Power Line’s Chart of the Week: The Achievement of Capitalism

Herewith a new Power Line feature: Chart of the Week. Because data. Also innovation. Scheduled to appear on Monday or Tuesday each week.

I have been looking forward for a long time to the last in Deirdre McCloskey’s trilogy about capitalism (a term she dislikes) that began with Bourgeois Virtues: Ethics for an Age of Commerce, and Bourgeois Dignity: Why Economics Can’t Explain the Modern World. The third volume, coming out next year from the University of Chicago Press, is Bourgeois Equality: How Ideas, Not Capital or Institutions, Enriched the World.

These are dense but well-written and easy-to-read books, rich with insight. Above all they attempt to explain the phenomenon of this chart:

McCloskey Chart copy

McCloskey’s summa is directed in part against the economic pessimism of both left and right that thinks robust future economic growth is unlikely. But understanding how this explosion of prosperity happened is surprisingly elusive, and McCloskey rejects a lot of the monistic explanations. McCloskey explains her summa thus:

The trilogy chronicles, explains, and defends what made us rich—the system we have had since 1800 or 1848, usually but misleadingly called modern “capitalism.” The system should rather be called “technological and institutional betterment at a frenetic pace, tested by unforced exchange among all the parties involved.” Or “fantastically successful liberalism, in the old European sense, applied to trade and politics, as it was applied also to science and music and painting and literature.” The simplest version is “trade-tested progress.” Many humans, in short, are now stunningly better off than their ancestors were in 1800. And the rest of humanity shows every sign of joining the enrichment.

A crucial point is that the greatly enriched world cannot be explained in any deep way by the accumulation of capital, as economists from Adam Smith through Karl Marx to Varoufakis, Piketty, and Cowen have on the contrary believed, and as the very word “capitalism” seems to imply. The word embodies a scientific mistake. . .

Hear again that last, crucial, astonishing fact, discovered by economic historians over the past few decades. It is: in the two centuries after 1800 the trade-tested goods and services available to the average person in Sweden or Taiwan rose by a factor of 30 or 100. Not 100 percent, understand—a mere doubling—but in its highest estimate a factor of 100, nearly 10,000 percent, and at least a factor of 30, or 2,900 percent. The Great Enrichment of the past two centuries has dwarfed any of the previous and temporary enrichments. Explaining it is the central scientific task of economics and economic history, and it matters for any other sort of social science or recent history.

What explains it? The causes were not . . .

Well, if you want to know more of her answer, read the whole thing (five pages, PDF file). Better still, order up all three volumes of the Bourgeois series.