annual law reading, or in
Israel under the Judges, is ancient (“before the time of Edward I,” the year 1272, said Pollock and Maitland 1895). The
Glorious Revolution emphasized by Douglass North and Barry Weingast on the occasion of its 300th anniversary did not
significantly change English property rights or contract law. True, it shifted the supervision of the Old Corruption partly
from the Crown to Parliament. But the big legal changes came in rationalizing codifications a century and a half later.
And improved law, too, is subject to Harberger’s Law. In the early 1970s, tutored by the Chinese economist Steven
Cheung (as Doug North later was), I tried to show that legal change caused the Great Enrichment. I discovered in a study
of the English enclosure movement the un-greatness of the effects of the change in property rights, and its endogeneity.4
Legal historians had come to similar conclusions about other items in England’s legal history. The project of the neo-
institutionalism initiated by North (Nobel 1993) and Oliver Williamson (Nobel 2009) is problematic, because lacking
serious attention to shifting ethics and ideology, not to speak of the project’s notable lack of quantitative oomph. (I invite
you to examine the full treatment of these points in numerous chapters of McCloskey 2010 and 2016, and more recently
in McCloskey 2021.)
Nor was the secret sauce natural resources, to repeat Julian Simon’s point, such as coal. Among the many frailties of the
claim, China used coal anciently, as did the Romans. Decades into the Age of Coal, the U.S. and Sweden, I’ve noted,
continued to use wood to make their iron, to run their steam boats, and to heat their homes. By then London had for
centuries used “sea [shipped] coal” from Northumberland for heating homes and making glass. Coal was not new.
Nor was the secret sauce transport. See Fogel. Nor trade, despite persistent theories depending on it as an engine of
growth. Nor exploitation, imperialism, slavery—the new King Cotton School of U.S. history notwithstanding (Olmstead and
Rhode 2018). Nor racial difference: the Great Enrichment is happening now in China and India—highly non-European
places—and it is starting to happen in sub-Saharan Africa, from where, speaking of the human race, all of us came.
Nor is it an obstacle of “culture” at last overcome, unless one is speaking of the culture of agricultural hierarchy itself, the
overcoming of which is indeed the liberal spring in the watch, the sufficient secret sauce. In the usual meaning of the word
“culture,” however, the public and private culture of the individuals changed not at all, when, say, Chinese people moved
from Canton to San Francisco or when Jewish people moved from Lithuania to New York. They kept on cooking without
milk products or keeping milk and meat separate. Yet when they found that the move had put them in a liberal economic
environment, both responded mightily and had a go.
And the specifically economic parts of culture can change fast, contrary to what economists regularly assert without
evidence, the better to avoid having to learn about culture in ideological and ethical detail. Even the pioneering liberal
economist Peter Bauer, a rare bird after World War II in resisting the statism of the age, doubted that culture could change
much. An example is the pessimism about amoral familism in Southern Italy in the political scientist Edward Banfield’s old
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book (Banfield 1958). And yet Southern Italy grew, and southern Italians moving to the U.S. or to Latin America prospered
mightily, too, like the overseas Chinese and the immigrant Jews, for the same reason. The Italian “culture “of pasta,
Catholicism, and emphatic hand gestures was unchanged, echoing down the generations. Throwing around the word
“culture,” as those experts in the precise use of its details, the anthropologists, could tell you, is not science.
Nor was the obstacle a path dependence, to speak of another allegedly cultural dragging of feet, except in the short run.
The charming myth of the inferiority of the QWERTY arrangement of typewriter keys, for example, is belied by its
persistence in typing-intensive companies, which in the age of computers could easily shift to the Dvorak keyboard—if
typing with it is in fact much quicker (the fact is asserted by economists on the basis of experiments run by... August
Dvorak). Musicians can move between clarinet and saxophone, as they did in the Era of Charlie “Bird” Parker. You
yourself, without a lot of fuss, can move from Swedish to French to English keyboards.
And certainly the secret sauce was not the “entrepreneurial state” recently re-asserted after Colbert, Lenin, and Keynes by
Mariana Mazzucato, or the internal improvements of the Age of Jackson, or the Anglo-French Concorde airplane, or the
space program, or whatever glorious project of state coercion one can instance (McCloskey and Mingardi 2020). The
correct way to test the argument of Mazzucato and other statists enthusiastic about industrial policy would make a
splendid Ph.D. dissertation in economics or economic history. Take a literally random sample of twenty or, if especially
ambitious, fifty industries out of all production of goods and services, 5-digit industries, say. In the U.S. classification, for
example, two industries might be 11115 Wheat Farming; and 32412 Asphalt Paving, Roofing, and Saturated Materials
Manufacturing. Then look into the role of the state or of science or of liberal permissions in each industry’s historical
supply chain of betterment, at each stage measuring the change in total factor productivity expressed in falling output
prices relative to input prices, taking account of the substitutes for the alleged ultimate causes in supply and demand
along the way. Consider for example the mechanical reaper, wholly private and unscientific, in the history of wheat
farming.
Or as a recent example, consider for large urban projects in China the platting of property and the building of roads and
the digging of sewerage provided by local government, compared with similar large projects in India. In India a private
provision is often necessary, because the local government is incompetent. Both countries are corrupt, but at least the
Chinese officials appear to know what they are doing, and stay bought. It is an instance of substitution in supply. State
action is sometimes the cheapest route. Yet sometimes it is the dearest, considering the bribes to a monopolist of
coercion. But private substitutes are often possible. Canals in Britain were wholly private.
And the same sampling of historical supply chains would probably conclude that the Great Enrichment was until recently
not much caused by Science. The portmanteau word “scienceandtechnology” is heard frequently, giving credit to High
Science for ingenious tinkering with, say, windmills for drainage. Joel Mokyr has argued learnedly for Science, but there
are faults in his story. Very many economically important innovations—containerization again; limited access highways—
had nothing to do with High Science. Canning of food by sterilization was invented many decades before its High Science
justification in the germ theory. Of the forty innovations in my earlier list, 18 had an element of Science such as AC
electricity—though their implementation involved also mases of technology by tinkering, by making wire and glass for
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transmission. But the rest (zippers, window screens) had essentially no Science in them, and came instead from people
emboldened by innovism out of liberalism to have a go.
Furthermore, Mokyr does not acknowledge that the Scientific Revolution was Europe-wide, yet the Great Enrichment was
initiated and for a long time pursued chiefly in Europe’s relatively liberal parts. The United States contributed little to
Science until around 1900, yet meanwhile, even when it had a small population relative to the European powerhouses in
Science such as France, it contributed mightily to new machinery, such as the sewing machine and the making of guns
with assembly lines and with interchangeable parts, themselves having little or no input from Science. The greatest and
latest flourishing of Science in the U.S. depended on immigrants fleeing the illiberal regimes on the Continent during the
1930s. And in the long term in the U.S the flourishing of high and low science and engineering depended on letting
ordinary Americans ambitious to contribute to chemistry or medicine or agronomy or for that matter economics, to have a
go, under the gradual extension of the obvious and simple system of natural liberty. In the 20th century such liberation for
Science started to happen even for Jews, women, and Blacks. The Black laboratory supervisor Vivien Thomas (1910-
1985) at Vanderbilt and Johns Hopkins (honorary Hopkins PhD 1976) was central to curing by surgical intervention the
blue-baby syndrome—though he was a Black man without a college degree. Permission to innovate was granted by the
new liberalism, if highly unevenly.
Nor was the Great Enrichment out of innovism to be accounted as the summed effect of even a substantial pile of these
intermediate causes. In view of Harberger’s Law and the 3,000 percent to be explained, something was making for a
widening permission to have a go, and making for the stunningly widespread ingenuity after 1800. A Birmingham in
Warwickshire or a Hartford in Connecticut were proverbial hives of innovation by liberated craftspeople and their bosses.
The permission and ingenuity in turn were encouraged by a gradually widening of liberty, which alone among the proffered
causes of the modern world has the oomph to explain ingenuity in one sector after another liberated to have a go—from
Wedgwood’s blue-painted china in the 18th century to Liberty Ships in the 20
th.
Creativity is Anything but Routine
Innovism, that is, is a matter of creativity, which depends on liberty. No one thinks that slaves, aside from an occasional
Epictetus, are good at novelties. The conditions encouraging creativity can be studied and measured. Chief among them
is a liberal society, especially in its economic culture.
But of course the moment of creativity is unpredictable. A prepared mind such as G. H. Hardy’s can make surprising
advances in number theory, and yet an unprepared mind such as Srinivasa Ramanujan sometimes can, too, coming at
the subject from the outside. The linear B script of Cretan Greek was deciphered by an architect. The decipherment of
Central American glyphs was begun by a Soviet linguist outside the domain of the chief Mayanist, an Englishman at
Harvard, who had long blocked creative progress.
The word “creative” means not caused by a routine, write-downable formula. That is what is misleading about the ambition
now of the London Institute for Mathematical Sciences to “characterize innovation in a mathematical way, so that we can
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predict it and influence it through interventions” (quoted in the Times of London June 12, 2021). We speak of God, the
primum mobile primorum mobilium “creating” the universe. August Kekulé discovered the carbon ring of benzine in 1865
from a daydream about snakes devouring each other’s tails. “Routine, predictable creativity” is a contradiction in terms.
On the contrary, as I noted briefly above, Joseph Schumpeter famously claimed in 1942, “it is much easier now than it has
been in the past to do things that lie outside familiar routine—innovation itself is being reduced to routine. Technological
progress is increasingly becoming the business of teams of trained specialists who turn out what is required and make it
work in predictable ways” (Schumpeter 1942, p. 132). Or: “Since capitalist enterprise, by its very achievements, tends to
automatize progress, we conclude that it tends to make itself superfluous,” this being one part of his theme of the self-
destruction of “capitalism” (Schumpeter 1942, p. 134). If he meant that the society had come to admire and protect
progress and “teams of trained specialists,” he was of course correct, though the society’s state often enough intervened
to protect instead the old, and to prevent the new. Witness again the Lysenko Affair in the Soviet Union, or the
tragicomedy of President Trump vs. Dr. Anthony Fauci. And the bad intervention can come from a dogmatic public
opinion, too, as it did in journalists scorning certain reasonable doubts that Dr. Fauci had every single thing exactly right.
In any case, Schumpeter’s claim of predictable and easily managed betterment is erroneous (Langlois 2002). If we were
so smart as to find easy gold at the hand of fay or elf, we would all be rich beyond limit. We aren’t. Robert Frost says in
“Mowing,” after denying the easy free lunch of fay or elf: “Anything more than the truth would have seemed too weak / To
the earnest love that laid the swale in rows.... / The fact is the sweetest dream that labor knows.” (Frost is the most
economistic of poets). Our riches of matter or spirit come from creativity, when it is permitted, and then selected by
commercial or social test. And then the innovation is copied even by régimes that do not have the equality of permission
defining of liberalism.
Schumpeter, who by the 1940s had begun to doubt with many others that liberalism was still possible, was Austrian by
national origin but cannot be called “Austrian” in the sense of the school of Menger (b. 1840)-Mises-Hayek-Lachmann-
Rothbard-Kirzner-Lavoie-Boettke (b. 1960). Kirzner (b. 1930), a British-born American yet Austrian economist, argues that
real innovation—especially what Mokyr calls “macro inventions,” but many parts of his micro inventions, too—must come,
to use the chess metaphor, en passant, in passing, casually, so to speak, or else they are routine, not innovative. Routine,
plannable, predictable, laboratory-generated investments earn routine returns, and did so in the Roman Empire as much
as in Victorian Britain or in the recent U.S. They do precisely because they are predictable and therefore subject to swift
imitation if they are known to be profitable in money or honor. And anyway the plannable and routine is subject to
diminishing returns, driving the return as Keynes said down to normal, because everyone knows how.
You do not earn massive returns by mastering double-entry bookkeeping or learning to touch type or studying textbooks
on finance. By now such personal betterments, which in their origin as macro innovations did indeed contribute to the
further enrichment of the nation, have settled down to the normal return to education at the margin. Having a job in a team
of trained specialists may provide a good environment for innovation. Or, if creativity in the team is discouraged, as at
Harvard once in the study of Mayan glyphs or in Cuba now in the study of economics, it may not. A university without free
speech, for example, is a reproducer of dogma, not the maker of innovation envisaged by Wilhelm von Humboldt in
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founding the University of Berlin in 1810. Teams of specialists and chairs for professors, may liberate people to create, or
may enslave them to dogma. They do not make creativity routine.
Necessary Routines are Not Sufficient Causes
Much of economic thinking confuses in Schumpeter’s way some necessary conditions with the sufficient conditions, and
intermediate causes with ultimate causes, and confuses helpful normal science with inspiring revolutions. For example,
the idea overused in Samuelsonian economics of the “production function” (which I myself overused for decades, after
over-learning it in graduate school), says that a book of alternative recipes for products is necessary. Such a book is
certainly helpful, whether literally written down or not. You can put together in England in 1860, I hate already noted, such
and such a tonnage of iron ore, limestone, and coke (from coal) into a blast furnace, with such and such specifications run
by a certain number of laborers with such and such skills, according to page 106 or the book of recipes, and you get in
Britain a ton of pig iron. If you instead the recipe from page 26, which entails much more labor, and is charged instead
with charcoal (from wood, instead of hotter-burning coke from coal), and you get in Sweden at the same time a ton of pig
iron, but with differing opportunity cost of the inputs used. Good to know.
But to stop at the recipe book as the “cause” of the pig iron is to confuse the book with the human actions sufficient and
inspiring that yielded the very book in the first place, such as engineering educations and craft traditions, and a liberal
society encouraging ordinary people to have a go in exercising them, while the rest of society looks on with a novel
approval. And most basically it ignores the human creativity that suffices for education and craft and betterment, when the
society permits. The racist society of Tennessee and Maryland tried not to permit Vivien Thomas. His creativity overcame
it, in a partially liberal society, which in the end came to be ashamed of its racism.
True, French cuisine still depends to some degree on Le Guide Cuisinaire (1903; also called L'art culinaire) by Auguste
Escoffier, as for example in lessons for its five “mother sauces”: béchamel, espagnole, velouté, hollandaise, and tomate.
Escoffier’s Guide is a necessary input if you know nothing, and at least it is a helpful one even if you do know a good deal,
for a purpose of Mastering the Art of French Cooking, and for Julie Powell’s 365 days of dinners cooking from it (as related
in the charming 2009 movie, Julie and Julia,).
But the sufficient and inspiring causes of French cuisine as it exists are not such items in the present supply chain of a
dinner. They are the social and intellectual arrangements in French kitchens and restaurants that made for the cuisine and
its books and chefs in the first place, from Guillaume Tirel in the 14th century and Catherine de Medici in the 16
th century
down to untold thousands of wives, and then husbands, too, inventing crème caramel and bouillabaisse, with the millions
of French eaters insisting on getting a good meal, “Slow Food,” and willing to discuss it at tiresome length.
The “causes” in a sense relevant to serious scientific description, and relevant to proposals for policies to encourage
haute cuisine, were not recipes but the ideas for the recipes, the human creativity along with the conditions such as
liberté, and then practice, practice. (How do you get to Guy Savoy, Monnaie de Paris, 11? Practice, practice.) The causes
were not production functions—not the routine, bookable recipes helpfully teaching the unskilled how to combine
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ingredients and how to practice, practice knife skills by chopping potatoes. The sufficient cause, given some broadly
available necessary conditions such as the existence of labor and sunlight and the French nation, was human creativity
liberated.
Confusing necessary with sufficient conditions—confusing modestly helpful pedagogy, or the merely necessary
accumulations of physical and human capital, with the powerfully inspiring conditions for creation, as does for example the
economist’s “growth theory”—leads away from a proper understanding of economic growth, among lesser topics in
economic and historical science. Establishing property rights under a rule of law, to instance a conservative neo-
institutionalist’s favorite cause, is necessary and helpful, of course, or the life of humans is solitary, poor, nasty, brutish,
and short. Anthropologically speaking in any case, a place of human habitation wholly without investment or property
rights or the rule of law is not a society but a war of all against all, the Donbas in the Ukrainian War. You can therefore
explain why nations fail, and can discern the origins of poverty in a bombed-out city, by noting the nasty incentives that
have led most nations for millennia quite far away from secure and alienable property rights, and towards the rest of the
evils that hobble an economy after an efflorescence (again, Acemoglu and Robinson 2006, 2012). You can see it in the
nationwide discouragement of Black inventors and entrepreneurs in the U.S. after the Tulsa race riot o 1921, or the
worldwide discouragement of female inventors, entrepreneurs, painters, musicians, poets, and novelists after Eden.
But you can only explain why nations succeed, and then discern in a proper economic science the origins of our startling
modern prosperity, and the comparative liberation of Blacks and women, by noting with Francis Hutcheson of Belfast and
Glasgow the sufficient cooperativeness, and noting with his student Adam Smith of Glasgow and Edinburgh the inspiring
liberties, jointly sufficient, that led a few nations such as Holland and Britain early and the U.S. and Sweden and Japan
late, towards enterprise and betterment. If Le Guide Cuisinaire, or The Foundations of Economic Analysis, had been bad
books, as they were not, you could explain, too, some outcomes in bad cooking or bad economics. But in any case the
excellent cooking and excellent economics comes from human creativity liberated—such as exhibited by the admirable
Escoffier and the admirable Samuelson. For example, a liberal move after World War II to let a certain number of
especially brilliant Jews take academic posts in the U.S. caused that very Samuelson and his brother-in-law Kenneth
Arrow, and caused therefore modern orthodox economics. We should seek to know the sufficient conditions for such
creativity, like knowing the sufficient conditions for the sun’s burning or the sufficient conditions for the mountains rising.
It’s economic and historical science.
Elevating a necessary condition such as investment or a labor force or property rights, or elevating a helpful condition
such as banking or education or canals, to the cause of modern growth would be like elevating the existence of the tomato
in Europe after the Columbian Exchange to the cause of sauce tomate. It was necessary, obviously, but not sufficient,
equally obviously. The British and the Dutch and the Germans had the necessary tomatoes, too, and even shared much
of the alleged geographical advantages of France in crops. But they did not have the sufficiencies that made for the
glorious Italian and then French use of tomatoes. French genius applied to tomatoes, textbooks, labor, and capital in
France made for French cuisine; in Germany, German. (I could here rest my case.)
To return then from tomatoes to the role of property rights—the necessary conditions featured in growth theory and neo-
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institutionalism such as property rights are in fact commonplace and given, with no present opportunity cost, like sunlight
or the rule of law. Therefore they are not to be priced in a proper theory of marginal productivity assuring efficiency in the
use of inputs that do have an opportunity cost. That’s the economics. If you believe with, say, Mazzucato (2018) that
everything which “contributes” to output is to be given present payment, you are positing an average-product, embodied-
labor theory of distribution, without opportunity cost acknowledged. Efficacy, as in the old USSR, goes by the boards.
Nothing is priced in a way that reflects its opportunity cost, and the life of humans is poor and political, and often enough
brutish, too.
The historical truth is that since the beginning of human societies, the investments, property rights, and civil peace have
been more or less universal, with or without the permission of an effective sovereign, if there was one. Investments,
property rights, and civil peace were especially intermittent by world standards for centuries in what became the home of
innovism, northwestern Europe. The scientific question is the “more or less” in the “universal,” not yes/no or
present/absent. Little bands of hunter-gatherers, with no fixed sovereign, or much of any leader at all, had a vivid sense of
ownership, as in a lesser and non-alienable form do many species down to butterflies. The coiner of the word
“humanomics” for an economics scientifically supplemented by the humanities, Bart Wilson, sees in a 2020 book the
origins of the uniquely human practice of alienable property in the mental and ethical habits of making compound human
tools, such as spears. Prisoners and gold miners without kings devise rules of property (Umbeck 1977; Radford 1945; Bell
2018; Skarbeck 2020). To speak of larger societies, Israel under the Judges had fully enforced private property (though
the evidence from the Bible is mixed as to its exact character) well before the Israelites unwisely demanded that God give
them a king, “like other nations”—eventually a king who compromised their property rights, exactly as God through
Samuel had warned the Israelite that the king would (1 Samuel 8).
Observe: such universally law-abiding societies did not yield a Great Enrichment, until in 18
th-century Britain and its North
American colonies the ancient routine of reasonably good laws was mixed for the first time in agricultural societies with an
entirely new idea, an ideology of egalitarian liberalism of economic permission. It was explored first in Italian and then in
Dutch cities and theorized later in French salons and then applied throughout the Anglosphere. (Well... like ancient
Athenian “democracy,” excepting those pesky slaves and women.)
The liberal releasing of human creativity has sufficed for growth, when the routine and widespread necessary and helpful
conditions have obtained—the existing recipe books, as they routinely do exist, such as property rights, the rule of law,
capital markets, liquid water, oxygen in the air, the absence of an active civil war, the arrow of time, the existence of the
universe. Northern Italy, the Ottoman Empire, Northern India, Japan, and China had for centuries all such necessary
conditions, as did the Assyrian, Persian, Roman, Incan, Aztec, Zimbabwean, and Mongol empires before. Yet they did not
achieve the Great Enrichment, which instead emerged from a Dutch-influenced and liberalizing England around 1700,
spreading after 1800 slowly to the world.
Therefore I say to my beloved colleagues in economics and economic history: please stop putting forward as an
explanation for the startling betterment since 1800 still another necessary or helpful (or sometimes on examination in fact
obstructive and unhelpful) condition—coal, war, national debt, canals, skills, patents, banking, internal improvements,
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industrial policy, this or that expanding sector, the rule of law (on that last, consider the rule of the Fugitive Slave law). If
you are politically on the right, my dear friends, I suppose you put the rule of law forward because you imagine that the
bad and unruly little children called citizens should be controlled from above. If you are on the left, my equally dear friends,
you put forward industrial policy because you imagine that the sad and stupid little children called citizens should be
controlled from above. Either way, controlled from above. Realize, friends, that the great virtues of innovism come mostly
from adult human action independent of state action. State action can wreck human action, and often does, with eminent
domain and industrial policy and ill-designed taxes, not to speak of war and corruption. When the state does permit
creative human action—with honest courts and short patents—the rarity is cause for breaking out the champagne.
Botswana versus Zimbabwe.
Look instead for the sufficient and inspiring conditions for the creativity of liberated adults. The conditions are not usually
to be found in a non-destructive form in the law and the state and the church and patriarchy, which are mostly devoted to
enforcing obedience and suppressing any disturbing creativity. The Dutch proverb against innovation is “Do the normal
thing: you are already crazy enough.” The first Irish cardinal, Paul Cullen (1803-1878), imposed the “devotional revolution”
on Ireland, infantilizing the population in deference to priestly fathers and holy sisters (Larkin 1972). Only in the diaspora,
and in Ireland itself only in the past half-century, did Catholic Irishry wax innovative in the economy.
All Thus Can Be Expressed Mathematically
One can look at all this more formally. Yet consider the possibility that formal production functions, known utility functions,
estimated input-out tables, realized supply chains, structures in place, relations of production, and the rest of the
apparatus of most economics left or right might be ill-suited to describing an economy of commercially tested betterment
by innovism out of liberalism. Creativity from innovism is the economy we in fact have. Every year in U.S. grocery stores
many tens of thousands of new “consumer packaged goods” (as the marketing jargon has it) are introduced, to be tested
commercially, and to succeed or, mostly, to fail. That’s the ticket to enrichment.
The function for national product could be:
Q = I (D, B, R)•F (K, sL)
in which I (.) is the innovation function (Solow’s A in his classic of 1957), depending on D, the dignity accorded innovators,
and on B, the liBerty of innovators (the letter L is need for Labor), and depending too on R, the rent or pRofit or pRestige
accruing to innovation. The innovation function multiplies a conventional neoclassical production function, F (.), depending
on ordinary, price-able inputs—that is, ones having a present opportunity cost—physical capital and land, K, and raw
labor, L, multiplied by an education-and-skill multiplier, s. If you wanted you could get into details of biased K and L saving,
but in view of the massive social saving implied by the factor of 30, such worries seem lacking scientific point. Some
economists have tried to endogenize innovation as a function of ordinary factor scarcities, giving they imagine a slight twist
to the marginal product of labor, say, as it zooms out 3,000 percent. Slight twists do not result in 3,000 percents, or else
they would have done so in 1800 BCE instead of 1800 CE. This empirical problem is in addition to the shocking economic
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illogic, as Samuelson pointed out long ago, of treating only one input, usually labor, as “scarce.” A dollar saved in land
rent or capital acquisition is the same as a dollar saved in labor, and has likewise a present opportunity cost necessitating
pricing for efficiency, whatever era or place one is talking about.
There is of course nothing profoundly mathematical about the equation. The “mathematics” is merely a metaphorical
language in which economists are trained (and it may possibly be, I noted, over-trained), and which allows one to chat
with them without excessive confusion about the economic and social ideas involved. The reason to separate out the I (.)
function is to stress, as I do after decades of denying it in favor of static equilibrium analysis, and messing about with the
ill-named growth theory, that economic growth depends mainly on early Schumpeterian/ late Austrian/ present-day
”humanomical” innovation, and not, as some economists and historians still believe, on Classical / Marxist/ Samuelsonian
accumulation of capital.
Once upon a time, as I have noted, economists thought that growth depended especially on physical capital (here K), and
now some think that it depends on various versions of human capital (sL). Aside from the historical and contemporary
evidence against what William Easterly calls “capital fundamentalism,” Peter Howitt concludes that “more than 60 percent
of the cross-country variation of per-worker GDP is attributable to productivity rather than to the accumulation of physical
and human capital,” and over 90 percent of its growth rate. “Thus it seems,” he concludes, “that almost everything to be
explained by the theory lies in the Solow residual,” here the I (.) function. “This is part of the evidence,” Howitt continues,
“that inclines me towards innovation-based growth theory.” His cross-country regressions are slightly off point, I have
noted, for explaining the original Big Bang, but anyway his seems a sensible conclusion. It was anticipated by Smith,
whose Theory of Moral Sentiments (1759 [1790]) treats the D variable of dignity, and whose Wealth of Nations treats the B
variable of liberty (amongst a good deal also about F (.). Smith believed that liberty (B, but linked with D) was necessary
and sufficient for the (admittedly modest) growth he had in mind: the Scottish Highlands becoming as productive as
Holland, say.
Even with so vague a specification as the unspecified functional form, Q = I (B, D, R)•F (.) some qualitative points emerge
—though without actual measurement our knowledge is meager and unsatisfactory. In the innovation function, I (.), the
term R is what economists call rent, and other people call profit or prestige. It represents in part the routine incentive to
innovate, picking up $300 bills. Whether routine or not, it has two aspects, depending on when you are looking at it—
whether before or after innovation, “ex ante” or “ex post,” as economists after Gunnar Myrdal say, “from the before” or
“from the after.” R is sometimes “Routine” (a helpful mnemonic to keep in mind the contrast with the non-economic and
non-routine variables for Dignity and liBerty). But to the extent that it depends on alertness and the ability to form a hopeful
image of the future, it is decidedly not routine. Ex ante it is precisely “the possible lives they imagine for themselves and
their children” (as the Nobelist Robert Lucas put it in 2001, his essay springing to life after many tedious pages of routine
mathematical ruminations about an irrelevant capital accumulation), expressed in money (that is, expressed in profane
terms, and not mentioning sacred matters, the animal spirits, such as the spiritual value of caring for one’s children and
grandchildren—acknowledged by feminist humanomics but not by orthodox Samuelsonians).
Such an R viewed ex ante is in part the routine gain hovering before the eyes of an entrepreneur in Chennai imagining
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how very rich he could become if he could introduce air conditioning to the standard of Atlanta. But it is also the highly
non-routine gain of Kirzner’s formulation, such as what John Ericsson imagined would be gained from introducing screw
propellers into motor ships. What innovations are imaginable depends on the new devices or institutions in the offing. (The
“offing” in English is one of its numerous beautiful metaphors from sailing ships, meaning the place beyond the horizon on
a curved earth at which even topmasts cannot be seen—yet can be imagined.) The novelties floating in the offing are
sometimes said to depend on those relative factor prices, I just noted, but the argument is not sound, as I also noted. On
the other hand, when steam engines with separate condensers became common, it eventually occurred to many people
that they might be made more compact for the same power at high steam pressures, and would not need Watt’s fiercely
protected patent on the sperate condenser, either (Selgin and Turner 2011). What slowed their introduction until Trevithick
was therefore not Watt’s patent but the danger that such engines would be subject to terrible explosions. So they were,
when applied for example to railroads such as the wreck of the Old 97, and to steam vessels such as killed Mark Twain’s
brother on a paddle wheeler in New Orleans.
The private R of the entrepreneur’s ex ante imaginings, however, dissipates ex post by competition into a social R,
imparting an actual, non-speculative, ex post height, a multiplicand applied to the I (.) function. If R dissipates too soon—if
it is too easily imitated, or is unpatentable knowledge that nonetheless becomes known—then the incentive to innovate is
attenuated. As has long been realized in economic thinking, however, there’s no blackboard formula yielding institutions or
parameters that optimize R. Once laboriously discovered, the opportunity cost of another person learning, say, the
calculus is zero: Newton and Leibniz (they disagreed on which of them) should have gotten money credit, the economist
at first says, to evoke the optimal amount of mathematical innovation (the example shows again, by the way, why macro-
inventions are often not best analyzed as routine matters of monetary cost and benefit: prestige and non-monetary glory
do matter). But once the job of invention is done (the economist then says, switching sides), the optimal price for copying
should be zero—and so the society should promptly stop the checks just issued to Newton or Leibniz. It’s a paradox, with
no general resolution. It depends.5
The other arguments in I (B, D, R), D for Dignity and B for liBerty, are also unpaid inputs, given by the society without
opportunity cost at present—and therefore they should not enter into the efficiency-logic of payment by marginal
productivity as in F (.). It is tempting to call them externalities. But that would suggest, according to the Samuelsonian (but
not Coaean) understanding, that they should be paid, to achieve efficiency of allocation, which is not the case. It is the
characteristic mistake of economists who do not understand the economics after the Marginal Revolution (for example
Mazzucato 2018; and criticizing her on the point McCloskey and Mingardi 2020; or for example Piketty 2014; and
criticizing him on the point McCloskey 2014).
R is unpaid, too, after its private rewards have been dissipated. But before that time it is paid in supernormal profits earned
in excess of the opportunity cost of the routine inputs K and sL. When being paid, the rent, R, disturbs the marginal-
productivity rules for distribution, which depend solely on the routineness of the F (.) function. The manager knows how
much to pay the workers or the investors if she knows what hiring one more unit of them will produce. Just look at the
production function, the book of recipes, how things have always been done. But her knowledge is disturbed if an R out-
of-equilibrium is hanging about. The disturbance provides one way to measure R, by seeing what financial return is not
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explained by routine marginal productivities of K and sL. It was the essential insight of the creativity of Jones, Solow,
Abramowitz, Denison.
The ex post return of R sloshes around the social classes, in other words, unsettling the routine distribution of payment for
static efficiency in allocating by marginal product the inputs with current opportunity costs. Early on it goes to Carnegie.
Later, by the competition of steel companies at home and abroad, it goes to hoi polloi. If there was no dissipation, and no
ultimate gain to hoi polloi, innovation would not have a justification on egalitarian grounds—as in the historical event it
surely does. It is the poor who mainly benefited from innovism.
That is why ex post rent from land has been since Ricardo under persistent ethical attack even by economists. It is the
economic puzzle central to Anthony Trollope’s first successful novel, The Warden (1855): how to “fairly” distribute between
the Warden and his twelve pauper charges the 400-year gain from rising land rent. The sociology is that large rents from
mere possession of land—the half of national income in the Middle Ages that went to the dignified classes—tend to create
an aristocratic or priestly society. (The Warden in the novel was a Church of England priest.) Large and eventually
dissipated rents from innovation, by contrast, tend to create a bourgeois society that in fact, which was no part of its
intention, enriches hoi polloi. Over the long run, of course, honor follows money, and money honor.
The paid/unpaid distinction, I repeat in case you missed it, is why I (.) and F (.) are to be treated separately, and it justifies,
at least in mere logic, talk of the Great Enrichment as being the result of massive free lunches—free, because not priced.
The F (.) function is routine, and you can tell whether an economist acknowledges the role of the non-routine in economic
life by how she treats R. The Austrian economists treat R as unintended discovery; the Samuelsonians/ Chicagoans want
to bring R back into a routine of marginal benefit and marginal cost, that is, to force it back into the economics of a routine
F (.). (All three schools, incidentally, are “neoclassical,” the one out of Menger and the others out of Walras and Jevons,
and then Wicksell, Marshall, Clark, and at last Samuelson/ Friedman /Becker, which is why “neoclassical” is a poor title for
the conventional Samuelsonians.) Howitt, referring to Mokyr’s pioneering historical work on the matter, notes that “nations
that experience the most rapid growth are not necessarily those in which people have the strongest incentives to develop
new technologies [in my terms, high Samuelsonian Rs] but those which have developed the greatest tolerance for, and
capacity to adjust to, the many negative side-effects of economic growth [namely, the high D and B that accompany a
signing on to the Bourgeois Deal: “Leave me alone and I’ll make you rich”] (Howitt 2005, p. 10; and Mokyr 1990, p. 179;
and McCloskey and Carden 2020). “Those negative side-effects,” Howitt continues, “are almost always the result of... the
destructive side of creative destruction.” The high D and B in the Netherlands (before the regenten in the 18th century
became a virtual aristocracy and undertook to close off innovation) and Britain and the new United States made for less
reaction, such as Continental anti-Semitism or French dirigisme protecting this or that industry of concern to l’État. By
1859 the liberal ideology was as Mill put the point in On Liberty that “Society admits no right, either legal or moral, in the
disappointed competitors, to immunity from this kind of suffering; and feels called on to interfere, only when means of
success have been employed which it is contrary to the general interest to permit—namely, fraud or treachery, and
force”(Mill 1859 [2001], pp. 86–87).
The variables of dignity, D, and of liberty, B, have their own dynamics. When expressed as a virtuous behavior towards
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others, dignity draws on the elemental virtues of faith and justice—who you are and whom you should respect. Liberty by
contrast draws on the virtues of hope and courage—towards oneself, that is, the courage to be (as the theologian Paul
Tillich put it) and the hope to venture. The rent in prospect or in achievement, R, draws on temperance (savings for
investment) and prudence (rationality in picking up the $300 bills in plain sight). The greatest of the so-called theological
virtues, love of people or of the transcendent (science, God, the family), affects the other variables—in a way often
unacknowledged, yet (properly) unpaid, but not therefore unimportant. The Swede John Ericsson’s great love for the iron-
shaper Cornelius H. DeLamater was important for the inventor’s life and work.
Virtues unbalanced, though, are vices. Dignity, for example, tends to corruption—causing it to become sometimes a
negative rather than a positive influence on the height of I (.). The corruption happens if merchants develop into a proud
little aristocracy, as they did at Florence, for example, and as the left believes the power elite of the United States has,
and as indeed many people nowadays think the left itself has. Liberty, too, including verbal action, can be dangerous.
Liberty for example can be turned into a negative influence, a politically expressed envy for instance, if it seems plausible
to poor people now equipped with voices and votes that stealing from the rich is, after all, the most direct way to mend
their poverty. A New Yorker cartoon back in the 1960s showed a bank truck pulled up to the curb with the guards handing
money out of bags to the people on the street, one of whom exclaims, “Well, at last the War on Poverty has gotten under
way!”
Over time the I (.) variables of D, B, and R are entangled (just as K and L are entangled in the conventional F (.) function,
as in substitutability, complementarity, specific human capital, diminishing returns). A society, like routine production,
hangs together. For example, dignity for innovation in 1900 depended on earlier liberties and earlier rents from innovation.
Dt = g (Bt–1, Rt–1). Liberated people tend after a while to get accorded dignity, especially if their liberty results in high
incomes for themselves or, as the acknowledged benefactors of the world, for the rest of us. The Roman poet Horace was
the son of a freedman. The reverse causation can happen, too, from dignity to liberty after a while, or (less pleasantly)
from dignity to high rents, as when British aristicrats became the honorable if unproductive chairmen of the boards of
railroads and banks.
Likewise the variables in the innovation function, I (.), can have influences over time on the routine variables in the
production function, F (.). One conventional way to think about it is to imagine the demand curves (the marginal revenue
product curves) derived from the entire expression Q = I (.)•F (.). The I (.) function in such a derivation would be a
multiplicative term raising the marginal product of capital and of more-or-less educated labor. The point made earlier about
the non-initiating character of capital can be expressed here by saying that K and sL are elastically supplied in the long
run. It is historically plausible, because ancient societies also made massive investments. Accumulation, whether in
physical or human capital, will therefore depend on the I (.)-altered valuation of its fruits. As I (.) rises in the Age of
Liberalism, savings were found to make the appropriate investments, because the higher productivity made a high R n
prospect evident and routine. Likewise, education in technical subjects responded elastically in the long run to the
demand for them—though what is “technical” varies with the times, being fluency in Latin in the 17th century (the better to
serve, say, as a diplomat, as Milton did when he was Cromwell’s Latin secretary), or fluency with differential equations in
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the 20th century, or fluency with computer simulation in the 21
st.
The international context in which innovation takes place matters. From the point of view of a stagnant economy such as
Russia’s in 1850, the imaginable R becomes larger and larger as the 19th century wears on, finally overcoming in some
countries, such as Russia, their low values for D and B—this is a point made long ago by the economic historians
Alexander Gerschenkron and Sidney Pollard (Gerschenkron 1957; Pollard 1981). A place with low Dignity for the
bourgeoisie, such as prerevolutionary France, can compensate with high LiBerty for the despised class, a high level of B
(though in fact it did not, and French-imagined betterments were therefore notably aristocratic or military in their origin and
their market). And anyway the country slowly gets dragged into the modern world if it is in the neighborhood of first a
militarily and economically successful Holland and then a militarily and economically successful Britain, or a militarily and
economically successful Japan, which makes obvious even to stupidly traditional English or French or Chinese or
Russians the great magnitude of ex-ante R. Russia was awakened in a good way by its embarrassing defeat by Japan in
1905, and then in a bad way by its defeat by Germany is 1917. In the embarrassment of the War of the Spanish
Succession, 1701–1714, tiny Holland teamed up with emergent Britain (and with aristocratic Austria on the southern front)
to humble the great and mighty Louis XIV. It taught France some of what it needed to know. Some.
The advantage of algebra, though, is that one can get beyond such qualitative, existence-theorem, merely philosophical
claims and counterclaims, which after all can justify any pattern of alleged facts whatever, as in evidence-free “analytic
narratives” popular nowadays among some economic historians, and ever popular among economists. One can get a little
quantitative, and focus on the relative importance of this or that effect, its oomph. For example, suppose the I (.) and F (.)
functions were Cobb-Douglas, that is, having constant exponents on each. You ask why: because it is mathematically
(very) convenient, and because starting with constants is a wise first step if you have no a priori knowledge of how they
would vary, and have no particular reason to suppose that they vary endogenously. Then taking rates of change of each
variable (using an asterisk, *, to mean “rate of change of the variable preceding the *”) and using corresponding Greek
letters to mean “elasticities—that is, exponential coefficients—of the variable following”), yields, obviously:
Q* = [ δD* + βB* + ρR*] + [κK* + λs* + λL*]
If you like to think in logarithms, you can make the same expression into a log-linear one. In either case it holds without
interaction terms only for small changes in the variables, but can be easily (if lengthily) rewritten with the interaction terms
present. It should be so rewritten if you have an interest in a particular interaction, for example between K* and D*—
percentage changes in physical capital accumulation and the dignity of Mr. Moneybags.
The equation can be expressed in per-person form by subtracting L* from both sides:
(Q/L)* = [ δD* + βB* + ρR*] + [κK* + λs* + (λ – 1) L*]
One can make all sorts of foxy points with the equation. If the skill variable is measured as years of education, for
example, the slope of the human capital coefficient s relative to years of education would be quite small, as I said, relative
to the massive change of (Q/L)* to be explained in the Great Enrichment. A college graduate is not ten times better in
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contributions to Q than is a high-school graduate—an insulting hypothesis anyway on its face, and silly if you have known
any non-college graduates. It might work out if college is accurately selecting for a tiny elite of geniuses. But such
screening cannot in fact be done with accuracy, as the history of Britain’s Eleven-Plus Examination showed, or as
Einstein’s inability at first to get an academic job showed. So the equation, combined with cross section evidence, makes
explicit why one might doubt the force of education.
On the other hand, the innovation variables D and B and even R might themselves be improved by education. You can
see reasons for it, a higher skill level, s, resulting in higher dignity, D, because of admiration for a skilled
bourgeois/bourgeoise, or because of a better grasp of technical matters necessary for innovation. Or indeed it might work
because instruction in economics might lead people to admire liberty in economic matters, and achieve thereby higher B.
That last happened in early 19th-century Britain. But the high-s-effect can be and often has been perverse, corrupting the
good bourgeois boys by educating them to believe that the bourgeoisie have no dignity at all, or corrupting the good
bourgeois girls to become state bureaucrats devoted to stamping out bourgeois liberty in favor of planning in Stockholm or
Whitehall. Marx took a Ph.D. degree in philosophy at Jena in 1841. The leader of the Shining Path Marxists in Peru was a
professor of philosophy. A high percentage of the officers in Hitler’s SS had advanced degrees in the humanities. German
engineers built the gas chambers. Excellent computer engineers enforce the Chinese censorship of the internet.
Likewise, unless one has assumed, or in fact measured, economies of scale, which would make the elasticity κ in K large,
even a large percentage change in K cannot explain what is to be explained in the rise of income per person. The
economies of scale could explain the modern world if they were there in other times and places, too, but were activated
for some reason in England. But apparently they weren’t present in other times and places, which makes one wonder, as I
have said, why not, if they are supposed to arrive suddenly in England in 1700, a deus ex machina a lot less plausible
than the perfectly evident arrival of liberalism from the happy accidents of northwestern Europe 1517-1789. And as
actually measured (away from the blackboard of existence theorems), economies of scale prove to be modest, raising the
sum of coefficients in the F (.) variables from the 1.0 of Cobb-Douglas to perhaps 1.1. For reasons of competition and the
marginal productivity theory of distribution, the share of capital in rewards to factors of production is the elasticity in
question, here κ (strictly in the absence of economies of scale: and if the economies are small, approximately so). The
elasticity is small in modern economies (on the order of.10 or.20), though larger when land bulked large.
Speaking of land bulking large: when it does not, and the share of L is therefore high, the term λ – 1 (which is of course
negative and captures simple diminishing returns to labor applied to fixed land) is small, because λ gets close to 1.0.
(Indeed, economies of scale can tip λ – 1 into modestly positive territory, meaning that we are enriched a bit by having
more of us, even without regard to economies of scale in the other, I (.) function arising, say, from the competition that a
wider market provides). In a modern economy in which human-capital-enhanced labor gets much of national income for
itself, the impact of Malthusian diminishing returns is greatly weakened by the effect. The mathematics reflects the point
that human resources become more important than natural resources—land is subsumed here in K, but causes
diminishing returns only to the extent that λ – 1 is large. The term was large in the Middle Ages, with as I mentioned only
half of national income accruing to workers of any sort, including entrepreneurs, and the rest accruing to the inelastically
supplied services of land. The move to modern times reduced λ – 1, and therefore the threat from diminishing returns,
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from 0.5 to 0.1. Radical environmentalists should listen up.
There is no reason in the facts for the coefficients in the other, I (.) function to add up to 1.0. On the contrary, a doubling of
dignity might result in a far more than doubling of output, by encouraging massive innovations. You will doubt that “dignity”
can be measured. But it can rather easily be measured, by public opinion polls such as the Values Survey, or from the
prevalence of merchant-innovator heroes in lowbrow literature (which, by the way, the Horatio Alger novels are not
examples; read them and see), or in the percentage in some textual sample of favorable mentions of innovation. A Mr.
Strahan, reports Boswell, put Dr. Samuel Johnson in mind of a remark which Johnson himself had made to Strahan:
“There are few ways in which a man can be more innocently employed than in getting money....The more one thinks of
this, [said Strahan,] the juster it will appear” (Boswell’s Life, 27 March 1775, aetat. 66, Everyman ed., I: 532.). Nimish
Adhia measured the rising D of businesspeople in India during the License Raj and in the decade before it collapsed by
measuring the plots of Bollywood movies and editorials in the Times of India (Adhia 2013).
Liberty, B, is easier to measure, and has been, in the surveys of days-to-open-a-business or ease-of-dismissing-workers
now conventional. It, too, being a (correctly) unpaid factor at the margin, need not have a coefficient constrained by
constant returns to scale. The β coefficient may by itself be well above 1.0, which is to say that a 50 percent increase in
liberty measured as uncensored book pages per person, say, could easily result in well over 50 percent increases in
national income per person. Say, 3,000 percent.
For such revolutionary effects, the press had to be adequately free. Before the printing press, what the few readers could
read had not much attracted the attention of the authorities. Even afterwards there was not much for the European states
to worry about if printing was in Latin. But with publication in German and English and French and the rest, the state
sprung to attention—though unable by international standards to dam the flood. Censorship in the Chinese Empire was
routine and thorough, such as in the 18th century executing a man and enslaving his entire family for the terrible crime of
printing the character for the emperor’s name. So late as 1834 a Japanese writer who issued a pamphlet recommending
the opening of the country was arrested and forced to commit suicide (Fairbank, Reischauer, and Craig 1989, pp. 234,
486). For the Ottomans, as Metin Coşgel, Thomas Miceli, and Jared Rubin have noted, there was a nearly three-century
delay after Gutenberg, until 1727, in allowing books to be printed in Turkish (in the Arabic alphabet), and a century more
until printing was permitted in Arabic itself. Yet the Ottomans adopted gunpowder with lightning speed (Coşgel, Miceli, and
Rubin 2012). That is, it was not sheer, stupid conservatism but successful state control that kept the presses shuttered.
Revealingly, non-Turkish and non-Arabic groups in the Ottoman Empire were free to publish. The Empire allowed
Salonika to become a center for publishing in Hebrew, Aramaic, and Ladino a mere fifty years after Gutenberg. What did it
matter, the Ottoman elite probably reflected, so long as the mass of Turkish- and Arabic-speaking subjects did not have
access to novel ideas of governance, or of business? And remained poor.
Economists believe such sociological/ political matters as those summarized in I (.) as relatively constant (or anyway
exogenous to economic matters), and so they focus on F (.). They have no evidence for their belief. The formalization and
measurement of F (.) is nice. But I (.) was the maker of the modern world. F (.) was the coastline, I (.) was the tide. And
anyway it is economically obvious that what matters to the Great Enrichment is discovery, “alertness,” as Kirzner put it, a
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free lunch, not routine.
As Jens Beckert and Richard Bronk put it recently,
Modern capitalism is a quintessentially creative and imaginative system: it is driven as much by dreams, emotions,
and dystopias as by calculation; it is structured by language and narratives; and it has novelty and radical
uncertainty at its heart. This has implications at a meta level for the nature of economics: economists need to
engage in metaphorical thinking – the imaginative transfer of concepts from one domain to another – to shine new
light on the dynamism and innovation that are central to economic activity but poorly explained by current
economic models. They must take seriously the role of imagined futures and other forms of fiction in guiding the
expectations and behaviour of economic actors.
And not even High Science does the trick, unless one starts with a liberalizing society permitting people to have a go in it.
Take again containerization, invented in 1956 by Malcom McLean in North Carolina. It was entirely organizational,
involving no new physical principle, no Science, a box made from cheap, corrugated steel. Or take again the modern
research university, invented in Berlin 1810, with Arabic ancestors a millennium ago, yet depending on a liberalism of
inquiry contrary to Prussian habits in other matters at the time, or Moslem habits in the later Middle Ages. Take sewerage,
invented anciently by the Chinese and Romans, but not pursued seriously in Europe until very recent centuries. It was
organizational, and based on an erroneous scientific theory of disease, yet it worked to reduce disease, bringing European
cities closer to East-Asian standards of urban cleanliness.
Crucial to modern building was reinforced concrete, invented in the 1840s by Jean-Louis Lambot on his family’s estate
(another non-bourgeois French inventor), making water troughs and boats out of it, using pieces of iron and then chicken
wire (invented by a bourgeois in England in 1844). Take, too, as an admitted case of early High Science, the electric
motor, invented by Faraday (the son of a blacksmith, though permitted in a somewhat liberal scientific community to mess
about with magnets) and many others, which came into its own 80 years later with systems of generation, especially
alternating current à la Tesla (the son of a Serbian priest, though permitted a secular higher education). What made
Western doctors and hospitals non-lethal was penicillin—to be sure, invented in High Science proverbially by Fleming,
though its mass production in the 1940s was an engineering achievement, not Science. But washing hands in obstetrical
wards was invented in 1847 by Herr Dr. Semmelweis without High Science, and when finally adopted generally
(overcoming the resistance by high-D, male doctors clinging firmly to their own erroneous High Science) saved millions of
female lives (not, alas, my great grandmother and my great-great grandmother, both of whom died in childbirth). And
anyway quite a few “Western” medical inventions were re-inventions, such as anesthesia for surgery (Chinese) or aspirin
(anciently from willow bark). The transistor and the printed circuit, surely, were spectacularly Scientific, at which point I
agree with Mokyr—that a higher and higher share of GDP comes from High Science nowadays. The question is when it
becomes really big, economically. I reckon after the Great War. The question is quantitatively testable.
The remaining question, though, is how much of Science depended on liberalism. A lot. Accepting Mokyr’s argument, with
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adjustment for its date and its liberal sources, undermines the gloomster predictions such as Robert Gordon’s of declining
innovation—even aside from the worldwide enrichment to be expected for the next half century, yielding many millions of
new engineers and entrepreneurs ready to have a go, if their societies accord them sufficient D and B. To answer the
question of the importance of Science, or for that matter the importance of innovation generally, in other words, it’s not
enough to stop with naming off the betterments and then standing amazed, or for that matter depressed. One has to
measure their oomph, Fogel-style.
Innovism, Not “Capitalism”, Made the Modern world
That is, bettering ideas were massively encouraged by a liberal society. It is a matter of unpredictable dynamics, not
predictable statics—but dynamics from new ideas, not from mechanical feedbacks (though those happened, too). Look at
the cartoon from the long-running series “Han Ola and Han Per” during the 1910s and 1920s in Decorah Posten, the
bilingual newspaper published in Iowa for the Norwegian immigrant community. The dialogue is translated into both
languages in an edition from the University of Iowa Press:
One of the running jokes in the strip, as here, is Han Per’s obsessive inventiveness when transplanted from traditional
Norway to a high B place. Sometimes his inventions are riffs off the latest New Thing, such as the auto, sometimes it re-
uses in a crazy way an older technology, such as the windmill for pumping a well (Edgerton 2007). During the life of the
strip, as the editor of the collection of the cartoons notes, Per tries out with disastrous effect fully sixty new machines
“invented (or bought) by Per.” The cartoonist, suggestively named Rosendahl (a rare enserfing barony in Norway, a few
miles from my great grandfather’s shockingly poor if beautiful farm), “presents him as the undying optimist, trying in every
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way possible to mechanize not only the outdoor work of the farmer but also the indoor work of his wife.” It was high D and
B in the upper Midwest.
What matters, then, is human creativity liberated by liberalism. Innovism, not tricky proposals for utilitarian nudging and
planning by the state, or endless theoretical attempts to endogenize I by noting this or that feedback from materialism,
should be the focus of economics. Economics should become “humanomics,” that is, an economics with the philosophy,
history, literature left in. No one would deny, I’ve noted, that having a free artistic or scientific community is good for us.
Yet then many people will deny the same in the economy. They think, as we Ivy League economists did in the 1960s, that
“fine tuning” is what the economy needed, and that we expert economists from Harvard, Yale, and Princeton could provide
it.
No Swede forgets the modern expression of the nation as a home, folkhemmet, the mysigt ideal expressed in a famous
speech in the Riksdag by Per Albin Hansson on 18 January 1928. In a passage in the speech he declared that, like the
good nation, “the good home knows no privileged or misfortuned, no favorites or undesired. There no one looks down on
the other. There none try to gain benefits on the others expense, the strong do not oppress and plunder the weak. In the
good home reigns equality, kindness, cooperation, helpfulness.” Lovely and loving and good in a literal home.
Yet the home is not an appropriate model for the nation. Yes, it is literally the instructress. What you learn at your mother’s
knee at home matters mightily to a good society, to D and B¸ for example. Institutions of a liberal society, or for that matter
of a conservative or socialist society, are dead letters or worse without ethics. The three Soviet constitutions were lovely,
liberal documents, guaranteeing liberty from state violence in all directions. The pity is that their implementers from Lenin
to the end, and now Putin beyond the end, were ethically defective thugs—no doubt because of their mothers.
One can see the dangers of modeling by folkhemmet. You have to plan your own life, of course. And when you were a
child, Mum and Dad planned it for you. Good. The life of an individual or a family without planning aimed intentionally at a
single end, such as putting dinner on the table, would be dangerous chaos. True, any adult knows that such plans do not
always work out in the family. But at the level of family life, some plan is better than no plan, to get the kids off to school,
to clean the house, to do your job, and at the level of the nation to get people vaccinated.
People will say that a big modern economy needs big modern regulation and planning. But it’s the other way around. The
bigger and more complicated an economy s, the less it can be planned. You plan today to pick up a sandwich at the little
place at the corner on your way home from work. But does it seem plausible that a bureaucrat in Washington or London
or Stockholm or Moscow can anticipate your plan in The Plan, or design what Regulations make sense? You know what
shop has the best sandwiches. You went to school with the owner. She doesn’t want to poison you. Washington doesn’t
know, or, short of bureaucratic sainthood, doesn’t much care.
A big economy works best, the evidence agrees, bottom-up, not top-down. Yet what is “best” here? The liberal points out
that in a varied society the definition of the best is as varied as 330,000,000 loves and abilities and projects. Since 1776
we have believed it, if not always followed it, and sometimes we fall again into the traditional collective, unified, one-goal
national enthusiasm for Harry, England, and St. George. The liberal historian Lord Acton observed in an essay on
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nationality in 1862: “Whenever a single definite object is made the supreme end of the State, be it the advantage of a
class, the safety or the power of the country, the greatest happiness of the greatest number, or the support of any
speculative idea, the State becomes for the time inevitably absolute” (Acton 1862). Mum and Dad in a home should be
absolute. Eva and Gunnar in a nation should not.
Liberalism has worked. China and India ran for decades on the analogy of state as an authoritarian home, what the
Indians bitterly called, I have noted, the License Raj. They both sat at $2 a day per person for decades after 1947. Then
China in 1978 and India in 1991 began loosening the planning and regulation, letting people start businesses more easily
and go to where the work was and carry out their little personal projects without Mamma Gandhi or Pappa Mao. Income in
China appears from its official statistics now to be equal to that of Brazil. India is catching up.
The danger in statism is a contempt for the difficulty of creativity in business, or for that matter in family life, Papa Gunnar
and Mother Eva taking over both from their offices in Stockholm. It’s Max U, they say, easy, slam bang. Fix those so
evident, though quantitatively undocumented, imperfections. Tell people how much tooth paste to put on their brush.
Encourage them to revert to being sad or bad children. The monopoly of Max U in Samuelsonian economics focusing on
F (K, sL) top down has not been good for the inquiry into the nature and causes of the wealth of nations, and not for
policies.
We need to honor I (.) scientifically, in our hypotheses and in our scientific practice, and ultimately in our politics, in the
liberal world of human creation for good.
Footnotes
1 Distinguished Scholar, and Isaiah Berlin Chair in Liberal Thought, Cato Institute. Distinguished Professor of Economics
and of History Emerita; Professor of English and of Communication Emerita, University of Illinois at Chicago.
deirdre2@uic.edu deirdremccloskey.org. A version was presented at a virtual conference at the Cato Institute on March
31, 2021 as part of the Cato Institute’s ‘”Exploring the Role of Freedom in Human Progress” project that was made
possible through the support of a grant by the John Templeton Foundation. I thank John Mueller and Jack Goldstone, my
assigned discussants, and other participants for their penetrating comments. Ian Vasquez helped with this version. A
version in Swedish is being distributed by Timbro, Stockholm.
2 The historical figures in the passage are rough guesses based on Maddison’s old figures, which have been confirmed
pretty much by later research. All the recent figures ate World Bank or IMF, collected at
https://en.wikipedia.org/wiki/List_of_countries_by_GDP_(PPP)_per_capita#Lists_of_countries_and_dependencies
3 Pardon the error, which I blame on someone else, of at one place a downward slope in the opportunity cost. I do know
better: McCloskey 1985, Chp. 10.
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4 McCloskey 1972. Both North and I were heavily influenced to study property rights by the great Chinese economist, S.
N. S. Cheung, who was my office mate when arrived in Chicago in 1968. He moved a couple of years later to the
University of Washington in Seattle as a colleague of North. Cheung was in turn the star student of Armen Alchian at
UCLA, one the chief inventors of property-rights economics; another was Harold Demsetz, with whom I ate lunch at the
university of Chicago nearly every weekday for twelve years.
5 Yet the National Bureau of Economic Research charges a substantial positive price for email access to its papers, on the
non-economic grounds (I have been told by members of the board) that average cost pricing pays for—what?—the paper
one supposes, since it can hardly pay the professors’ salaries. The NBER is immune to economic reasoning on the point.
For shame.
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