Saturday, August 27, 2011

What caused the Industrial Revolution?

I am reproducing the whole of an article by Prof. Boudreaux below as it is itself a very condensed treament of a big topic. I follow the article, however, with what I believe is a better argument
Few questions in economic history are discussed and debated as much as this one. Even if you happen to be among the small number of people who regret what historian (and Freeman columnist) Steve Davies calls “the wealth explosion” of the past couple of centuries, you must nevertheless find this question intriguing, for it asks about the causes of what is surely the single greatest change in human history.

For at least 70 millennia the standard of living of the vast majority of us humans was at, or very near, subsistence. Then all of a sudden (in the great sweep of history)—boom! Starting in the eighteenth century living standards shot upward not only for royalty and the landed nobility but for everyone. And to this very day our standard of living—including our life expectancy and measures of healthfulness—continues to rise.

Why? A question so momentous elicits plenty of answers. Among the well-known answers that have been offered over the years are capitalist exploitation of workers; capitalist exploitation of colonies; religious beliefs that promoted savings and risk-taking; and England’s 1688 Glorious Revolution, which is said to have made property rights more secure. And new answers continue to be offered, such as economist Gregory Clark’s thesis, explained in his book A Farewell to Alms, that genes equipping human beings especially well for carrying out enterprise and commerce were passed down from the English nobility into the English middle classes—thus equipping the bourgeoisie finally to do its thing.

Some of these answers are more plausible than others (with Clark’s being among the least plausible). But not a single one is satisfactory. None explains why the Industrial Revolution began where it began (northwestern Europe) or why it began when it began (the eighteenth century). Another explanation is needed.

And another explanation has indeed just been offered: a change in rhetoric. This rhetoric-based thesis comes from the great economist and historian Deirdre McCloskey in her 2010 book Bourgeois Dignity. It’s a book that, like only three or four others I’ve read, caused a major change in my thinking.

McCloskey reviews with awesome thoroughness all the major (and many not-so-major) explanations for the Industrial Revolution. She finds them all wanting.

Some of these explanations are more obviously flawed than others. Capitalist exploitation of workers, for instance, fails spectacularly as an explanation on a variety of fronts, not the least of which is that the very people from whom the newly created wealth is supposedly extracted (the masses) are the same people who have benefitted most from this wealth explosion.

If capitalist wealth was wrenched from the bent backs and sweaty brows of the working class, then surely workers as a group would today be much poorer rather than (depending on how you count) 10 to 100 times wealthier than were their pre-industrial peasant ancestors. As McCloskey emphasizes, “[M]odern economic growth did not and does not and cannot depend on the scraps to be gained by stealing from poor people. It is not a good business plan.”

A more plausible explanation is one associated most familiarly with the Nobel economist Douglass North and his frequent coauthor Barry Weingast. It’s an explanation I once accepted. According to North and Weingast, the replacement of the Stuart monarchs by William and Mary in the late seventeenth century resulted in more secure property rights in England, which in turn sparked the Industrial Revolution.

While everyone with a modicum of sense understands that the Industrial Revolution would not have happened if private property rights in England weren’t secure, McCloskey argues persuasively that the Glorious Revolution—for all of its undoubted benefits—did not bring about much of a change in England’s property laws or in the security of private property rights. Here’s what McCloskey writes on page 318:

England when at peace, which was the usual case throughout its history, was a nation of ordinary property laws, no more or less corrupt than Chicago in 1925 or the American South under segregation, places in which innovation flourished. It was so, for example, even when the Stuart kings were undermining the independence of the judiciary in order to extract the odd pound with which to have a foreign policy in a new age of standing armies and floating navies. And the amounts extracted, contrary to the Northian suggestion that the king owned everything, were by modern standards pathetically small. The figures offered by North and Weingast themselves imply that total government expenditure under James I and Charles I was at most a mere 1.2 to 2.4 percent of national income. . . .

"[T]he Stuart kings, grasping though they were, and emboldened (as were many monarchs at the time) by the newly asserted divine right of kings, were nothing like as efficient in predation as modern governments—or indeed as were the Georgian kings of Great Britain and Ireland who eventually succeeded the Stuarts."

Indeed so. This explanation fails.

The mainstream economist’s long-preferred explanation is capital accumulation. It fares no better than does the capitalist-exploitation thesis and the North-Weingast thesis.

According to the capital-accumulation thesis, people (for any of a variety of different reasons) began to save more. These savings were transformed into capital goods whose use increased the productivity of labor. And so the Industrial Revolution happened.

But as McCloskey points out, history is full of instances in which people saved just as much as in northwestern Europe at the dawn of the Industrial Revolution, but without unleashing any revolutionary industrial forces. Moreover—and contrary to a thesis still fondly held by many people from Marxists to Reagan Republicans—economic growth does not require substantial capital accumulation. It can be, and has been, funded largely out of retained earnings.

What does best explain why the Industrial Revolution began in northwestern Europe in the eighteenth century is that for the first time in history people then and in that part of the world began to talk about the bourgeoisie with respect. This new “habit of the lip” (as McCloskey calls it) replaced the older habit of talking about entrepreneurs and merchants as being, at best, contemptible functionaries whose services society might need in some measure but whose importance to society fell far below the services supplied by warriors, royalty, noblemen, and priests.

With merchants and entrepreneurs in eighteenth-century Holland and England finally accorded widespread dignity, society’s best and brightest no longer avoided the world of private business to pursue careers at court or on the battlefield. The power of the bourgeoisie in these countries with tolerably secure private property rights was thus finally unleashed to revolutionize the economy—first in northwestern Europe and, continuing to today, the rest of the world.


The question discussed above is of immense interest to those of us who are interested in history. But I think the explanation in terms of rhetoric favored above by Prof. Boudreaux is at best a very partial explanation. One immediately asks WHY the rhetoric about the bourgeoisie changed. No answer is given.

Prof. Boudreaux seems to be a pretty thoroughgoing libertarian and, as is common in such circles, sees genetics as of only minor importance. That is presumably why he so airily dismisses Gregory Clark’s thesis in terms of genetics and natural selection (i.e. in pre-modern times the rich and powerful had greater reproductive success).

But why he so airily dismissed the Weberian explanation in terms of Calvinism ("religious beliefs that promoted savings and risk-taking") is mysterious. I can however provide my own reasons for dismissing Weber's thesis (at least in its narrowest sense of applying to Calvinists only) so I will not dwell on that.

I, on the other hand can see no reason to doubt the process that Clark describes (briefly outlined here) except in one important respect: The same thing must have happened in Tokugawa Japan but the same result was certainly not observed.

I take it as given that no one factor is alone sufficient to account for the industrial revolution. Prof. Boudreaux mentions above a number of factors that could have had a facilitatory effect (security of property rights, capital accumulation, a long period of peace etc.) and it seems obvious to me that when you have a lot of those factors present at the one time and in the one place you then reach what we know from nuclear physics as a "critical mass": There is a long buildup with nothing obviously changing and then suddenly it all does change in a big way. A "tipping point" is a similar concept, one much relied upon by Warmists but which anybody who has ever seen an oldfashioned set of counterweighted scales in use will readily understand. You keep adding weights to one side of the scale and nothing happens. But add that last weight and the scale suddenly tips up.

And it seems to me that the genetic process described by Clark is an important one of those crucial factors which together gave rise to the industrial revolution.

But surely the favourable factors came together somewhere else at some time? And Tokugawa Japan would seem to be such an instance. It had the longest period of peace of any country in history, the genetic process described by Clark should have occurred and it was a very orderly law-bound society.

So we have to look at factors beyond the Clark thesis. And I think that the responsible factors are easy to see. Mercants were NOT respected, no religious innovation akin to Calvinism was allowed and the laws were very unequally applied. A Samurai had far greater rights than a farmer, for instance.

So Clark's process cannot stand alone but, seen as a tributary joining with others to form a mighty river of change, it surely has an important place.

And those tributaries started flowing much sooner than is popularly believed. The birth of scientific thinking was surely important in sparking things like the invention of the steam engine and scientific thinking goes back a very long way. It started of course with the ancient Greeks but was lost for a time. The Renaissance is often seen as the revival of Greek learning which in turn sparked the beginning of modern science with Galileo and his telescope etc.

On closer examination, however, the Renaissance was not such a sudden change. There was a continuing quiet evolution of thinking even in the "dark" ages and much that is attributed to the Renaissance came in fact from Medieval times. See here.

Which leads me to my final point: That the whole of history led up to the Industrial revolution. Human capabilities continually expanded in fits and starts and even occasionally gave rise to real civilizations such as ancient Athens and Rome. But, to re-use again the "critical mass" concept, none of the advances in capability and understanding were quite enough to ignite a great change. When enough capability and understanding had built up, however, the scales tipped (to change the metaphor). The industrial revolution seemed sudden but it was in fact the accumulation of thousands of years of social evolution. Everything finally came together at last.


The Sage of Omaha speaks, but his actions speak louder

Jeff Jacoby notes below that Buffett's deeds contradict his words but he does not really delve into why the wise Mr. Buffett said what he did about tax. Buffett's words are of course just one more demonstration of how wise he is. As he is a very rich man he risks getting condemned as part of Obama's constant abuse of the rich. So he has at least verbally thrown in his hat as being on the side of the "saints". He has neutered criticism of himself at no cost to himself. Wise indeed. And his BofA deal shows that he is as sharp as ever

WARREN BUFFETT is the billionaire CEO of Berkshire Hathaway, a friend and political supporter of Barack Obama, and a well-known advocate of higher taxes on the rich. He is also a hypocrite, whose actions belie his words.

For several years now, Buffett has been calling for significant tax hikes on extremely wealthy Americans like himself. Last week, in a New York Times column headlined "Stop Coddling the Super-Rich," Buffett lamented that the $6,938,744 he forked over in federal income and payroll taxes in 2010 amounted to just 17.4 percent of his taxable income. "What I paid," the world's most famous investor observed, "was . . . actually a lower percentage than was paid by any of the other 20 people in our office. Their tax burdens ranged from 33 percent to 41 percent, and averaged 36 percent."

Buffett has not made his employees' tax returns public, but the federal tax burdens he ascribes to them appear to be highly atypical. According to the Congressional Budget Office, the overall federal tax load shouldered by Americans -- comprising income, payroll, corporate, and excise taxes -- is quite progressive. CBO reported last summer that "households in the bottom fifth of the income distribution paid 4.0 percent of their income in federal taxes, the middle quintile paid 14.3 percent, and the highest quintile paid 25.1 percent. Average rates continued to rise within the top quintile: The top 1 percent faced an average rate of 29.5 percent." If Buffett's numbers are right, his employees must be among the highest-taxed workers in America.

Yet Buffett doesn't argue that his workers' federal taxes should be cut. He demands that his own be raised.

As many critics have noted, Buffett can voluntarily send Washington more money than he owes in taxes. Anyone can. Since 1843, the Treasury Department notes on its website, the government has maintained an account "to accept gifts, such as bequests, from individuals wishing to express their patriotism to the United States." Deposits to that account are added to the government's general fund, but the feds also accept contributions -- by credit card, electronic payment, or check -- specifically earmarked for paying down federal debt.

It would be nice to think that those who insist so vehemently that Washington's debt crisis cannot be resolved without higher revenues are taking the lead and freely reaching into their own pockets. Alas, no. Donations to the Bureau of the Public Debt, The New York Times reported last year, only trickle in at an annual rate of about $2 million to $3 million.

What makes Buffett a hypocrite isn't that he champions an immediate tax increase on the wealthy, yet donates nothing extra to Washington himself. Merely favoring a change in the law doesn't oblige anyone to act as if the change has been enacted.

But Buffett doesn't just propose higher taxes on millionaires and billionaires as a matter of abstract policy. He argues that he personally (along with what he calls "my mega-rich friends") has been "spared" any shared sacrifice, that he personally has "been coddled long enough," that he personally shouldn't get "extraordinary tax breaks" when so many Americans are struggling. He frames his call for higher taxes as an avowal of his own moral obligations. Were he to put his money where his mouth is and voluntarily send the Treasury a big check, his call for higher taxes would carry greater moral authority. His failure to do so is not just intellectually inconsistent, but hypocritical.

Buffett isn't greedy. He is an extraordinary philanthropist who has undertaken to give 99 percent of his immense fortune to charity, and who, with Bill Gates, actively encourages other billionaires to spend down half or more of their wealth in charitable donations.

And why is he giving all that money to charity instead of to Uncle Sam? Because, as he has said in interviews, he knows it will do more good that way and be used more effectively. Who would disagree? For all Buffett's talk of being undertaxed, he believes what nearly everyone believes -- that he can allocate his money more wisely than the government. And not just that he can, but that he should.

When the Sage of Omaha calls for higher taxes, his words get plenty of attention. But his actions speak louder, and convey a markedly different message.



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The Big Lie of the late 20th century was that Nazism was Rightist. It was in fact typical of the Leftism of its day. It was only to the Right of Stalin's Communism. The very word "Nazi" is a German abbreviation for "National Socialist" (Nationalsozialist) and the full name of Hitler's political party (translated) was "The National Socialist German Workers' Party" (In German: Nationalsozialistische Deutsche Arbeiterpartei)


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