I was struck yesterday by a post on Ann Althouse’s blog, and by a Virginia Postrel piece that makes the same point, how wrong Obama was to say “You didn’t build that..”
The incident, so characteristic of this leftist ideologue president, is the stimulus for theorizing about how economies work, and perhaps why this one is so stuck with Obama in the White House.
There is an excellent analysis by David Warren printed last year in Canada and which I have saved. It is a comparison of Obama with Gorbachev and brings considerable light on the subject of success of nations.
Yet they do have one major thing in common, and that is the belief that, regardless of what the ruler does, the polity he rules must necessarily continue. This is perhaps the most essential, if seldom acknowledged, insight of the post-modern “liberal” mind: that if you take the pillars away, the roof will continue to hover in the air.
Gorbachev seemed to assume, right up to the fall of the Berlin Wall and then beyond it, that his Communist Party would recover from any temporary setbacks, and that the long-term effects of his glasnost and perestroika could only be to make it bigger and stronger.
There is a corollary of this largely unspoken assumption: that no matter what you do to one part of a machine, the rest of the machine will continue to function normally.
This brief discussion fits well with the book that was recommended by the Postrel piece.
The Bad History Behind ‘You Didn’t Build That’
By Virginia Postrel
The controversy surrounding President Barack Obama’s admonishment that “if you’ve got a business — you didn’t build that. Somebody else made that happen” has defied the usual election-year pattern.
Normally a political faux pas lasts little more than a news cycle. People hear the story, decide what they think, and quickly move on to the next brouhaha, following what the journalist Mickey Kaus calls the Feiler Faster Thesis. A gaffe that might have ruined a candidate 20 years ago is now forgotten within days.
Three weeks later, Obama’s comment is still a big deal.
Although his supporters pooh-pooh the controversy, claiming the statement has been taken out of context and that he was referring only to public infrastructure, the full video isn’t reassuring. Whatever the meaning of “that” was, the president on the whole was clearly trying to take business owners down a peg. He was dissing their accomplishments. As my Bloomberg View colleague Josh Barro has written, “You don’t have to make over $250,000 a year to be annoyed when the president mocks people for taking credit for their achievements.”
Hectoring Entrepreneurs
The president’s sermon struck a nerve in part because it marked a sharp departure from the traditional Democratic criticism of financiers and big corporations, instead hectoring the people who own dry cleaners and nail salons, car repair shops and restaurants — Main Street, not Wall Street. (Obama did work in a swipe at Internet businesses.) The president didn’t simply argue for higher taxes as a measure of fiscal responsibility or egalitarian fairness. He went after bourgeois dignity.
“Bourgeois Dignity” is both the title of a recent book by the economic historian Deirdre N. McCloskey and, she argues, the attitude that accounts for the biggest story in economic history: the explosion of growth that took northern Europeans and eventually the world from living on about $3 a day, give or take a dollar or two (in today’s buying power), to the current global average of $30 — and much higher in developed nations. (McCloskey’s touchstone is Norway’s $137 a day, second only to tiny Luxembourg’s.)
That change, she argues, is way too big to be explained by normal economic behavior, however rational, disciplined or efficient. Hence the book’s subtitle: “Why Economics Can’t Explain the Modern World.”
“Economics of a material sort can surely explain why Americans burned wood and charcoal many decades longer than did the forest-poor and coal-rich people of inner northwestern Europe. It can explain why education was a bad investment for a British parlor maid in 1840, or why the United States rather than Egypt supplied most of the raw cotton to Manchester, England,” writes McCloskey, a professor of economics, history, English and communication at the University of Illinois-Chicago, and of economic history at Gothenburg University in Sweden. But the usual stories of utility maximization and optimal pricing “can’t explain the rise in the whole world’s (absolute) advantage from $3 to $30 a day, not to speak of $137 a day.”
The book argues that economic success is as much psychology as economics and that economics is far less objective than it’s proponents would like to think. She goes into the attitude of society toward “trade” in the period of the Enlightenment. Much of what we think of a middle class began in the Netherlands, a protestant enclave nominally ruled by Catholic Spanish and next door to Catholic France. The Revocation of the Edict of Nantes by Louis XIV in 1685, is often believed to have sent the Industrial Revolution to England with the Huguenots. The result was a period of stagnation of French industry and science that ended only with the Franco-Prussian War of 1870. Napoleon attempted to reverse the effects but lost his wars.
She uses some of the ideas of economic historian Joel Mokyr who I consider a major source on economic history of the middle ages and of other countries, like China.
“Something besides thrifty self-discipline or violent expropriation must have been at work in northwestern Europe and its offshoots in the eighteenth century and later,” she writes. “Self-discipline and expropriation have been too common in human history to explain a revolution gathering force in Europe around 1800.”
Besides, as economic historians discovered in the 1960s, the economic takeoff didn’t actually require large amounts of capital. Early cotton mills, for instance, were relatively cheap to set up. “The source of the industrial investment required was short-term loans from merchants for inventories and longer- term loans from relatives — not savings ripped in great chunks from other parts of the economy,” McCloskey writes. “Such chunk-ripping ‘capitalism’ awaited the Railway Age.”
There had always been enough capital. What was different, she maintains, is how people thought about new ideas. Creative destruction became not only accepted but also encouraged, as did individual enterprise. “What made us rich,” she writes, “was a new rhetoric that was favorable to unbounded innovation, imagination, alertness, persuasion, originality, with individual rewards often paid in a coin of honor or thankfulness — not individual accumulation restlessly stirring, or mere duty to a calling, which are ancient and routine and uncreative.”
Mokyr has made the point that the Industrial Revolution could have occurred in Roman times since a working steam engine existed in the first century AD. The reasons it did not occur resulted from laws about inventions and patents, private property and, perhaps, the psychology she refers to in this book. In 1789, Antoine Lavoisier, the father of modern chemistry and a hated “tax farmer,” was executed after the revolutionary tribune declared, “”La République n’a pas besoin de savants ni de chimistes ; le cours de la justice ne peut être suspendu.” (“The Republic needs neither scientists nor chemists; the course of justice cannot be delayed.”)”.
Perhaps he was correct. The scene of revolutionary France was not ready for scientists. A good many emigrated to the American colonies, like Joseph Priestly who was forced to flee England for his life and settled in Pennsylvania where he was safe.
The controversial nature of Priestley’s publications combined with his outspoken support of the French Revolution aroused public and governmental suspicion; he was eventually forced to flee, in 1791, first to London, and then to the United States, after a mob burned down his home and church. He spent the last ten years of his life living in Northumberland County, Pennsylvania.
Her argument in the book is that it is not really capitalism nor the free market that brings our success as a society in monetary terms. It is more the psychology that allows and rewards those who adopt trade and manufacture as their source of living. She writes, “The key economic event of modern times is instead a Revaluation of Bourgeois behavior, an increased if sometimes embarrassed acceptance by others and by themselves of the bourgeois virtues– the rebuking, laughing, buying, selling so far from glittering deeds. As the historian Joyce Appleby put it in 1978, speaking of the late 17th century, and after the middle class in England “coalesced with rather than displaced the existing ruling class.”
‘Social change requires not a new class but a modern class, however formed. The result was the astonishing growth of wealth that has been repeated since the Second World War by societies as diverse as India and China.
I think I would add Paul Johnson’s opinion that capitalism was invented by the medieval Jews as a way to preserve their property in the face of ferocious opposition. The Jews had a lot to do with the development of modern finance and that is one reason why they still exist as a people
The present day attacks by the ruling class, who resemble so much the former ruling classes in ancien regime France, on industry and thrift by the middle class makes this treatise even more timely. We as middle class people are faced with a near hereditary ruling class that has no idea how to create wealth except by the equivalent of tax farming. Understanding how we got here is a considerable value. I am reading this book in an attempt to educate myself. I wish I could interest my children in also doing so.
Good post.
“the Industrial Revolution could have occurred in Roman times since a working steam engine existed in the first century AD”….that steam engine used steam jets to create rotary motion, and I doubt it could have been a practical power source unless run very fast and appropriate speed-reduction gearing could have been constructed, which I don’t think they could have done. HOWEVER, I also don’t think the industrial revolution was as dependent on steam power as is often assumed. Richard Arkright’s spinning machine was called a “Water Frame” for a reason–it was originally designed to be powered by a waterwheel, and although the scope of the industrial revolution would have eventually been constrained by the availability of water power, plenty could have been done even if the steam engine had never been invented.
The Romans and Greeks did make limited use of waterpower, but availability of slave labor probably constrained their interest in the technology….a lot of waterpower development took place in the Middle Ages, some of it in monasteries.
As we have learned in this century, interest rates have a very strong influence on the money supply. A drop in the money supply can cause a depression. An increase can cause economic growth.
Bankers take deposits and lend the money to others. They grow rich on the spread between the rate paid on savings and the rate charged on loans. Absent a ‘Fed’, bankers control the money supply. Their loans enable economic activity and allow the money supply to grow at the same speed as the local economy. (cf Money & Banking 101)
What happens in countries where usury laws prohibit collecting interest on loans? There are no banks. There is no economic growth except in international trade, because international merchants can open banks in places which allow ‘usury’. Remember, you can’t rob a banker who has loaned out every dollar deposited with him because he has no cash on hand.
Islamic and Christian countries that prohibit usury and have very poor economies with prosperty limited to international trade. This was true of European countries up to 1400’s and in most Islamic countries even today. Prior to Luther usury was forbidden everywhere in Europe, except by Jews. For 1000 years there was no economic growth in Europe.
The ‘protestant ethic’ works best for those protestants that pay their debts with interest. Of course, paying debts with interest helps Jewish communities prosper.
Somewhere in The French Lieutenant’s Woman, John Fowles says the bourgeois are the most revolutionary class in history.
Tonight I’ve been reading Murray’s Human Acccomplishment; Michael’s post seemed to sum up Murray’s endless tables. For instance, Murray explains the disproportionate lower rate of inventors and artists in Russia, the Balkans, and Spain arising from limitations on “freedom of action.” The values he specifically describes as diminished were the most bourgeois ones (especially n the Balkans) – property rights, taking chidren from their parents and discouraging family identity and inheritance, diminishing a sense of history and ancestral pride. Systems Obama clearly has spent his life admiring are not ones that have produced middle class comfort, technological innovation, or art. Destroying the human spirit is destroying the central pillar – maybe the whole thing falls if other pillars do, but it sure as hell will if that one does.
It is worth noting that the fledgling middle class of entrepeneurs, bankers, merchants, and tradesmen was hated and despised by both the aristocratic and revolutionary elements in society as it developed during the 17th and 18th centuries, and, indeed, such attitudes still percolate through the current exemplars of those groups in modern society.
It is not surprizing, therefore, to catch these whiffs of disdain in the unguarded moments when the ruler of the current regime actually says what he and his friends really think, instead of reciting carefully sanitized talking points meant to go down well in this or that significant constituency.
I remember being struck by the depth and passion of the enmity expressed against business people while I was in college in the 60’s, and wondered where it could have come from, especially as I was at a fairly exclusive private college that cost a goodly sum for the time. Fortunately, I was there on a scholarship, and always had a job to pay expenses, but a lot of the students were there on the dime of the very people they claimed to despise.
I came to realize that the attitudes were so pervasive because they were so widely taught by significant elements in our society, i.e., churches, schools, and popular media.
I particularly recalled, when I heard about the dear leader’s comment about who built what, the theory very prevalent in those years that if a society built the right kind of infrastructure, the economy would reach a take-off point and become self-sustaining, like some kind of perpetual motion machine.
A decade later, as none of the take-offs actually took, nobody wanted to talk about that idea much any more, but the idea was still there, lurking in the shadows like an intellectual flasher in a dirty trench coat. I’m not in the least surprized that the leader of the current regime believes it, given his hothouse life so far removed from the operations of the real, work-a-day world.
The progressive impulse is toward a world where everything is controlled by society’s betters for the public good, with the betters defined as those who believe as progs do, and the public defined as those who don’t make trouble when they’re told what to do. These definitions leave most of those imbued with an independent mind and some entrepeneurial spirit out in the cold.
The middle class is a very revolutionary group, and the freedom they demand is a fundamentally revolutionary demand. It is no wonder that they are hated so ferociously by those who believe they are destined to rule the earth, whether by birth or intellect or gnostic wisdom.
My blunt opinion of these tranzi elites is that they couldn’t manage the evening shift at any fast food franchise, yet they claim the right, and the ability, to control every aspect of our social and economic life.
They despise the middle class because most middle class people perform their work with skill and dedication, while these chatterers very clearly don’t know what they’re doing as they waltz us into a total economic and social meltdown.
David, the early steam engines were much less sophisticated than the rotary devices we associated with Watt. For example, The beam engine was considerably more primitive yet worked to pump water out of mines. Hero’s rotating engine opened and close temple doors.
It was the willingness to make the next step and why that determined the future.
The beam engine.
MK…ha, a steam engine discussion/debate! What could be more fun!
One of the Wikipedia articles suggests that Hero’s steam-jet engine was not the mechanism used for the temple doors: that was a different device with water & air in a globe….a fire lit under the globe pressurized the air and forced the water into a connected vessel, whose weight opened the temple doors. When the fire was extinguished, the process reversed and the doors closed again. A good description of these devices here:
http://arxiv.org/pdf/1101.3470.pdf
Conceptually not too different from Newcomen’s engine, so maybe you’re right that it could have been made to generate useful power….somehow the fire would have had to have been moved away from and back under the globe.
Early steam engines, indeed, we not good for rotative applications. Some mill owners actually used steam engines to pump water back into a pond from which it would operate a waterwheel and then be pumped back up again.
A good source on the history of waterpower is Stronger Than a Hundred Men, by Terry Reynolds.
Spelled “bourgeois”. I must have skipped over it a half dozen times without noticing it. Aside from that imperfection, a fine contribution. I look forward to your comments,which are insightful and backed with concrete specifics. Facts and examples.
[Thanks! – Jonathan]