The Libertarian Telling of Economic History is Unserious

Deirdre McCloskey is the most articulate living advocate of libertarian economics. But her telling of economic history is filled with holes.

Leave Me Alone and I’ll Make You Rich is the latest work of Deirdre McCloskey, a prominent economic historian and libertarian, and her co-author Art Carden. Both identify themselves as classical liberals and their book makes the case that the spread of certain “bourgeois values” is responsible for the massive surge in economic growth the world has experienced since 1800. Before proceeding, I should note an important point from their preface. This book is admittedly a breezier summation of McCloskey’s three much larger and more detailed works on economic history; the authors compare it to the Ancient Greek satyr play, a comical fourth performance that would cap off three more serious ones. At times, that leads to arguments that feel excessively truncated. For instance, though this book is supposedly about how liberal ideas produced economic development, that topic truly only covers section three of the book, consisting of about 40 pages. I’ll address all four sections of the book below, which cover the following topics: 1. The scale of society’s economic development since 1800; 2. Things that did not cause that aforementioned development; 3. The ideas that did; and 4. A defense of humanist liberalism.

Source: Our World In Data. (Only the years 1820-2015 are presented here. Prior to 1820 this graph consists of a long horizontal line hovering near 0.)

Section 1: Economic Development Since 1800

The first section is a retread of optimistic works like Hans Rolling’s Factfulness and the books of Stephen Pinker. It explains that, contrary to the opinions of society’s pessimists, things have gotten a lot better over the last two hundred years and are still getting better now. The section begins with the admittedly astonishing fact that total global economic growth has topped 3000% since 1800. This is undeniably an incredible feat that demands explanation (which we’ll get to later). This fact is also accompanied by some more dubious ones. For example, the authors report that consumption per person in 1800 was $3 per day, but is now $33 per day on average. This could be an accurate reporting of the mean (I couldn’t trace it), but the median is far lower. Half of the world’s people still live on $6.85 per day or less. These statistics also ignore the fact that much of the goods needed to furnish a living in 1800 were not yet bought and sold as commodities (and were thus excluded from these calculations entirely or sold at prices much higher than their market price would otherwise have been had everyone acquired said goods in the market). The authors also fail to note the many ways in which living standards have stagnated or declined in the last half century, which largely animates the belief that things are no longer improving. The authors instead note that median weekly wages in the United States are currently at records highs. And that is true, thanks to the economic recovery and currently tight labor market, but it’s also true that those median weekly earnings saw no growth at all between 1979 (when the Fed began collecting this piece of data) and 2014. To summarize, the world has gotten a lot better since 1800, even if not quite as better as the authors would like us to believe. In the last half-century, some economic metrics have improved, many stagnated, and a few worsened. But these distortions are among the smallest of the problems with this book. 

Median Weekly Real Earnings for Full-time Workers (Ages 16+)

Source: FRED

Section 2: The Things That Did Not Cause The Great Economic Expansion

In order to fixate on ideas as the primary cause of economic growth, all other potential causes must be discredited. Sometimes this is done in strange ways. For example, the rise of China (and the Soviet Union and Brazil) is a big reason for the rise in global living standards that the authors rightly celebrate, yet the only explanation we get for China’s growth is a brief sentence that attributes the nation’s success to reformers who were inspired by Milton Friedman’s “Capitalism and Freedom.” They also dismiss Marxist theories about capital accumulation driving growth by pointing out that wealth has always been accumulated through savings and empire, but never before produced the sort of growth under discussion. But this ignores the fact that Marx did not equate wealth with capital and did not consider all wealthy persons to be capitalists. Marx himself acknowledged that through the capitalist process of production enormous growth could be achieved through capitalists’ continuous efforts to gain that ephemeral bit of surplus value through the more productive use of his resources. This is what Capital, his main life’s work, is all about. He even explicitly spells out the differences between the capitalist and the miser. Where Marx differs from the authors is that he attributes the attaining of surplus value to the valorization of capital through the appropriation of surplus value, not the spread of liberal ideas. 

The authors then go on to argue that railroads were not an “engine of growth” because in 1890 they carried half of American freight at half the normal transportation cost but accounted for only 10% GDP. But of course transportation did not facilitate growth by generating huge profits or making up an increasingly large share of the economy, but by rapidly shrinking transportation costs and allowing businesses to grow economies of scale by reaching consumers in more distant markets. As an example of an innovative city, the authors cite Chicago and its reconstruction after the 1871 fire. Thankfully, they mention that the railroad was significant to Chicago’s rise as a major city, but claim that if Chicago hadn’t risen, some other city would have, even without a railroad. But we’re not given any explanation why this would happen, other than a vague reference to peoples’ naturally entrepreneurial spirit. 

Next, slavery is dismissed as a cause of economic growth because during the American Civil War the Union simply bought their cotton from elsewhere. That’s true, but it fails to acknowledge that the price of cotton rose from its typical range of 7 to 12 cents per pound prior to the Civil War to approximately $1.89 at the war’s height. Obviously, cotton needed to be sufficiently cheap to support northern industrialization, and without slavery it’s not at all apparent that it would have been. They also argue that slavery was unnecessary because cotton production returned to pre-war levels in the 1870s, but they ignore the system of sharecropping that developed to keep many freed slaves on the plantation and working for a pittance. These are major omissions even for a book that’s meant to be a bit breezy. 

The authors also dismiss the role of institutions and property rights by noting that England had strong protection for property rights for centuries before 1800 without experiencing an onset of growth. On this narrow point I find agreement with the authors: Property rights are a necessary but not sufficient condition for development. That said, I don’t know of any economists that would disagree with this. Even institutionalists typically recognize that strong institutions alone can’t make an economy.

Section 3: The Ideas That Did Cause The Great Economic Expansion (And The Authors’ Policy Ideas)

With all these other causes set aside, it’s now time to discuss the ideas the authors credit with the world’s economic rise. First, we’ll lay out what those ideas are and then how exactly they allegedly promoted growth. Then, we’ll talk about how these beliefs shape the authors’ economic views and their policy prescriptions. (While there’s no discrete section on the authors’ policy ideas, they’re littered throughout the book.)

In opening section three, the authors inform us that in the early days of development “The bourgeoisie itself did not become greedier, or thriftier, or more hardworking, or more law-abiding.” Instead, what happened is that “In the eyes of the rest of society, businesspeople acquired a new dignity” resulting in a “bourgeois equality” under which all are treated as equals in the marketplace, expanding opportunity and the production of new innovations. Around this time “People gradually stopped attributing this man’s riches or that woman’s poverty to fate or politics or witchcraft” and the “dishonor tax” once suffered by merchants began to disappear. I’m no historian, but this seems to neglect much of the history of antisemitism.

This version of history also erases the traditional story of English industrialization. Gone from sight are the ravages of enclosure, the brutality of the Poor Laws, the interventionist Speedanhamland system, and the rigid management of child labor that remained pervasive until the Factory Acts. Instead of being forced from his land and forced to sell his labor power, it turns out the Englishman who moved to the city and toiled his life away in the factory was actually doing so out of respect for the great dignity of the factory manager. The beginning of the great enrichment that the authors celebrate was a period of incredibly tense class relations, where the ideas of democracy and equality were far from realized. Most capitalist historians would argue that this period was a bitter but necessary pill to swallow in order for us to enjoy its bounty generations later. The authors simply ignore it. 

Furthermore, the authors’ explanation entirely ignores the commercial systems of the Dutch and the Italian city-states. Both prioritized merchants and afforded them great privileges in society —often waging wars according to their needs.— They were afforded great dignity, and maintained their high status across society by serving as patrons of the arts. I would put forward that it’s laughable to suggest that an enrichment failed to occur simply because some Italian peasants (that could have easily been avoided) might not have felt excited enough about the Medici’s latest round of lending. Also, the shift from commercial trading (buying low and selling dear) to industrial production is ignored by the authors. 

Because of their beliefs about the world’s historic course of development, the authors have an incredibly business-friendly set of economic prescriptions which are tossed throughout the book. They tout their desire to be free from all masters, but this fails to include the masters of business. Their decisions are reframed as our choices. “Markets in fact provide a voice for the voiceless. Money talks and the poor man’s dollar bill speaks as loudly as the rich man’s. In aggregate, ordinary people in rich modern economies speak loudly, lavishing profit on Walmart and Disney and other purveyors of ordinary life.” Of course, the idea of money as a democratic voice is somewhat discredited by the simple fact that some people have so little of it relative to others. People with small amounts of money may get to exercise their democratic voice as consumers, but they will never have a proportional say in how society’s resources are invested, except tangentially by purchasing essentials from a narrow selection of established retailers. Even the Walmart and Disney examples are contrived. After an initial round of competition, industry tends to consolidate and, in market after market, you’ll find that we face precisely the same choices that our grandparents did whether we like it or not. In bourgeois democracy, you can vote with your measly dollar, but that’s at best a half-assed form of democracy. There’s also the unmentioned paradox that individual freedom can lead to involuntary masters: think, for example, how our choices are constrained by capitalists’ decisions to relocate their production to China. 

The authors lump together most people they disagree with as “statists”, with Donald Trump and Elizabeth Warren serving as prime examples. The authors lament statists’ supposed paternalism, arguing that “people are ready for liberal autonomy.” This ignores the idea that people may just have different preferences that they express through the democratic process. Maybe people are voting for things like drug safety regulations, a social safety net, and tariffs (If you want a breakdown of tariffs, see the piece we published earlier this week). Maybe normal people just don’t wholeheartedly share the authors’ belief that the private sector is always more capable of planning over long time horizons than the government. Ironically, the authors cite the iPhone as evidence of capital’s efficiency, while failing to note the much-remarked-upon fact that all of the iPhone’s major technologies were developed in significant part by the federal government (See Mazzucato 2011).

The authors’ worship of the free market also leads them to make some highly dubious arguments, including the following noteworthy ones:

1. Climate change is waved away: “It can reasonably be expected to be overcome by serious engineers and entrepreneurs implementing serious technologies, such as carbon capture and growing vegetable “meat” and expanding nuclear power”  There’s no talk of how this will happen when so much of industry is locked into fossil fuels. The authors cite the reduction in chlorofluorocarbons as a positive example, but carefully avoid mentioning the role of government action and the Montreal Protocol in hastening their decline. The authors also mention that people in Miami can vote against mayors who ignore rising sea levels. But what’s the point of voting if every solution to the problem is dismissed as statist?

2. “Americans are made better off when Japan or China “defeats” us at car making or TV assembling…. Because “we” -really, but individuals making decisions about what to do-… then go something “we” are comparatively good at”. This understanding of comparative advantage is remedial. It’s well-established that there are losers from trade and that deindustrialization can have awful effects on society as a whole. After all, David Ricardo’s model of comparative advantage assumed capital immobility across national borders.

3. The authors treat people concerned with domestic job loss as Luddites: “it is not “capitalism” that people are complaining about when a machinist is made unemployed by a laser-guided cutter. It’s “progress.” The progress…. Helps mainly the poor”. Framing everyone who opposes how new technology is used as Luddites as a very old rhetorical practice. In fact, it’s so old that even Karl Marx published a fantastic response to it in 1867. I’ll let him handle this one:

“Since machinery in itself shortens the hours of labor, but when employed by capital it lengthens them, since in itself it lightens labor, but when employed by capital it heightens its intensity, since in itself it is a victory of man over the forces of nature, but in the hands of capital makes man the slave of those forces, since in itself it increases the wealth of the producers, but in the hands of capital It makes them into paupers, the bourgeois economist simply states that the contemplation of machinery in itself demonstrates with exactitude that all these contradictions are a mere semblance in everyday reality, thus he manages to avoid racking his brains anymore and in addition applies that his opponent is guilty of the stupidity of contending not against the capitalist application of machinery, but against machinery itself.” (See Capital Vol. 1)

4. The authors also deride taxation as slavery and praise self-regulation as sufficient for governing modern economic society. The authors don’t bother substantiating these positions, and they’re frankly so silly that I don’t feel the need to bother refuting them. 

Section 4: A Coda on Humanist Liberalism

To end their book the authors discuss humanist liberalism. Their argument is that liberalism is more than mere Benthamism (utilitarianism). True liberalism also requires the honesty, trustworthiness, and good conduct detailed by Adam Smith in his Theory of Moral Sentiments. In Smith’s day, this kind of philosophy made sense; capitalists were a nascent class and profit-maximization was yet to be the all-encompassing goal of society. Moral frameworks independent of capitalism could easily be maintained. The authors, however, writing much later, fail to reckon with how good moral values can be subverted to (or live in harmony with) the economic necessity of profit maximization under capitalism. That’s an interesting discussion, but the authors do little to engage in it, aside from leaving us with a couple more cliches about individualism. 

Concluding Remark

In reviewing this work, I might have put forth more effort than the authors’ did in writing it. I’ve engaged their two-page arguments about slavery and climate change with far more rigor than deserved. I’ve chased down their skewed growth stats and their misleading narrative around cotton prices. I’ve actually read Marx, instead of pretending that wealth and capital were synonyms to him. And I’ve contended with their horribly dated arguments about Luddites. I went through all of this for a few reasons. First, this work represents economic history at its most shallow. Its idealism, dogmatism, and simplistic narratives are everything I hate in non-fiction writing. It is particularly bad at adequately representing the arguments that it's trying to take down. Second, a well-meaning uninformed person could easily fall prey to the authors’ tricks (which I’ve done my best to outline above). Third, this book’s acknowledgements page is a who’s who of influential libertarian think tanks. Here’s a sampling: Charles Koch Foundation, Mercatus Center, American Enterprise Institute, Institute for Human Studies, Libertarian Christian Institute, Fraser Institute. To put it more succinctly, I reviewed this book because its ideas are bad, its argumentation poor (and at times exceedingly ignorant or dishonest), and its funders inordinately rich. I don’t think I tackled all of the authors’ shenanigans in this book, but I tried to address as many as possible while keeping this readable. If you got to this point, I guess I succeeded.