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Innovation is the thing

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POSTED: December 16, 2010 10:53 a.m.

This is the miracle of the modern world: In advanced economies, real income per capita is at least 16 times what it was about 200 years ago.
We take this for granted. It is as natural as a grande latte macchiato, or Dish TV. But it’s one of the most astonishing and consequential facts ever.
“In 1800 the average human consumed and expected her children and grandchildren and great-grandchildren to go on consuming a mere $3 a day,” Deirdre N. McCloskey writes in her dazzling new book, “Bourgeois Dignity.” “The only people much better off than $3 or so up to 1,800 were lords or bishops or some few of the merchants. It had been this way for all of history. With her $3 a day, the average denizen of the Earth got a few pounds of potatoes, a little milk, an occasional scrap of meat.”
In short, almost all the world was Bangladesh. Then, everything changed.
What happened? McCloskey’s answer is that it wasn’t foreign trade (too small), it wasn’t imperialism (it didn’t enrich the imperial countries), it wasn’t the establishment of property rights (they had existed before) and it wasn’t the Protestant work ethic (hard work wasn’t new).
It was simply a new attitude toward wealth and its creation. McCloskey calls it the “Bourgeois Revaluation.” It afforded the shopkeeper the dignity that he had always been denied because he wasn’t a manorial lord, a cavalry officer or a priest. Europe became, in the words of the economist Joseph Schumpeter, a “business-respecting civilization.”
The combination of liberty and dignity for the bourgeoisie sparked the modern revolution that we wrongly, in McCloskey’s view, attribute to “capitalism.” The word is inapt, she argues, because the mere accumulation of capital is beside the point. The kings of Spain collected lots of gold from the New World, and no economic miracle ensued. It’s innovation that’s the thing, entrepreneurial “alertness,” the ceaseless drive for the new, the better, the cheaper.
This offers cold comfort at a time of 9.6 percent unemployment. It suggests, though, that the basic recipe for economic success is simple, if not necessarily easy — celebrate, reward and create the conditions for innovation.
Unfortunately, we have a president of the United States who has been a member his entire adult life of what McCloskey — borrowing from Samuel Taylor Coleridge — calls “the clerisy.” These are the intellectualoids who never lost their instinctual scorn for commercial activity.
Unfortunately, special interests will always pursue anti-innovation trade and regulatory policies to protect their fiefdoms.
Unfortunately, it’s easier to prop up what’s old rather than foster what’s new. A few years ago, the Federal Reserve handed out billions upon billions of dollars to practically every large, established firm in America.
The flip side to bourgeois dignity is governmental humility. Near the end of her tour de force, McCloskey quotes the great economist Frederic Bastiat: “Nothing is more senseless than to base so many expectations on the state, that is, to assume the existence of collective wisdom and foresight after taking for granted the existence of individual imbecility and improvidence.”

Lowry is editor of the National Review.

 

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