How Freedom Made Us Rich

"In [1492], if you were going to bet on who was going to have a 'Great Enrichment,'" says University of Illinois at Chicago economist Deirdre McCloskey, "you would have been crazy not to bet on China because China had the most advanced commercial institutions, the most advanced ship building technology, [and] the most advanced machinery all together." But it didn't work out that way.

"My claim," McCloskey says, "is that liberty was the key to modern economic growth."

In her new book, Bourgeois Equality: How Ideas, Not Capital or Institutions, Enriched the World, the third volume in a trilogy, McCloskey argues that our vast accumulation of wealth over the past two hundred years— which she's dubbed "The Great Enrichment"—was the result of "massively better ideas in technology and institutions." Where did they arise from? &tag=reasonmagazinea-20″A new liberty and dignity for commoners," she argues, "expressed as the ideology of European liberalism."

McCloskey sat down with Nick Gillespie at Freedom Fest, the annual convention for libertarians in Las Vegas, for a wide-ranging conversation on topics including the roots of "The Great Enrichment," why her gender reassignment surgery was an "expression of [her] libertarianism", and the importance of advocating policies that "actually help the poor" instead of just "making people feel good about helping the poor.

McCloskey is also a Reason columnist. Her archive is here.

Edited by Todd Krainin. Cameras by Meredith Bragg and Justin Monticello.

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This is a rush transcript—check all quotes against the audio for accuracy.

Nick Gillespie: Hi, I'm Nick Gillespie with Reason and today we are sitting down with Deirdre McCloskey. She's an Emeritus Professor of Economics, History, English, and Communication at the University of Illinois at Chicago and the author most recently of Bourgeois Equality: How Ideas, Not Capital or Institutions, Enriched the World. She's also a columnist for Reason Magazine. Deirdre, thanks so much for talking with us. Long time contributing editor to Reason as well.

McCloskey: I'm extremely pleased to be here and …

Gillespie: Well, your latest column, because I think this puts us right into a lot of current discussions, is titled The Myth of Technological Unemployment.

McCloskey: Yeah.

Gillespie: The subhead is, if the nightmare of technological unemployment were true, it would have already happened repeatedly and massively. In it, you take issue with a lot of libertarian or free-market economists who are talking about how we've reached the end of technological innovation or productivity growth and yeah, we're going to have to find something to do for people who are replaced by robots.

McCloskey: Yeah.

Gillespie: What's wrong with that?

McCloskey: I think it's just completely wrong. My friend, Tyler Cowen, my friends at George Mason think maybe it's time for an intervention and Tyler, we think maybe we should send him to dry out somewhere because he seems to have gone crazy on this and he's not alone. I mean, there are people like Bob Gordon wrote a book last year, which was very successful.

Gillespie: Which argued that basically say goodbye to 2%, …

McCloskey: Exactly.

Gillespie: … even 2% economic growth.

McCloskey: Exactly. Innovation in the United States is finished and we've invented all the window screens and drop ceilings we're ever going to invent. There are a whole bunch of things wrong with it. One is that it doesn't make a lot of quantitative sense. In Tyler's book, which is called Average is Over, he's got a chart, which he says, "Summarizes my point." It's terrible. See the falling share of labor in national income. You look closely at the chart, which is one of these Time Magazine charts, it goes down like that. It turns out it's gone from 63% to 61%, talking about 2%. Now, come on Tyler. Please. Then, Bob likewise, and lots of others. I mean, in fact, it's a very old theme.

People have been saying since the beginning of modern economic growth, around 1800, that well, it's finished. John Stuart Mill, the great father of us all had that opinion, that the stationary state, as he called it, was around the corner. It hasn't happened yet, that's one thing. Joe Mokyr, my friend, is another optimist. He says, "Look, come on," and biological research. Then, the point that I like to make is we're only talking about the United States. Now, wait a second. Time out. The world is growing. In come per head in real terms is growing faster right now than it ever has in the history of the world. These two countries, China and India, 40% of humankind, are growing like mad, 7% to 10% per year.

Gillespie: Although, they are slowing down. Right?

McCloskey: Yeah, slowing down.

Gillespie: Yeah.

McCloskey: They're going from 10 to seven.

Gillespie: Right.

McCloskey: Hey, wouldn't you like to have 7% growth in your salary? So anyway, there's ample cause for optimism because when those people come online, you get masses of engineers, entrepreneurs, free people, at least in India and we were hoping in China. They'll make inventions that will spill over to us just as our Northwestern Europeans, our inventions spilled over to them. For the next, I don't know, century or two, I see no slowing down.

Gillespie: Well, let's talk about the Bourgeois trilogy.

McCloskey: Yeah.

Gillespie: Virtues, equality, whatnot, in that you talk about the great enrichment …

McCloskey: I do.

Gillespie: … and you touched on it. Explain that and talk about its causes. Who are the people you're sparring with?

McCloskey: I'm sparring with Marx, I'm sparring indeed with Mill even. I'm sparring with modern growth theories, so called in economics. I'm certainly sparring with … Well, I'm sparring with everybody, that's why I have no friends. I'm sparring with the left, I'm sparring with the right. The essential point I'm making is that what happened in 1800, thereabouts, was that people could have a go, as the English say, masses of people, ordinary people. Now, come on, there were slaves in the United States and there were hopelessly poor people in Britain and so forth, so it wasn't really everybody and all through this period, women were not fully emancipated. Still, it was a great improvement over what it had been a hundred years before in the way of allowing people to do stuff. To start a hairdressing salon when they want and where, as against making them get a license to braid hair, which we have now. And of course, these were inventions, not just of a mechanical sort, but of an institutional sort, inventing stock exchanges and the modern university dating from 1810, the University of Berlin.

There's this tremendous up swell coming from ideas, whereas my colleagues, most of them, there's a little tiny group that includes this fellow Joe Mokyr, who believe that ideas are important, but most of my colleagues in economic history and economics believe that it's trade or that it's, if they're on the left, it's slavery or whatever. The trouble with that is that we've had trade and slavery since Cane and Abel. Look, in 1792, if you were going to bet on who was going to have a great enrichment of 3,000% per capita when previous increases has been a hundred percent and then falling back to $2 or $3 a day per person, 3,000% per capita, in 1492 you would have been crazy not to bet on China because China had the most advanced commercial institutions, the most advanced ship building technology, the most advanced machinery all together, indeed the most advanced science at that stage. My claim is that liberty was the key to modern economic growth .

Gillespie: To put it in a context that, as somebody coming out of literary studies, when I looked at your work, you're anti-determinist.

McCloskey: I am.

Gillespie: There are a lot of libertarians or free-market people who will say well, it's because the west was well situated demographically or geographically …

McCloskey: Yes, so they say.

Gillespie: … where we had natural …

McCloskey: Resources.

Gillespie: … resources and things.

McCloskey: Lots of ports.

Gillespie: You're saying it's essentially ideas. What are the essential ideas that allowed people to have a go of it?

McCloskey: Well, the essential ideas, as the blessed Adam Smith said, "The liberal plan of equality, liberty, and justice," by which he meant social equality. He was an egalitarian, a somewhat advanced egalitarian for his age. By liberty, he meant this right to open a hairdressing salon and the like, or to invent a Uber, which would destroy the taxi industry. And t hat just, it inspirited people. I think it's very important to not think in mechanical terms. I think socialists and some people, some conservatives, think the economy is just mechanical. People are always talking about, I don't know, increasing economic growth in Youngstown by pouring money into it and that will have multiplier effects. They have this kind of vaguely Keynesian idea that you can make things happen in this mechanical way by just stuffing … They speak of priming the pump and all that, but it's inventing the pump that's the key .

Gillespie: How did it happen that the west creates a system where a lot of people are relatively equal and can act and live how they want and that even say, you know, business people or rich people, wealthy people, powerful people, will sign on to a system that allows other people to possibly compete with them and beat them and surpass them?

McCloskey: Yeah, well, that's the big one. If you were betting, you would never in the 15th century have bet on Europe. That would have been stupid. This quarrelsome, poor, disease ridden place of fanatics who then became more fanatical in the 16th century. No, it was accidents. For example, the Protestant Reformation, which Max Weber claimed changed the psychology of the entrepreneur. I don't think it did. I think what it did, the radical Protestant Reformation, the Quakers being the most extreme case one can think of, but also the Anabaptists and so forth, got along without hierarchies. In the case of the Quakers, there's no minister. They just gather in a circle and wait until the spirit of the Lord descends. That experiment in getting away from what had been the hierarchy in this very important part of their life, mainly religion, made people think oh yeah, maybe I could get along without bishops.

Gillespie: What was the role of chopping off the head of Charles the First in all of that?

McCloskey: Well, see, these are all contingent.

Gillespie: Yeah.

McCloskey: They're all accidents. There's nothing deterministic about them. Had Charles been a more sensible man, his father was called the, James the First, was called the wisest fool in Christendom, but his son wasn't that much smarter and he said, on the scaffold, he was allowed under English law to give it because he'd been convicted under an English law. Shocked the whole of Europe that an anointed Prince could be tried. I mean, Princes died violently all the time, but could be tried and found guilty. He said, "Don't you understand, a sovereign and a subject are clean different things?" That's what broke down, this conviction that that's true. A conviction actually, which was invigorating in Europe in the 16th, and especially the 17th, century. All across Europe, east and west, the divine right of kings was being asserted, and it could have gone the other way. It could have been that we became Russia or Prussia, for that matter, but we didn't. We became French or British.

Gillespie: Now you're talking, you've made an allusion to Uber and the kind of regulatory burden that companies or new business, new ideas face in 21st century America, hair braiding, occupation licensing. Are we backsliding from that tradition and what do we do to arrest that?

McCloskey: That's one of the reasons I wrote the books. It's not about hair braiding. I think it's stupid and it's bad for poor people.

Gillespie: Wait, hair braiding or …

McCloskey: Hair braiding is bad.

Gillespie: … bad for poor people.

McCloskey: Uber is good for poor people. No, I don't mean hair braiding is.

Gillespie: Yeah.

McCloskey: The licensing of hair braiding.

Gillespie: Yeah. Okay, that's I was just making sure. Yeah.

McCloskey: The licensing of taxis. The licensing of this, that, and the other thing. By the way, we economists don't have any licenses. Neither do journalists, so hey.

Gillespie: Well, we're lucky. I mean, the US is one of the few countries that doesn't, actually. Never licensed the press, so we're lucky.

McCloskey: Are they licensed in France?

Gillespie: They were in different ways and even in Milton's Areopagitica, he was for an unlicensed press as…

McCloskey: Oh, yeah.

Gillespie: … a Protestant press, not Catholics, etcetera. Yeah.

McCloskey: Well, that's right. Exactly. Of course. Well, actually, one of the shocking things about English history is that until 1967, I think it was, or 68, the theater in London was subject to pre-production licensing. If they didn't like what you were saying, you weren't allowed to. This came in in the 1730s under Walpole. But who are these people who vote for Trump or who vote for Bernie or for Corbin in Britain, who are they? Well, there's lots of old people who were angry about the world changing at all, but there are also a lot of young people, especially on the left. The problem is that young people, if they don't grow up on a farm or a small, small business wh ere they're involved in trade all the time, where they learn what prices mean, where they learn that Daddy's income depends on him doing a good job and then Mom is the central planner of the … In the Bourgeois household, the mom is the central planner. It's a little socialist society and the income falls like manna from heaven. These kids think well, there are poor people. Let's fix that by bringing them to the table and from each according to his need. That makes perfect sense. I admire it very much. I practice it myself in a family, but it makes no sense at all in what I have called the Great Society before Johnson did. 324 million people can't be run like a family however much Elizabeth Warren would like it.

Gillespie: One of the books that is out now that is causing a big row, particularly among libertarians, is Democracy in Chains by Nancy MacLean, a historian at Duke University. It's an attack on James Buchanan and kind of libertarian ideology.

McCloskey: Yeah, I haven't …

Gillespie: Did you have much interaction with James Buchanan during the course of his life?

McCloskey: Yeah. Especially as Deirdre, late in my life. I got to know Jim a little bit. He was very courtly about my change of gender.

Gillespie: What does that mean?

McCloskey: Well, he would open doors for me and was very nice. This idea that Jim is the dark side of the force is just crazy. Charles Koch, for example, is viewed as the dark money and all that. For some reason, people on the left who are billionaires, get off, but Charles Koch is a libertarian. He believes in freedom. Not just his freedom, in fact, he's not just making him better off. He's against corporate welfare. He gives money to the United Negro College Fund and the same is true of Jim. He was an advocate of freedom, so it's just more of this … Well, look. You know as well as I that on the left there is a belief about people like you and me that, and it's psychologically very implausible, but this is what they believe. That you and I want to help the rich and we disdain the poor and we're superior to them, they think. This is all about us helping rich people get more rich. What kind of human psychology would lead you to do that? I got into economics, I stayed in it to help the poor. The advantage that our policies have is that they actually help the poor as against making people feel good about helping the poor, while they have their second cappuccino.

Gillespie: You have talked about various forms of libertarianism. What's your favorite form and what has to happen to kind of fully operational?

McCloskey: Mine is humane libertarianism.

Gillespie: So, it's capitalism with a human face.

McCloskey: That's right.

Gillespie: Okay.

McCloskey: Although, I don't like the word capitalism, …

Gillespie: Right.

McCloskey: … which I think is misleading. It suggests that piling up capital is what the modern world is about and it's not. It's about ideas. It's about novelties. I call it sisterly libertarianism. I was at a conference in Yucatan with 500 libertarians. I've never been at a conference with 500 libertarians. I was talking to this guy and I said by way of an axiom that everyone, of course, would agree with, "Of course, we all want to help the poor." He immediately shot back, "Only if they help me." It's kind of Ayn Rand, tough guy, screw you, I've got mine libertarianism. I call it brotherly. Mine is sisterly or motherly. The father said, the libertarian father says to the son who's still living at home at 28, "George, for Christ sakes, get a job," and his mother says, "Oh, but he's such a nice boy." She offers him some soup. I'm of the offering soup version.

Gillespie: Does that have to live with the father, though, too because otherwise you just have a kid eating soup at 30?

McCloskey: Both, yeah, both. I have a friend who was the founding editor, manager, of the Amsterdam University Press and when she first started, she thought I'm going to run this enterprise as a woman. I'm a woman and I think that's reasonable. We're going to not have this guy stuff all the time. She found that worked to some degree, but people didn't meet their deadlines. She said, "Whoops, uh-oh." She had to bring in some of the fatherly, oh for Christ sakes, get a job. Oh, for Christ sakes, George, meet your deadline. When she mixed the two, when there was enough of love and enough of justice and prudence mixed in, that worked the best.

Gillespie: Do you see sisterly libertarianism or motherly libertarianism as a corrective to, you know, as a self-conscious movement of 40 or 50 years? Libertarianism has definitely been very stereotypically male.

McCloskey: It's been very male and, as a former male, I understand the attractions, but it doesn't work politically, for one thing. We ought to be saying in everything we write, I should say it right now, I think I have said it, in everything we say, we're in favor of helping the poor. Because I know I am. I know you are. Most of the libertarians I know, the Don Lavoie and Don Boudreaux and all of us want to help the poor. Our techniques actually do help the poor, whereas the technique of constantly intervening in the wage bargain has done nothing but hurt the poor. It's made the poor hard to have employment. I come from Chicago, that's where I live and the south and west sides, especially the west sides, are really terrible. And in the 19th century, such places were hives of activity because there was no zoning, there were no building codes, there were no unions to speak of, there was no minimum wage, there was no this and there was no regulation of the wage bargain, and you could get a job. You came from Slovakia, you went right into the factories. The west side of Chicago should be a hive of industrial activity, and it's not.

Gillespie: Let's talk about trans issues. You mentioned being a man.

McCloskey: Yes.

Gillespie: In your brilliant memoir, Crossing, which I believe came out in 99, is that right?

McCloskey: Yeah, came out in 99.

Gillespie: Yeah, you discuss your experience with gender reassignment surgery and a host of related issue.

McCloskey: Yeah.

Gillespie: Actually, the surgery, in many ways, is the least of it, although it's all fascinating. What do you think about the ways in which questions of sexual identity, of personal identity, of gender, how have they played out since the publication of Crossing? Is it better, is it worse?

McCloskey: Well, not because of anything I've said or done, but because of the general liberal drift of the society in matters of personal, say sexual choice or gender choice or lots of other choices. I mean, after all, we're starting at last to legalize marijuana and my view is that the right to present in whatever gender you want, or no gender at all, is just a species of freedom that we've been with great waves, back and forth, but gradually improving since the 18th century. We freed slaves, we freed women, we freed gays, we freed colonial people, we freed people of color, we freed handicapped people, we freed … I had, by the way, I had opinions on all of these. I was on the right side every time. I was a liberal, but I didn't do anything about it. Then, in 1995, God tapped me. My Episcopal God tapped me on the shoulder and said, "Okay, dear. This is your last chance," so I was public about it. It's a little hard to change gender in private anyway. I regarded it as a … Actually, I didn't immediately so, I realized that it was an expression of my libertarianism as well.

Gillespie: Are you optimistic about the next 50 years? I guess another way of saying that, is Donald Trump, is Le Pen, is Corbin, or whatever, are they the end of something or are they the beginning of a kind of new chapter of awfulness?

McCloskey: I think they're the end. I'm an optimist. You don't change gender unless you're an optimist, but we got to be on our guard. We've got to do things, like have conversations like this and get people to listen to them because it's a danger. Young people, as I've said, have this tendency to socialism. Old people have this tendency to fascism. If you put the two together, you've nationalism, socialism, national socialism, and it's happened before. It's very dangerous. It's always present. We need to work against it. I'm going to go to Hungary for a few days in a couple of months and I'm so sad about Hungary and then, Poland seems to be going the same way, that they glory the politicians in Hungary, glory in being a liberal. They say it. They say, "We're going to do a liberal democracy," by which they mean fixed elections.

Gillespie: Well, we will leave it there. Thank you, Deirdre, so much for talking.

McCloskey: Thank you very much. I enjoyed it.

Gillespie: We have been talking with Deirdre McCloskey. She is an Emeritus Professor of Economics, History, English and Communication. I'm disappointed that you're not in several more departments.

McCloskey: I am, I was in Philosophy and Classics at.

Gillespie: Art history, maybe textiles.

McCloskey: No, but I've actually taught art history.

Gillespie: Yeah, at the University of Illinois at Chicago. She's the author of most recently, Bourgeois Equality: How Ideas, Not Capital or Institutions, Enriched the World. She's also a recent columnist. Again, thanks.

McCloskey: Thank you, dear.

Gillespie: For Reason, I'm Nick Gillespie.