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How capitalism really works

Deirdre Nansen McCloskey sees the spread of liberal ideas as responsible for the world’s increasing riches. So how does China fit the theory?

21 May 2016

9:00 AM

21 May 2016

9:00 AM

Bourgeois Equality: How Ideas, Not Capital or Institutions, Enriched the World Deirdre Nansen McCloskey

Chicago University Press, pp.768, £31.50

Deirdre McCloskey has been at work for many years on a huge project: to explain why the world has become so much richer in the past two centuries, and at an accelerating rate since 1945. This is the third and final volume in the series. In it she argues that ‘our riches were not made by piling brick on brick, bank balance on bank balance, but by piling idea on idea’. The Great Enrichment, which she dates from 1800 to the present, depends on the spread of ideas of liberty, seeded in a series of ‘egalitarian accidents’ in European politics between 1517 and 1789.

The liberalism she describes operates in a very narrow free zone, hemmed in by what she calls the ‘clerisy’ — critics on left and right alike who do not accept a full version of liberalism — and roughly a third of the text sees McCloskey, vorpal sword in hand, slaying the dragons of the state. But she’s fighting enemies from the past: her side has won the battle. Globalisation, neo-liberalism, the expansion of monetary assets and instant internet communication have spawned a new world order without any state powerful enough to contain it.

The transfer of Russian and Chinese billions to safe havens in western cities has caused housing crises in many of them. An Indian family business buys the British steel industry for £6 billion, loses lots of money and simply closes it. The UK state can do nothing. This is not the benign progress that McCloskey describes, and nothing like it has happened before. The Financial Times reported recently that at the end of February there were $267 trillion dollars in exchange traded derivatives — and that’s just one class of asset. For comparison, the gross domestic product of the USA is a mere $17 trillion.


The world today produces 70 times more goods and services worldwide than in 1800. McCloskey gives imaginative examples of the improved standard of living by looking at the products in one’s room, starting with ‘the 20 ballpoint pens stuffed into a mass-produced coffee cup, pens and cups greatly cheapened after the second world war’. I have just that on my desk. Citizens of the most prosperous half of the world are hundreds of times better off than they were even in 1900 or 1945, and that standard of living is spreading quickly to the poorer places on the planet. A small refrigerator at Home Depot today costs 15 hours of work: at Sears in 1956 it cost 116 hours.

The history of western capitalism does owe a great deal to the onward march of ideas of liberty. But it’s not the whole story. The greatest expansion of capitalism, the Chinese economic miracle, has taken place under a very restrictive communist regime. Tycoons who annoy Xi Jinping, General Secretary of the Communist Party, President of the Republic of China and Chairman of the Military Commission, ‘disappear’ for consultation. The People’s Congress rubber-stamps the decisions of the Politburo. The cult of the leader flourishes and the exposure of corruption depends not on a free press but on which tycoons or provincial governors are out of favour. Liberty in the Anglo-Saxon version championed by McCloskey has not played a serious part in the Great Enrichment of the Chinese people, the fastest and most comprehensive enrichment there has ever been.

In Germany, capitalism was Jewish and was condemned by the aristocracy, the artisans, the peasants, the Protestant and Catholic churches and increasingly by the upper bourgeoisie. From 1933 on Hitler and the Nazis excluded Jews from public and commercial life, and when the Reich went to war in 1939, it had as a war aim the destruction of the Jewish race and their international capitalism. Millions died because of Hitler’s insane fear of free markets and Jewish power. After 1945 liberalism literally conquered Europe because the Americans had an occupation army, money and atomic weapons. The Cold War pushed them into the Marshall Plan and kick-started the great recovery of 1948 to 1973. Ideas, no matter how persuasive, could never have created that set of circumstances.

The problem is that McCloskey’s mono-causal history of ideas ignores institutions. Ideas exist in a material culture. They have to be communicated. She calls Samuel Johnson (1709–1783) as a key witness; but she omits the Copyright Act of 1709, which made possible the world of commercial writing in which this eccentric country boy was able to prosper. Liberalism in literature depended on a framework of laws just as much as in any other business. The market for ideas could only exist when the Crown let it.

McCloskey writes that ‘the rich and powerful run the government’ and that ‘the poor and other powerless have been regularly hurt by governmental regulation’. Agreed — but they are equally regularly hurt by the rich and powerful who control giant corporations and who fire poor people in one place to hire poorer people somewhere else.

Individual chapters are long and rich in erudition, but McCloskey refuses to accept that ideas work in and through the institutions of society. It is both/and, not either/or. There is at the core of this huge project a structure of ideas which seems outside history, outside society but eternally valid: the power of the liberal ideal. But when everything else changes — longevity, gender, work, consumption, climate, population, speed of communication and its nature, wealth, food, memory — why should a set of bourgeois values enunciated after 1800 be immutable? Unbridled liberalism on a global scale today has little in common with its portrait in this book. It has exploded its limiting conditions to make the whole world economy a giant speculative game. It looks, to this member of the clerisy, to be a threat to the society that spawned it.

Available from the Spectator Bookshop, £26.50. Tel: 08430 600033


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