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Patents and Innovation Economics

Can “Dignity” Explain the Industrial Revolution: A Review of Deirdre McCloskey’s Economic Ideas

Dr. McCloskey is a Distinguished Professor of Economics, History, English, and Communication at the University of Illinois at Chicago.  Her ideas on what caused the Industrial Revolution and economic growth are being widely touted.  She has written a number of books (Bourgeois Equality, Bourgeois Dignity, and The Bourgeois Virtues) explaining her position in detail.

McCloskey’s work focuses on the causes of the Industrial Revolution.  She does an excellent job of debunking the idea that capital accumulation or exploitation is the cause of the Industrial Revolution.  She has a keen grasp of economic history.  Unfortunately, the ability to criticize other ideas is not the same thing as putting forth a coherent theory.

McCloskeyThis article is based on a talk that McCloskey gave at George Mason, an interview that she gave after this talk, and a review of her book Bourgeois Dignity: Why Economics Can’t Explain the Modern World by Arthur M. Diamond, Jr. a professor of economics from University of Nebraska at Omaha.

One of the most enduring myths of economics is that increases in capital are responsible for our increasing standard of living.  McCloskey shows that for almost all of human history the average person lived at a subsistence level (edge of starvation aka “the Malthusian Trap”).  She cites two exceptions, the Agricultural Revolution that occurred about 10-11 thousand years ago in the Fertile Crescent and the Industrial Revolution.  The increase in real per capita incomes that happened after the beginning of the Agricultural Revolution did not last.  According to McCloskey the reason it did not last was because human population expanded to absorb the excess calories that were initially created by the Agricultural Revolution.

The Industrial Revolution was the first time in history that average peoples’ incomes began to grow consistently.  In the U.S. we have incomes that are 100 times greater than that of people before the Industrial Revolution and across the World as a whole our incomes are 30 times larger than people living at a subsistence level.  McCloskey stresses that capital increases cannot explain this increase in our wealth.[1]  At best it could explain a factor of 2 or 3.

She also argues that “property rights” cannot explain the Industrial Revolution.

Though property rights are important, she noted, Genghis Khan enforced property rights rigidly, and as a result people fled to his domain for its political protections; nonetheless, little in the way of an industrial revolution resulted. China likewise had a good property rights system for centuries without innovation, indicating that it is clearly not a sufficient condition by itself.

Property rights, she said, are “commonplace” without progress, though they are important if progress is to be had.[2]

McCloskey also argues that scientific progress is not the cause of this increase in wealth.

[T]he Scientific Revolution did not suffice. Non‐ Europeans like the Chinese outstripped the West in science until quite late. Britain did not lead in science—yet clearly did in technology. Indeed, applied technology depended on science only a little even in 1900.[3]

So what did cause this explosion in wealth associated with the Industrial Revolution according to McCloskey?  Innovation.  She does not define exactly what she means by innovation.  It clearly includes invention, however like Schumpeter she sees inventors as just a small part of the overall puzzle.  According to a reviewer, McCloskey thinks invention is on autopilot.

She expresses the view that since roughly 1900 the process of invention has become “routine” which would also be consistent with a view that patents are not necessary. (footnote 9 on p. 454)[4]

She also dismisses the patent system as the cause of this increase in wealth and innovation.  However, professor Arthur M. Diamond, Jr. suggests her argument in unconvincing.

I also have one substantive concern. McCloskey rejects a little too quickly and a little too strongly one important possible cause: patents.[5]

The answer for McCloskey is liberty and dignity.  In various places she says this is key for inventors, or innovators (Schumpter), or Bourgeois virtues.  It is hard to see how this leads to any specific policies or even how you can measure the dignity portion of her answer.  While her critique of standard economics is brilliant and she is focused on the right questions, her answers are confused and contradictory.

For instance, in some places she emphasizes invention not social attitudes and in other places she says inventions just occur and inventors are unimportant.  She never explains why the Industrial Revolution starts in Great Britain and the U.S. but not in France for instance.  She does point out that it is not scientific advancement, because France was at least if not more sceintifically advanced than Great Britain at the beginning of the Industrial Revolution.

McCloskey hints that she is sympathetic to the Austrian School of Economics.  For instance, in the talk at George Mason she says “economics is what goes on between our ears.”  She emphasizes her agreement with the Austrian’s radical subjectivism when she says “its subjective value all the way down” and “we can’t be sure that people experience red the same as us.”

Despite this she seems to align with Joseph Schumpeter more than she does with Mises or Hayek.  Her critique of the capital theory of wealth creation is totally inconsistent with Mises and Hayek.  Her interest in economic history is totally inconsistent with Mises and she never once mentions, banks, fractional reserve banks, or central banks.  Her emphasis on dignity seems to resonate with Hayek’s idea of ‘cultural evolution’ and her distinction between inventors and innovators is pure Schumpeter.

In the final analysis McCloskey’s critique of the standard explanations for the Industrial Revolution is excellent and the fact that she is asking the right questions in economics is also laudable.  However, her answers are contradictory and confused.  Instead of following the evidence, she tries to cram her preconceived ideas about economics onto the evidence, including the irrational radical subjectivism of the Austrian School of Economics.

 

 

 

[1] “Transportation improvements cannot have caused anything close to the factor of 16 in British economic growth.  By Harberger’s (and Fogel’s) Law, an industry that is 10% of national product, improving by 50 percent on the 50% of non‐natural routes, results in a mere one‐time increase of product of 2.5% (= .1 x .5 x .5), when the thing to be explained is an increase of 1500%.  Nor is transport rescued by “dynamic” effects, which are undermined by (1.) the small size of the static gain to start them off and (2.) the instable economic models necessary to make them nonlinear dynamic.” http://www.economia.unam.mx/cladhe/docs/McCloskey-Keynotespeak.pdf

[2] http://themendenhall.com/2016/04/24/notes-deirdre-mccloskey-mercatus/

 

[3] http://www.economia.unam.mx/cladhe/docs/McCloskey-Keynotespeak.pdf

 

[4] http://www.artdiamond.com/DiamondPDFs/McCloskeyBourgeiosDignityReviewH.pdf

[5] http://www.artdiamond.com/DiamondPDFs/McCloskeyBourgeiosDignityReviewH.pdf

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May 22, 2016 - Posted by | -Economics, -History, Innovation | , , ,

3 Comments »

  1. Reblogged this on My BlogSocialDynamos.WordPress.com.

    Comment by socialdynamos | June 10, 2016 | Reply

  2. I need more explanation of the specifics regarding the limits of the Vienna Law School, Austrian problems! Thanks for critiquing them!

    Comment by socialdynamos | June 10, 2016 | Reply

  3. […] Can “Dignity” Explain the Industrial Revolution: A Review of Deirdre McCloskey’s Economic Ideas  https://hallingblog.com/2016/05/22/can-dignity-explain-the-industrial-revolution-a-review-of-deirdre… […]

    Pingback by Austrian Economics and Objectivism Panel Session « State of Innovation | July 21, 2016 | Reply


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