Saturday, January 28, 2012

An Economics Historian (and much more) Who Speaks Good Sense About Capitalism

Dalibor Rohac, deputy director of economics at the Legatum Institute, reports on a lecture by Deidre McCloskey at Hartwell House, Buckinghamshire, London and post in the Wall Street Journal HERE

“The New Theories of Moral Sentiments”

“…But humor and witticisms aside, the talk revealed her conviction that economists should not shy away from the subjects of love, friendship or virtue.

Ms. McCloskey sees a problem in the way that economic models are dominated by a strange, sociopathic character—"Max U" as she calls him, referring to the standard economic problem of maximizing utility subject to various constraints. Her own scholarly work has become increasingly focused on bringing love, hope, faith, courage and other virtues back into economics.

… If her talk of ethics sounds fluffy, recall that in 1759 Adam Smith earned his reputation by publishing "The Theory of Moral Sentiments," in which he accounted for the emergence of sympathy and moral judgments. It was only in the 20th century that ethics disappeared from economics, partly as a result of the increased mathematization of the discipline. Ms. McCloskey says it was a fundamental error for economists to start making their arguments in terms of "Max U" alone. "In fact, 'Max U' would be a much more sensible person if he had gender change and became 'Maxine U,'" she chuckles.

... [In 2010} she completed a 600-page sequel, "Bourgeois Dignity: Why Economics Can't Explain the Modern World." ...

... "Bourgeois Dignity" makes a historical argument. Modern economic growth, she claims, is a result of an ideological and rhetorical transformation. In the Elizabethan period, business was sneered upon. …

… She contrasts this with attitudes 200 years later. When James Watt died in 1819, a statue of him was erected in Westminster Abbey and later moved to St. Paul's cathedral. This would have been unthinkable two centuries earlier. In Ms. McCloskey's view, this shift in perceptions was central to the economic take-off of the West. "A bourgeois deal was agreed upon," she says. "You let me engage in innovation and creative destruction, and I will make you rich." A commercial class that was not ostracized or sneered at was thus able to activate the engine of modern economic growth.

Ms. McCloskey insists that alternative explanations for the Industrial Revolution fail, for a variety of reasons. Property rights, she says, could not have been the principal cause because England and many other societies had stable and secure property rights for a long time. Similarly, Atlantic trade and plundering of the colonies were too insignificant in revenue to have made the real difference. There had long been much more trade in the Indian Ocean than in the Atlantic, moreover, and China or India had never experienced an industrial revolution.

By elimination, Ms. McCloskey concludes that culture and rhetoric are the only factors that can account for economic change of the magnitude we have seen in the developed world in past 250 years.

The danger of our era is that the bourgeois deal is slowly crumbling away. It is under attack from the political left and also from economists whose work revolves around one sole virtue—prudence—thus eroding the public understanding of markets and economic life. Looking at the West's current economic woes, it is easy to share Ms. McCloskey's concern that unless we revive a sense of dignity and approbation for entrepreneurship and innovation, we might easily kill the goose that lays the golden eggs of our prosperity.”

What a splendid account of McCloskey’s scholarship, warmly reported on Lost Legacy when I read her “Bourgeois Dignity” recently.

She combines heavy original scholarship with much erudition and a light writing style. I recommend her works to readers (follow the link to read the full report). Publicity on the Wall Street Journal will catch the eye of many working economists, though I suspect many of them will not have been exposed to McCloskey’s themes with their critical focus on the equations of “Max U” that eliminate any real human relationships, or even real people. She is well versed in Adam Smith’s works too.



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