Sunday, May 22, 2016

Great Enrichment

No more running down the wrong road
Dancing to a different drum
Can't you see what's going on
Deep inside your heart?
--Michael McDonald

Prof Deirdre McCloskey ponders why we are so rich. For thousands of years, average world income remained essentially unchanged. Two centuries ago it was about $3/day. Today it is $33/day, an eleven fold increase. Of course, developed countries like the US greatly surpass the world average.

Why? What happened a couple of hundred years back that explains the tremendous increase in standard of living that McCloskey refers to as the Great Enrichment?

Marxian types attribute it to increases in exploitative market practices--capitalists seizing surplus value from workers and keeping it for themselves. But this does not explain why those who have purportedly been exploited are far better off today than even kings were not long ago.

Others, according to McCloskey, think it relates to capital--excess saving that can be allocated toward productivity improvements. But this is a circular argument of sorts. Excess saving is only possible when people are productive enough to set aside some resources for future rather than present consumption. It does not explain the increases in productivity that enabled savings and capital to be accumulated.

To others, it has been the development of legal institutions such as English common law that has brought about progress. But many of these institutions preceded the Great Enrichment. Besides, it can be argued that legislative and judicial bodies can be (and have been) readily employed to expropriate wealth rather than to create it.

What explains the Great Enrichment, then? Liberty. Freedom from being under the control of others. Liberated people are free to pursue their ideas, to innovate, without fear of having their creations (i.e., their property) forcibly taken by others. Slaves, serfs, subordinated individuals, bureaucrats frozen in hierarchy are not.

McCloskey suggests that with liberty comes the principle of equality. Not the Marxian notion of equality of income. The idea is equality under the law. All people treated the same, no favors given to special interests or 'protected classes.' Knowing that justice treats all people the same regardless of position on the social pyramid emboldens people to pursue their interests. The prospect, not the guarantee, that hard work will lead to improved prosperity unleashes human ingenuity.

As these pages have observed, the idea of liberty remains new and radical. Continued progress along the curve of the Great Enrichment depends on the expansion, not the contraction, of liberty.

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