What Doesn’t Create Growth

Trade, technology, cheaper transportation, protestant work ethic, education, colonialism, geography, or division of labor. That isn’t quite true, these things can, and do, contribute to growth. But the facts indicate that none of them can explain the levels of growth that have taken place in the modern world since growth started. At least this is the claim made by Deirdre McCloskey in her survey article in The Economic History of Britain since 1700, and her newest book, Bourgeois Dignity: Why Economics Can’t Explain the Modern World

For the first 49750 years or so, humankind had lived at subsistence levels. This translates into roughly 3 dollars a day. There were usually a few kings, pharaohs, and emperors who were richer than this, but for the most part people would live lives that were nasty, brutish and short. In Europe there was a measurable growth in the 9th and 10th centuries, that accompanied the use of horses to pull plows, but it wasn’t sustained. Then, around 250 years ago, something happened. It started in the Belgium, and then moved to Britain, where the growth between 1780 and 1860 was a full 100% moving toward 1100% around 1990.

All of the above reasons for growth have been given at some point or other. McCloskey knocks them down one by one. In order to dis-confirm some supposed reasons for growth Harberger’s Law is invoked. Harberger’s Law states that if one calculates the gain amounting to some fraction from a sector that amounts to again a fraction of the national economy one is in effect multiplying a fraction by a fraction. Suppose X per cent of gain comes from a sector with Y per cent of the national income. the resulting fraction, X times Y, is the gain from that section. And when this is calculated for any particular sector of the economy it is small compared to the growth of 1100% from 1780 to the present, or even the 100% from 1780 to 1860. For example, the calculation from foreign trade explains produces about 13% of the 100% . Advances in cotton might get another 7%, transportation improvements 2 or 3 %.

What about science? Well, no, since science generally  lagged technology. The steam engine was the impetus to studying thermodynamics, electricity wasn’t used commercially until the very late 19th century, chemistry made no contribution to the making of steel until the 20th century, the computer until the middle of the 20th. What about technology? The pace of invention from at least the 15th century through 1750 was at least at the same pace as it was at 1750. Watt had his steam engine ready to go in 1775, but if the Harberger’s rule is applied to the part of the economy affected by the steam engine, the result is minimal.

Some of the explanations are probably necessary conditions, but not sufficient for sustained growth, literacy and education, large enough population densities for specialization, and access to raw materials being particularly important. But these combinations had been present in other cultures in the past, and the growth never happened. McCloskey’s thesis is that merchants, innovators and business people came to be, for the first time in human history, not only tolerated but respected. And very importantly, the way that people spoke about market activity and about the bourgeoisie  reflected this change. To me, it is very convincing, but I recognize there are other possible sociological and psychological ways to explain what has happened in the last 250 years or so. But the usual reasons given for growth are, I think, conclusively proven wrong.


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