The two centuries of uplift happened most significantly not to the aristocrats or the landlords or the priests of the old ruling class, who were rather uplifted already, but to the commoners, your ancestors and mine. The economist Joseph Alois Schumpeter (1883–1950) noted in the 1940s that “Queen Elizabeth owned silk stockings.”
The capitalist achievement does not typically consist in providing more silk stockings for queens but in bringing them within the reach of factory girls in return for steadily decreasing amounts of effort. . . . The capitalist process, not by coincidence but by virtue of its mechanism, progressively raises the standard of life of the masses.1
By now Schumpeter’s point is still more obviously correct. The “mechanism” he had in mind is the entry of fresh entrepreneurs, driving the labor-hour price of things down, down, down, to the annoyance of the first betterers, who would rather have patent monopolies, such as Thomas Edison persistently sought.
W. Michael Cox and Richard Alm in 1999 documented the driving down, and recently Donald Boudreaux has reprised their argument using various catalogues from Sears, Roebuck (a company itself overtaken by the entry of entrepreneurs from Target, Walmart, Best Buy, Home Depot, Nordstrom’s Rack, and other betterers, but in 1956 still dominant): “Sears’ lowest-priced no-frost refrigerator-freezer in 1956,” notes Boudreaux, “had 9.6 cubic feet of space, and sold for $219.95 (in 1956 dollars).”
Because the typical production-line worker back then earned $1.89 per hour (in 1956 dollars), an average American in the mid-1950s had to toil 116 hours to buy this refrigerator-freezer. Today, Home Depot sells a similar refrigerator-freezer for $298 (in 2013 dollars). Earning $20.14 per hour, an average American worker today works 15 hours to buy that appliance.2
That’s 116 hours versus merely 15, an 87 percent decline in the real cost of living by work. The widespread notion that times were better for ordinary Americans in the 1950s than they are now could use some fact checking.
Yes, the rich got richer, 1800 to the present—they too spend less to buy a much better color television now than they did in 1975, and get a much better commute in their chauffeur-driven vehicle now than in 1800. But so did the poor get richer, much richer, at first in the late nineteenth century in such pioneering countries as Britain and France, and then in a wider world. Even in 1776 Adam Smith could claim that because of the elaborate division of labor and the trade that accompanied it “the very meanest person in a civilized country” had the advantage of “the easy and simple manner in which he is commonly accommodated”:
Compared, indeed, with the more extravagant luxury of the great, his accommodation must no doubt appear extremely simple and easy; and yet it may be true, perhaps, that the accommodation of an European prince does not always so much exceed that of an industrious and frugal peasant, as the accommodation of the latter exceeds that of many an African king, the absolute master of the lives and liberties of ten thousand naked savages.3
Smith knew next to nothing about African kings, and one may doubt the literal truth of the comparison in 1776 (it had become a common figure of argument after the Age of Exploration, used for example by John Locke). But the Great Enrichment made it true.
The subsequent enrichment of the very meanest person in Scotland was, I have frequently noted, 9,900 percent. It can only be explained by vastly greater productivity per worker, which is to say by a startling speeding up since 1800 of trade-tested betterment. (The figure of 9,900 percent derives from the fifth-grade arithmetic I mentioned earlier. A factor of 100, if expressed as a percentage change over the base, is calculated as 100 minus the base of 1 [in the year 1800], which is by the subtraction 99, divided by the same base, 1, but then multiplied by 100 to get it into per hundred terms, that is, [(100 – 1)/1] × 100 percent, or 9,900 percent. The exactitude of the 9,900 percent is silly: we do not know such a figure even to two significant digits. Its non-silly import, though, and the reason I’ll keep using it, is that we have in fact benefited mightily from a very large percentage increase of productivity over the base in 1800.)
One thousand percent, 5,000 percent, 10,000 percent—take your pick. It is anyway orders of magnitude of uplift that cannot be explained by little uplifts from improved static efficiency or little uplifts by reductions of worker exploitation. The Great Enrichment did not happen because of union demands or government regulation or routine exploitations or routine investments. Such routines, about which so much politics of left and right turns (“Raise the minimum wage!” “Protect the investing class!”), can’t deliver 9,900 percent, whether one-by-one or in combination. If they could, the Great Enrichment would have happened earlier and elsewhere, since thrift and exploitation and investment, and for that matter occasional outbreaks of democratic demands for higher wages, are routine in human history.
The uplifting since 1800, in other words, was distinctly positive-sum, a free lunch, the sort of event the management theorist Mary Parker Follett dubbed in 1925 a win-win. She elsewhere said that the best democracy is not the rule of the majority but a search for agreement.4 The easiest way of finding agreement is to find a win-win deal, which economists call “Pareto improving.” The deals were possible because of radically new ideas, such as the betterments of steam and steel or of fertilizer and antibiotics or of voting and education—betterments, and voting and education, not encouraged in an old world long in the grip of an anxious and arrogant elite able to enforce its self-protectionisms. The economic and political betterments, and the intellectual children and grandchildren and great-grandchildren of the betterments, were imagined, produced, financed, tested, and sold by the middle class.
It didn’t happen, I repeat, because of elite science.5 As Ó Gráda put it recently, “The foremost inventor-entrepreneurs of the Industrial Revolution were of rather modest, artisanal origins.”6 Elite science made us richer only quite late in economic history, long after 1900. And anyway the eventual successes of useful science itself came from a Scottish equality and a resulting Great Enrichment that gave British design engineers and German organic chemists from modest backgrounds a shot at fame and riches. Without liberty and dignity for ordinary people the anxious elite would have suppressed commercial improvements, such as Wedgwood’s pottery (Wedgwood despised patents, and only had one) or Edison’s movie camera (his patent on movies, among the fully 1,093 he acquired, was partly overturned only in 1902, and for good in 1917), which in the event were brought within the reach of factory girls in return for steadily decreasing amounts of effort.
The Great Enrichment after 1800 came from human creativity unleashed by liberty and dignity for ordinary people, through trade-tested betterment resting on a new equality in the eyes of others, and spread by the overturning of monopoly in competition. On the supply side, the creativity of ordinary people now able to become extraordinary was released. On the demand side, the tastes of ordinary people were indulged, in cheap watches and Model T Fords and no-press shirts. The philosopher Karl Popper called the trade-oriented novelty of the modern world the “open society,” and the politico-economic theorists Douglass North, John Wallis, and Barry Weingast call it the “open-access” society.7 The ORDO liberals of pre- and postwar Germany called it “a competitive order” or a “social market economy” (which, however, they believed required a strong government to keep it from descending into monopolies, as indeed it had in Germany).8 Whatever it is called, such a society, thronging with free conversations easily joined, made for a creativity that disturbed the rules of the game—rules designed, unsurprisingly, by the elite in favor of the old rich. The open economy created numerous nouveaux riches, such as James Watt and Robert Fulton. Both eventually failed to protect their monopolies. Fernand Braudel argued to the contrary that capitalism was inherently and permanently monopolistic. But les nouveaux hommes were themselves competed against by still newer rich, to the benefit, in the third act, of us all, à la Schumpeter and Nordhaus. A patent or copyright monopoly, to be sure, must be broken for the poor to benefit. But aside from overlawyered definitions of so-called intellectual property, for the most part it has been.9
The mechanism that raised up the poor is not a trickle down of expenditures from rich people. One hears such an argument from the right—even, alas, from Adam Smith on a rare bad day, in one of merely two uses in his published writings of the phrase “invisible hand.”10 One hears too a Keynesian form of trickle up from the left, as from the well-meaning Robert Reich in the Nation magazine: “If consumers don’t have adequate purchasing power, businesses have no incentive to expand or hire additional workers [note Reich’s desideratum: jobs]. Because the rich spend a smaller proportion of their incomes than the middle class and the poor, it stands to reason that as a larger and larger share of the nation’s total income goes to the top, consumer demand is dampened.”11
Reich’s reasoning supposes that the point of an economy is jobs, jobs, jobs, and that spending assures jobs. The writer Pascal-Emmanuel Gobry calls such a view “productionist,” as against “creativist,” and admits (as I do) that in the very short run it is true.12 The economy in the short run is indeed a treadmill of production and consumption that can stop running if whacked with a sledgehammer, as for example the Greek economy was in 2015 when the banks were closed. In a year of mass unemployment caused by great whackings—1933 in the United States and Germany, for example—the Keynesian trickle up from expenditure is correct. By all means, dig holes and fill them up and then dig them again, and pay the diggers/fillers with newly printed currency. (On the other hand, estimates of the “multiplier” on government expenditure even in 1933 have come in at below 1.0.) But in a more typical year of mismatched jobs and skills, the Keynesian argument is incorrect. Nor is it correct from peak to peak of the business cycle, for which only a creativist view makes economic sense. In the long run we get better off only by betterment, not by spending.13 If spending worked, we could enrich ourselves endlessly by printing money and handing it out in steadily increasing sums to those high-spending poor—an unlimited miracle achieved merely by printing little portraits of George Washington. In nonmiraculous economies, during the long run and even in most of the short run, spending on an auto or TV has an opportunity cost of spending on food or education. There is no free lunch springing from a trickle down (as the Republicans say), or a trickle up (as the Democrats say), from mere spending. We get better by getting smarter, only, not by miraculous trickles up or down.
The Schumpeterian mechanism is the long-run one of open competition of betterments among the temporarily rich in Riverside orange groves and Manchester cotton mills and Chicago apartment developments and Swedish furniture stores that radically cheapens food and clothing and housing and furniture. It has nothing to do with trickling. Such openness to competition after 1800, and the cooperation that betterments require, made the economies that adopted it startlingly more productive, creating ten times, thirty times, a hundred times more goods and services, and to the poorest among us.
§
Even in the already-advanced countries in recent decades there has been no complete stagnation of real incomes for ordinary people. You will have heard that “wages are flat” or that “the middle class is shrinking.” But you also know that you should not believe everything you read in the papers.14 This is not to say that no one in rich countries such as the United States is unskilled, addicted, badly parented, discriminated against, or simply horribly unlucky. George Packer’s recent The Unwinding: An Inner History of the New America (2013) and Barbara Ehrenreich’s earlier Nickel and Dimed: On (Not) Getting By in America (2001) carry on a long and distinguished tradition of telling the bourgeoisie about the poor, going back to James Agee and Walker Evans’s Let Us Now Praise Famous Men (1944), George Orwell’s The Road to Wigan Pier (1937), Jack London’s The People of the Abyss (1903), Jacob Riis’s How the Other Half Lives: Studies among the Tenements of New York (1890), and, the fount of such writings, Friedrich Engels’s The Condition of the Working Class in England (1845).
They are not making it up. Anyone who reads such books is wrenched out of a comfortable ignorance about the other half. The wrenching comes also in fictional form, from John Steinbeck’s The Grapes of Wrath (1939) or James T. Farrell’s Studs Lonigan (1932–1935) or Richard Wright’s Native Son (1940) or, in Europe, among the many observers of the Two Nations since the beginning of such a sensibility in the 1840s, Émile Zola’s Germinal (1885), which made many of us into socialists. The wrenching is salutary. It is said that Winston Churchill, scion of the aristocracy, believed that most English poor people lived in rose-covered cottages. He couldn’t imagine back-to-backs in Salford, with the communal outhouse at the end of the row. Wake up, Winston.
But waking up does not imply despairing, or proposing the overthrow of the System, if the System is in fact over the long run enriching the poor, or at any rate enriching the poor better than those other systems that have been tried from time to time. Righteous, if inexpensive, indignation inspired by survivor’s guilt about alleged “victims” of something called “capitalism,” and envious anger at the silly consumption by the rich, does not invariably yield betterment for the poor. Remarks such as “there are still poor people” or “some people have more power than others,” though claiming the ethical high-ground for the speaker, are neither deep nor clever. Repeating them, or nodding wisely at their repetition, or buying Piketty’s Capital in the Twenty-First Century to display on your coffee table, does not make you a good person. You are a good person if you actually help the poor. Open a business. Invest in a grocery store in an urban food desert. Invent a new battery. Vote for better schools. Adopt a Pakistani orphan. Volunteer to feed people at Grace Church on Saturday mornings. The offering of counterproductive policies, or the making of indignant declarations to your husband after finishing an article in the Sunday New York Times Magazine, does not help the poor.
The economy and society of the United States are not in fact unwinding, and people are in fact getting by better than they did before. The children of the sharecropping families in Hale County, Alabama whom Agee and Evans objectified, to the lasting resentment of the older members of the families, are doing pretty well, earning money, many of their children going to college.15 That even over the long run there remain some poor people does not mean that the system is not working for the poor, so long as the condition of the poor is continuing to improve, as it is, contrary to the newspaper stories and the pessimistic books, and so long as the percentage of the desperately poor is heading toward zero, as it is nationally in the United States, and worldwide. That people still sometimes die in hospitals does not mean that medicine is to be replaced by witch doctors, so long as death rates are falling and so long as the death rate would not fall under the care of the witch doctors.
And poverty is indeed falling, even recently, even in already rich countries. If income is correctly measured to include better working conditions, more years of education, better health care, longer retirement years, larger transfers such as Social Security and Medicaid, and above all the rising quality of the larger number of goods, the real income of the poor has risen, if at a slower pace than in the 1950s—which followed the wretched time-outs of the Great Depression and World War II.16 The economist Angus Deaton notes that “once the rebuilding is done [as it was fully in, say, 1970], new growth relies on inventing new ways of doing things and putting them into practice, and this turning over of virgin soil is harder than replowing an old furrow.”17 In 2013 the economists Donald Boudreaux and Mark Perry noted that “according to the Bureau of Economic Analysis, spending by households on many of modern life’s ‘basics’—food at home, automobiles, clothing and footwear, household furnishings and equipment, and housing and utilities—fell from 53 percent of disposable income in 1950 to 44 percent in 1970 to 32 percent today.” It is a point that the economic historian Robert Fogel had made in 1999 for a longer span.18 The economist Steven Horwitz summarizes the facts on labor-hours required to buy a color TV or an automobile, and notes that “these data do not capture . . . the change in quality. . . . The 1973 TV was at most 25 inches, with poor resolution, probably no remote control, weak sound, and generally nothing like its 2013 descendant. . . . Getting 100,000 miles out of a car in the 1970s was cause for celebration. Not getting 100,000 miles out of a car today is cause to think you bought a lemon.”19
Nor in the United States are the poor getting poorer. Horwitz observes that “looking at various data on consumption, from Census Bureau surveys of what the poor have in their homes to the labor time required to purchase a variety of consumer goods, makes clear that poor Americans are living better now than ever before. In fact, poor Americans today live better, by these measures, than did their middle class counterparts in the 1970s.”20 In the summer of 1976 an associate professor of economics at the University of Chicago had no air conditioning in his apartment.21 Nowadays many quite poor Chicagoans have it. The terrible heat wave in Chicago of July 1995 killed over seven hundred people, mainly low-income.22 Yet earlier heat waves in 1936 and 1948, before air conditioning was at all common, had probably killed many more.23 The 2003 heat wave in non–air conditioned France killed 14,800 people, and 70,000 Europe-wide. Imagine what the London heat wave in June 1858 did.
The text above is an excerpt from Bourgeois Equality: How Ideas, Not Capital or Institutions, Enriched the World, the third volume of Deirdre McCloskey’s trilogy on the ethical and historical origins of modern prosperity.
Notes
Schumpeter 1942 (1950), pp. 67–68.
Boudreaux 2013.
Smith 1776, 1.1.11.
Professor Eduard Bonet of Escuela Superior de Administración y Dirección de Empresas, Barcelona, drew my attention to Follett’s point about democracy.
Here I diverge, reluctantly, from Margaret Jacob’s view (for instance in Jacob 2014), which Mokyr follows.
Ó Gráda 2014, p. 8.
I am indebted to Marlies Mueller for reminding me of Popper’s usage.
See the lucid treatment in Wagner 1994. The capitalization and italicization of ORDO refers to the title of a yearbook published from 1948 by the Freiburg (Germany) School of economists recommending Ordnungspolitik, “order policy.”
Bell 2014; and Boldrin and Levine 2008.
Smith 1759 (1790), p. 184.
Reich 2014.
Gobry 2014.
That was the point of my early supply-side essay about British economic growth in the late nineteenth century, McCloskey 1970.
See for example Lawrence 2015.; and for Canada Grubel 2025, making the point that mobility through the quintiles changes the picture dramatically.
Whitford 2005.
Boudreaux and Perry 2013.
Deaton 2013, p. 231.
Fogel 1999, p. 190.
Horwitz 2013, p. 11 of the working paper, now published as Horwitz 2015.
Horwitz 2013, p. 2 of the working paper.
Horwitz’s table 4 reports the percentage of poor households with various appliances: in 1971, 32 percent of such households had air conditioners; in 2005, 86 percent did.
Klinenberg 2003.
Barreca et al. 2013 show the large effect in the United States of air conditioning in reducing excess mortality during heat waves.
Since 1776, there has been a 3,000% explosion in the average real income per person in the world.
Nothing earlier came remotely close.
It was caused not by the usual suspects of investment or exploitation, but by liberty inspiring a flowering of human creativity—in the arts and sciences, and in the economy.
Though Brazilians and many other Latin Americans are uneasily aware that their economies lag some, and sometimes a lot, the Great Enrichment is nonetheless evident everywhere from the Border to Tierra del Fuego, from Santiago in Chile to Recife in Brazil.
The Latin Lag can be overcome. Brazil, like much of Latin America, needs essential liberalism to do it.
Check out my new book, Liberdade: 100 Conversation Starters on Liberalism, Latin America, and Brazil
Your trilogy was brilliant.