How the World Got Rich

Author’s note: The following is a review of “Leave Me Alone and I’ll Make you Rich. How the Bourgeois Deal Enriched the World,” by Deirdre Nansen McCloskey, Art Carden. The University of Chicago Press, Chicago and London 2020, 227 pages.

One day a socialist is supposed to have come into the steel magnate Andrew Carnegie’s office at the height of his wealth in the 1890s and demanded that the rich should distribute their wealth to the poor of the earth. Carnegie, so the story goes, asked his assistant to estimate his current wealth and then divide it by the number of people in this world. The assistant returned shortly thereafter with the figures and Carnegie told him: “Give this gentleman sixteen cents. That’s his share of the wealth.”

Nobody can say for certain whether or not this really happened. In a sense, it doesn’t really matter. But it is one of several entertaining anecdotes that make this scientific book so enjoyable. Here’s another: In the 1930s, an old friend came to comedian Groucho Marx and told him: “Groucho, I desperately need a job. You have contacts.” The friend was a communist and, from a communist point of view, every form of employment was also a form of exploitation. Groucho Marx, displaying his cutting wit, replied: “Harry, I can’t. You’re my dear Communist friend. I don’t want to ‘exploit’ you.”

The book is peppered with such anecdotes, but it nevertheless addresses a serious question: How did prosperity come into the world? After a lengthy period in which the standard of living changed little in societies that had remained static for millennia, capitalism emerged in the 18th/19th centuries and led to a dramatic improvement in people’s living conditions. The authors, however, avoid the word “capitalism,” which they consider a polemical term used by leftist intellectuals. Instead, the authors speak of “liberalism” and “innovism” because they believe these terms are scientifically more accurate.

Despite their objections, I will use the word “capitalism” here because, at its core, this book is about how capitalism came into being. The authors address a number of common explanations but conclude that none are convincing. Property rights and the rule of law, for example, pre-existed capitalism by hundreds of years, so these are necessary but not sufficient conditions. Similarly, the development of science, while very important, was a consequence rather than a cause of economic enrichment: “High science was more a result of economic growth than a cause.” Scientific breakthroughs at the time, the authors observe, were more a consequence than a cause of technological innovation.

The authors go on to demonstrate that even the currently fashionable explanation that capitalism is rooted in slavery and colonialism does not convince. Slavery was by no means a modern invention, having existed for millennia, and, the authors inquire, if the profits from slavery had driven the emergence of capitalism, then why did capitalism emerge in Holland and Great Britain, rather than in China, or perhaps in Portuguese-speaking Brazil, which received many more African slaves than North America did. And the economist Thomas Sowell noted, “14 million African slaves were taken across the Sahara Desert or shipped through the Persian Gulf and other waterways to the nations of North Africa and the Middle East, compared with some 11 million Africans shipped across the Atlantic.”

In any case, why should the profits from slavery in particular have been so crucial to financing industrialization? “If the profits, such as they were, of the trade are judged crucial, why not the profits from, say, the pottery industry, of similar magnitude, or from retail trade, much larger? What makes shameful profits more efficacious for the Great Enrichment than honorable ones? (The reason seems to be the desire to see ‘capitalism’ anyway as born in sin.)”

The popular explanation today that capitalism has its roots in colonialism is also false. Portugal and Spain, the first imperialist powers with colonies from Mexico to Macao, were the poorest in Western Europe at the time capitalism emerged. And countries such as Sweden and Austria became rich even without significant overseas colonial territories.

The authors argue that the real reason capitalism emerged and the world got rich was because of a change in “ethics and rhetoric and ideology.” They turn Marx’s logic, according to which being determines consciousness, on its head. No, they point out, it was the other way around: a change in ideology laid the foundations for all of the revolutionary changes that capitalism brought.

Of course, one should not think of the emergence of capitalism in terms of Adam Smith writing a book and then having his ideas implemented by clever politicians. Rather, as Hayek has well explained, capitalism arose as a spontaneous order – similar to the way languages or plants arise. The importance of ideas, in my opinion, lies more in the role they play in removing the barriers to spontaneous growth previously imposed by rulers and states. In my book The Power of Capitalism, I use China as an example to explore this phenomenon: In China, capitalism first developed spontaneously, in rural regions. The importance of ideas and politics lay in the fact that Deng Xiao Ping issued the slogan “Let some get rich first.” As soon as he said those words, spontaneous processes were no longer blocked, they were officially sanctioned.

The authors also dispel many myths surrounding the emergence of capitalism, including those surrounding the intolerable conditions in capitalism’s earliest stages. Industrialization and urbanization, they argue, did more to overcome poverty than to create it. Taking France as an example, they show how widespread hunger was in rural France before the onset of industrialization. And the authors also disprove the myth that improvements in people’s living conditions in the 19th/20th centuries were primarily due to the labor movement, trade unions and the welfare state. Living conditions improved, they explain, primarily as a result of increased productivity and not of wealth redistribution by the welfare state.

It is to the authors’ great credit that they do not argue theoretically, as many modern economists do, but historically: With an astonishing wealth of facts and an astute understanding of history, they refute many widespread myths – and they do so in such an entertaining way that makes this book a constant pleasure to read.

“why did capitalism emerge in Holland and Great Britain, rather than in China, or perhaps in Portuguese-speaking Brazil”

It was easier to work hard in a temperate climate before air conditioning.

There is also the cost of ships, which were expensive. Holland and Great Britain were sea-faring countries.

There is also the historical patent systems of the United States and of Great Britain.

The patent systems of Germany and Japan allocate employee inventors a share of the patent profits (mainly in theory since manufacturing under patents tends to be in-house).

Young educated people in the US tend to assign slavery an economic importance equal to its political importance.

I don’t spend much on cotton.

I doubt my ancestors before 1861 spent a lot of money on cotton.

In my opinion, “Capitalism” is now an inherently tainted word. It’s a little like getting a politician to deny on TV that he is a child molester. He’s sunk right there. If anyone defends “capitalism”, many people will just think he’s a monster.

I support market economies. Supply and Demand. People produce, people consume. It’s as neutral — and as unavoidable — as can be.

The trick is to make the market economy as efficient (and just) as possible. And that’s not difficult: you just need to stay away from communism.

In Great Britain and especially in Scotland, people were tossed off agricultural land in favor of sheep.

A trip to a Scottish museum can reveal how inventive the Scots were.

Some of those evicted wound up overseas. Others searched for jobs, such as those offered by factory owners.

The use of coal offered reliable year-round energy in Great Britain.

Also food was expensive in Great Britain. Rich landowners had money to invest.

It was the invention and innovation of the steam engine (and later the internal combustion engine) and the advent of electrical power. These things allowed humans to get a lot of work done that previously required human labor.

These allowed large scale construction and ushered in grand new inventions that took advantage of the new power. Agriculture became more efficient. Textiles became cheap. Cotton became a commodity.

Labor had to become more skilled to take work in the new world of technology. And in some cases the less skilled fell to the bottom as their brute force labor was now taken over by machines.

“The trick is to make the market economy as efficient (and just) as possible. And that’s not difficult: you just need to stay away from communism.”

Governments can strangle an economy in regulations, red tape and lawsuits.

The correct role of government is to protect people from force, fraud and coercion. Personal safety and property rights.

Strangling an economy in regulations, red tape and lawsuits is all an attempt to redistribute wealth from makers to takers. Government is inherently Collectivism (communism) and it needs to be as limited as possible so that we can go back to enjoying a market-driven economy.

There are too many examples of where a social economic system “evolved” into capitalism. In Russia, farmers worked on large collective farms but were allowed to growth and market whatever they wanted on very small plots of land (called asarts). It’s those small plots that fed Russia. In England, the manor system of shared land using a Four Course Rotation system of farming was replaced with private land via the Private and Parliamentary Enclosure movement. The common theme throughout history is based on work-reward. Socialism and Communism don’t work precisely because of that.

When Thoreau was a member of the Walden collective, he got to sit under a tree and write all day, while his counterpart is spending his time plowing in the hot sun looking at the East end of a West-bound horse. Yet, at the end of the day, they share equally. Lack of perceived fairness between the work/reward system is what broke up everything from Walden to Russia.

Capitalism may not be the best economic system, but it’s way out in front of whatever is in second place. Indeed, we wouldn’t have a border problem if that were not true.

Exactly! The gov’t “produces” nothing. All it can do is redirect resources by taking from one group via taxation and giving to another by spending. The problem has morphed over the decades to the point where 49% support the other 51%. Politicians know this and use the spending to keep themselves in office by taking from the productive 49% and giving it to the unproductive 51%. Buying votes this way perpetuates the Deep State.

Capitalism may not be the best economic system, but it’s way out in front of whatever is in second place.

Well said.

A further thought, big business and big government go hand in hand.

On the side topic of 'colonialism' and 'racism', there is a fine new (10 May 2021) documentary on Youtube; "Where do Mathematical Symbols Come From?" from UK's Gresham College by Sarah Hoyt, Professor of Geometry. I found it excellent, enjoyable and informative, especially where I learned that the ancient Romans did NOT actually do calculations using Roman Numerals but instead used their version of an abacus / 'calculi' and wrote the calculated number from there.

BUT, then they had a list of submitted questions and it went "pear shaped" (Britishism). At 1:03:12 this query was asked; "Are mathematical symbols free of white colonialism influence? Hopefully yes but in case they are not what would be the alternatively way forward?" This coming after the Professor Hoyt had shown various ancient number representations and highlighting that 'Arabic Numbers' were actually created in India in pre-Islamic times and then adopted by Islam scholars in the 8-900s.

So what was her response? "Excellent question" and while stating that modern symbology is what is effective, she then specified a single historical case of a Nigerian mathematician of the 1700s who developed a formula to create 'magic squares' yet because a French Diplomat (dead white guy) in Siam / Thailand wrote it down, it is now called the "Siamese Method".

YEP! A real case of "white colonialism influence" where a SE Asia country has stolen a West African's claim to fame! WOWser!

Liberty is not efficient. Proprietorships are not as efficient as corporations. People owning property and determining its use to their own benefit alone is not efficient. Yet these things are among what is best.

Efficiency is vastly overrated.

As for your assessment that capitalism is now tainted, if we cannot cleave solely to the best then at least let us be TAINTED sir! We should boldly offend the sensibilities of the more socialist filth in society, and laugh and mock them in their taking offense. Screw them all, they are the enemy.

Finding “cost” is imperative in any decision making. It is the co-important half of the cost/benefit analysis.

A market economy(capitalism) allows cost to be found fairly simply. It is what the open marketplace says it is.

All communist and most socialist economies put the heavy thumb of government dictates and government control onto the scale. True cost, then, can never be discovered.

Therefore, it follows that every cost/benefit decision is, necessarily, garbage. The government prevents proper cost discovery, at the same time it skews the putative benefit claims.

Garbage in - garbage out.

As the marketplace collapses, because of wage and price controls, scarcity becomes the nature of the marketplace.

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