July 28, 2018 Dear Reader

Chapter 26:

It Was Unexpected Technology,

So We Need New Economic Models

Virtues caused commerce. Endogenization of ethical change. A new humanistic economics. The outcome was the greatest change in the human condition since the invention of agriculture, the freeing of billions of people from poverty.

Another way to see the problem with conventional economic thinking about the industrial revolution is to diagram the three strands in economic thinking since the mercantilists:

Members Schools Springs Virtues Outcomes

of gain

Mandeville, Demand-side Opportunities Prudence Modest rise of income

Malthus, mercantilists for employment and Justice from trough to

Keynes, peak of a single

Galbraith business cycle
Smith, Supply-side Saving; Prudence Modest rise of income

Ricardo, classicals reallocation and Temperance peak to peak

Solow in improved efficiency
Franklin, Creativity Liberty Hope Gigantic explosion of

Schumpeter, beyond and Courage income

Hayek. Kirzner prudence 1780-present

The first two have failed to explain what we want to explain. They cannot account even for the doubling of British incomes per head 1780-1860 in the teeth of rising population and a long French War. And especially they cannot account for the factor of 15 or 19 or whatever stunning figure applies to the largest social change since the hunter-gatherers.

To account for the startling growth of income before 1860 and the still more startling growth after 1860 it would seem that we must let our economic models expand, to that third row of Franklin, Schumpeter, Hayek, Kirzner, and beyond. That economists have not explained modern economic growth is indeed something of a scientific scandal, although economists are not the only ones to blame. A hundred times more funds, perhaps a thousand times more, have been spent on mapping distant galaxies or mapping the genes of E. coli than on explaining the economic event that made the telescopes and the microscopes for the mappings possible.

Some economists, true, have recently turned back to questions of economic growth, questions neglected for some decades by most non historical economists. They have tried on the blackboard to modify the economic models to fit what is by now two centuries of growth, building especially on the speculations in the 1920s by the American economist Allyn Young about economies of scale. But the “new growth theorists” have not read more than a page or two of economic history or the history of economic thought, and so repeat the mistakes of earlier generations of economists, though exhibiting admirable skill at making up toy models.

The temptation in theorizing is machinery fetishism. Since the classical economists (excepting the master, Adam Smith, who had a better understanding)—for example Marx—the economists have tried to make the making of machinery into the machine for development. You see that your neighbor has a bigger car and a bigger house than you do, and the factory he owns has bigger machines than your own modest workshop. It is natural to conclude that if you could only get your hands on his bigger machines you, too, would be a big figure the neighborhood.

William Easterly notes that for half a century after the Second World War the theorists and practitioners from the West, trying to help the economies of the East and South, indulged in machinery fetishism. The idea was that machines yield income. Obviously the average British railway has more capital, taken to be equal to machinery, than the average Indian railway. (By the way, this is not as obvious as it looks, since the British engineers who laid out the Indian railways built them to British standards in matters of tunneling vs. hill-climbing, by contrast with the flimsy, capital-saving traditions of American railways. And when India was part of a British capital market this was not obviously foolish.) In any case, to get a British standard of living, said the Western economists after Independence, the Indians needed British amount of machines, right?

Wrong. Easterly calls machinery fetishism “capital fundamentalism.”⁴⁶³ Believing it, the governments of poor countries and their rich allies embarked on a fifty-year project of building dams, importing machinery, and in general trying to raise the “capital/output ratio”: more capital, they reasoned, more output, you see, since after all it’s a ratio, and if you raise capital surely the output will have to follow, because it’s a ratio. You can detect a certain madness in the project, though we development economists trained in the 1960s thought it a very handsome theory. It was like thinking that because you begin with a certain weight/height ratio you can raise your height by raising your weight. Most of the projects failed. “Both Nigeria and Hong Kong,” Easterly reports, “increased their physical capital stock per worker by over 250 percent over the 1960 to 1985 time frame. The results of this massive investment were different: Nigeria’s output per worker rose by 12 percent from 1960 to 1985, while Hong Kong’s rose by 328 percent.”⁴⁶⁴ The Akosombo Dam in Ghana created after 1964 the world’s largest artificial lake, Lake Volta. Instead of the expected boom in aluminum production and electricity and irrigation for farming it produced illnesses like river blindness and scant electricity and no irrigation water at all.⁴⁶⁵

Turn then to less material causes, looking for some way of supplementing a materialist but unsuccessful theory in economics. Pure thought, perhaps Science, in sense 5b in the Oxford English Dictionary, now ‘the dominant sense in ordinary use’, lab coated and concerned with those distant galaxies and E. coli. Science by this modern definition, however, is another Not (Musson and Robinson 1969; Musson 1972). A powerful myth of we moderns is that Science Did It, making us rich. Scientists believe it themselves, and have managed to convince the public to fund those inquiries I mentioned into distant galaxies and the genetics of E. coli.

The finding of Not is again relatively recent. Simon Kuznets (1966) and Walt Rostow (1960) both believed that science had much to do with modern economic growth, but it is increasingly plain that they were mistaken. The Victorians when in an optimistic mood tended to combine technology and science together in a vision of Progress. They were mistaken as well. Workshop ingenuity, not academic science, made better machines. Chemistry made no contribution to the making of steel until the twentieth century, the reactions of a blast furnace being too complex in their details for earlier chemistry to understand fully. Sciences mechanical and otherwise had little or nothing to do with inventions in textiles, which depended instead on a craft tradition of machine makers. The same could be said for the other mechanical inventions of the nineteenth century. Steam might be thought to have had a theoretical base, for it was necessary to know that an atmosphere existed before an atmospheric engine would have seemed plausible. But it is notorious among historians of physics that the steam engine impacted thermodynamics, not until very much later the other way around (von Tunzelmann 1978). Few parts of the economy used much in the way of applied science in other than an ornamental fashion until well into the twentieth century: electricity and chemistry were mainly parlor tricks until the late 19^th century and did not really come into their own until the 20^th. In short, most of the first couple of centuries of industrial change was accomplished with no help from academic science.

Literacy, too, is a Not, though more of a Not But than is science. Literacy was not essential for modern industry, as is apparent in its fall during periods of intense industrialization (Mitch 1992; West 1978). But a mute, inglorious Watt would lie undiscovered in an illiterate nation, and doubtless did in Russia and Spain. Britain, especially north Britain, with northern Europe (and the United States), was more literate than other countries in the eighteenth century . Japan, too, with a more difficult form of writing, had at the time similar attainments in literacy. It appeared ready in the 18^th century for modern economic growth, I have noted, which was only with difficulty killed off by its government.

Easterly reviews the grim news, if you hope that investment in human capital will rescue capital fundamentalism. Bad schooling (such as in Pakistan, where education is handed over to imams or to the relatives of politicians) of course has nugatory effects. But even good schooling does not do much: only 6 percent of any excess of a country’s growth rate over the average in the past few decades can be explained by educational attainment.⁴⁶⁶

So we have more Nots in the world of the mind. “Cultural factors” more or less mental are promising and much studied. We have learned from Richard Roehl and Patrick O’Brien a good deal about the French/British comparison, learning for example that French agriculture was not backward, despite an old British presumption that Frenchmen simply cannot get anything right. On the technological front it is notable that Frenchmen invented in the eighteenth century what Englishmen applied. Something was different in England that encouraged more application. Yet looked at from a distance it seems wrong to separate France from England. It was north west Europe as a whole that developed fast, as Sidney Pollard pointed out. Southern France lagged, but so, after all, did southern England: Macaulay promised in 1830 that backward Sussex could some day hope to equal the West Riding. Belgian industrialization was almost as early and vigorous as Yorkshire’s and Lancashire’s.

* * * *

Suppose then we look at the problem from a chronological distance. “Give me a lever and a place to stand on,” said boasting Archimedes, “and I shall move the world.” What is odd about his world of the classical Mediterranean is that for all its genius it did not apply the lever, or anything much else, to practical uses. Applied technology, argue Jones (1981) and Mokyr (1990a), was a northern European accomplishment. The “Dark Ages” contributed more to our physical well being than did the glittering ages of Pericles or Augustus. From classical times we got toy steam engines and erroneous principles of motion. From the ninth and tenth centuries alone we got the horse collar, the stirrup, and the mould board plough.

Then from an explosion of ingenuity before 1500 we got in addition the blast furnace, cake of soap, cam, canal lock, carrack ship, cast iron pot, chimney, coal fuelled fire, cog boat, compass, crank, cross staff, eyeglass, flywheel, glass window, grindstone, hops in beer, marine chart, nailed horseshoe, overshoot water wheel, printing press, ribbed ship, shingle, ski, spinning wheel, suction pump, spring watch, treadle loom, water driven bellows, weight driven clock, whisky, wheelbarrow, whippletree (see “The Wonderful One Hoss Shay”), and the windmill. Before 1750 the pace merely slackened, without stopping: note that the pace of invention decelerated on the eve of the sharpest industrial change. And then came “The Years of Miracles” as Mokyr (1990a) calls them, from 1750 to 1900.

Why? Can one give an economic account that does not run afoul of the Nots and the Harbergers?

The economist Israel Kirzner has argued that profit is a reward for what he calls ‘alertness’ (1989). Sheer—or as we say “dumb”— luck is one extreme. Hard work is the other. Alertness falls in between, being neither luck nor routine work. Pure profit, says Kirzner, earned by pure entrepreneurs, is justified by alertness metaphors, improving both the story and the metaphor. The story of ingenuity can be told in Kirzner’s metaphors. As many economists have emphasized, relying once again on their conviction that there is No Free Lunch, the systematic search for inventions can be expected in the end to earn only as much as its cost. The routine inventor is an honest workman, but is worthy therefore only of his hire, not worthy of supernormal profit. The cost of routine improvements in the steam engine eats up the profit. It had better, or else the improvement is not routine. Routine invention is not the free lunch experienced since the eighteenth century. Rationalization of invention has limits, as Joseph Schumpeter and Max Weber did not grasp. The great research laboratories can produce inventions, but in equilibrium they must spend in proportion to the value invented—or else more research laboratories will be opened until, in the way of routine investment (see Smith on Holland above), the cost rises to exhaust the value.

If hard work in invention was not the cause of the factor of fifteen, is the explanation to be found at the other extreme of Kirzner’s spectrum, sheer, dumb luck? No, it would seem not. After all, industrialization happened in more than one place (in Belgium and New England as well as in Britain, for instance; in cotton as well as in pottery) but spread selectively (to northern but not soon southern Italy; to Japan and then very late Korea, but only much later to China—though wait a decade or two, if China stays on its new bourgeois path). Modern economic growth seems to select countries and sectors by some characteristic.

Well, then, is it Kirzner’s metaphor of “alertness” that explains the European peculiarity? Perhaps it is. Mokyr makes a distinction between microinventions (such as the telephone and the light bulb), which responded to the routine forces of research and development (both the telephone and the light bulb were sought methodically by competing inventors), and macroinventions (such as the printing press and the gravity driven clock), which did not. He stresses that both play a part in the story. Yet he is more intrigued by the macro inventions, which seem less methodical and, one might say, less economic, less subject to the grim necessities of paying for lunch. Guttenberg just did it, says Mokyr, and created a galaxy. Macroinventions such as these come to the alert, not to the lucky or the hard working, and macroinventions seem to lie at the heart of the modern miracle. In short, as Mokyr says, from the technological point of view the quickening of industrial change was “a cluster of macroinventions” : the steam engine, the spinning jenny, and so to a factor of fifteen.

The engineers and physical scientists were commonly more optimistic about this-worldly progress than were the economists. In the words of the chemist and preacher Joseph Priestley (DATES), "Nature, including both its materials and its laws, will be more at our command; men will make their situation in this world abundantly more easy and comfortable, they will prolong their existence in it and grow daily more happy. . .Thus whatever the beginning of the world the end will be glorious and paradisiacal beyond that our imaginations can now conceive."⁴⁶⁷

But there is something missing in the metaphor and the story, needed to complete the theory. From an economic point of view, alertness by itself is highly academic, in both the good and the bad sense. It is both intellectual and ineffectual, the occupation of the spectator, as Addison put it, who is “very well versed in the theory of a husband or a father, and can discern the errors of the economy, business, and diversion of others better than those engaged in them.”

If his alert observation of error is to be effectual the spectator has to persuade a banker. Even if he is himself the banker he has to persuade himself, in the councils of his mind. What is missing, then, from the theory of technological change is power. (Those outside the mainstream of bourgeois economic thinking will here find something to agree with.) Between the conception and the creation, between the invention and the innovation, falls the shadow. Power runs between the two. An idea without financing is just an idea. In order for an invention to become an innovation the inventor must persuade someone with the financial means or some other ability to put it into effect.

What matters, to put the point another way, are the conditions of persuasion. Europe’s fragmented polity, perhaps, made for pluralistic audiences, by contrast with intelligent but stagnant China. The story we all know is of Columbus pitching his expedition to first this monarch and then that one until he got a yes. An inventor persecuted by the Inquisition in Saville could move to Holland. The skilled Jews and Moslems of Spain, expelled in 1492, invigorated the economic life of hundreds of towns on the Mediterranean, such as far Salonika in northern Greece.

Early in his book Mokyr asserts that there is no necessary connection between capitalism and technology: “Technological progress predated capitalism and credit by many centuries, and may well outlive capitalism by at least as long” (1990a). In the era of the factor of fifteen one doubts it, and even before one might wonder, so close bound are gain, persuasion, and ingenuity. Capitalism was not, contrary to Marx’s story—which still dominates the modern mind—a modern invention. As the medieval historian Herlihy put it long ago, “research has all but wiped from the ledgers the supposed gulf, once thought fundamental, between a medieval manorial economy and the capitalism of the modern period.” And any idea requires capitalism and credit in order to become an innovation. The Yorkshireman who invested in a windmill c. 1185 was putting his money where his mouth was, or else putting someone else’s money. In either case he had to persuade.

What makes alertness work, and gets it power, is persuasion. At the root of technological progress, one might argue, is a rhetorical environment that makes it possible for inventors to be heard. If such a hypothesis were true—its truth is untried, and may at last end up itself on the pile of weary Nots—it would also be pleasing, for it would suggest that free speech and an openness to persuasion leads to riches. Europeans tortured, beheaded, and burnt people they disagreed with in alarming numbers, to be sure, but it may be argued that their fragmented polity let new thinkers escape more often than in China or the Islamic world at about the same time. And when the Europeans, or at any rate some of them, stopped torturing, beheading, and burning each other, the economy grew. No wonder that the nations where speech was free by contemporary standards were the first to grow rich: Holland, Scotland, England, Belgium, and the United States.

The conclusion, then, is that Harberger Triangles—which is to say the gains from efficiency at the margin, as economists put it—cannot explain the factor of fifteen. This is lamentable, because economics is much more confident about static arguments than about dynamic arguments. And yet the conclusion is not that static arguments have no role. On the contrary, they give us the means to measure what needs to be explained on other grounds. A static model of costs and revenues, for example, allows one to measure productivity change with the abundant material on prices. One can find out with static models how widespread was the ingenuity set to work in the eighteenth and nineteenth centuries. A static model of international trade allows one to see the wider context for the British economy, to see that political boundaries do not cut economies at their joints.

* * * *

But going beyond the usual models, static or dynamic, appears to be necessary. Watch two economists in the 20^th century groping towards a new model.

Someone who invested in doctrines when world capitalism seemed to be working just fine—on the eve of the World War I, say—had a good chance of keeping for life an optimistic opinion of markets and entrepreneurs. So it was with one of the best-known economists of the last century, Joseph Alois Schumpeter (1883–1950) of Vienna, Bonn, and Harvard. But someone who invested in his human capital when things were dismal and chaotic—early in the Great Depression, say—was likely to take a less cheerful view. So it was with another of the century’s best-known economists, Schumpeter’s younger colleague John Kenneth Galbraith (1908–2006) of Ontario, Berkeley, Fortune magazine, and then, at the very end of Schumpeter's two decades there, Harvard.

Both tried political power early, Schumpeter as a pro-market minister of finance in Austria's brief socialist government after World War I and Galbraith as a New Dealish deputy director of the U.S. Office of Price Administration during World War II. Experience in government had opposite effects on the two. Schumpeter became permanently suspicious of state power. Galbraith became permanently delighted with it.

These two men of clever words, both master rhetoricians, laid out the case for and against unregulated markets. Half a century on you can review their efforts in a new biography of Schumpeter and a new reissue of Galbraith's most famous book. Schumpeter’s pro-capitalist and conservative case looks better. Galbraith’s anti-market and regulatory case looks worse.

As Thomas McCraw, a professor of business history at Harvard Business School, explains in Prophet of Innovation, his charming new biography of the man in full, Joseph Schumpeter from first to last defended the entrepreneur with his own talk, talk, talk. A free economy, Schumpeter claimed from his earliest important book, The Theory of Economic Development (1911), runs on innovation, not routine. "Schumpeter turned Karl Marx on his head,” McCraw writes. “Hateful gangs of parasitic capitalists become, in Schumpeter's hands, innovative and beneficent entrepreneurs.”

Schumpeter’s best-known book is his hastily written but glittering Capitalism, Socialism, and Democracy, which received scant notice when it first appeared in 1942. It contained his usual praise for the businessperson, but it also predicted that capitalism would not survive, and that democracy might not either. The book "admits, and rather cheerfully, that the patient is dying,” the economist Paul Samuelson wrote in a 1970 Newsweek column, “but of a psychosomatic ailment. No cancer, but neurosis is [the capitalist's] complaint. Filled with self-hate, he has lost his will to live."

Most intellectuals in the 1930s and early ’40s had the same neurosis, and the same pessimism. Schumpeter believed that capitalism was raising up its own grave diggers—not in the proletariat, as Marx had expected, but in the sons and daughters of the bourgeoisie itself. Lenin’s father, after all, was a high-ranking education official, Lenin himself a lawyer (as by the way were both Luther and Calvin). It wasn’t the children of autoworkers who pulled up the paving stones on the Left Bank in 1968. Today the most radical anti-globalists are socialist children of capitalist parents.

Schumpeter’s cultural pessimism about capitalism has proven wrong. The capitalist idea has flourished worldwide. The American economy has continued to show startling entrepreneurial vigor, though both Schumpeter and Galbraith thought that committees would kill it.

By 1967, when Galbraith published The New Industrial State, his most considered book (he revised it three times down to 1985), he was already famous among general readers for The Affluent Society (1958). In that book he pointed out that we Americans have grown affluent in private goods, loaded down with refrigerators and finned automobiles. Splendid. But, Galbraith claimed (in the midst of the largest investment in education in the nation’s history), we have neglected the public goods of education and public parks and decent provision for the poor. In Sweden, he averred, they run things better.

Ten years later The New Industrial State offered additional Sweden boosting. It has now been reissued with an introduction by the author's son James, also a notable economist on the Democratic left. The elder Galbraith argued that the great scale of modern industry has created a “technocracy,” which runs the world with committees. Anyone who has worked in a large corporation or a large university knows the feeling. Galbraith argued that advertising manipulates demand in order to fit with technical necessities. Anyone who has lusted for an iPhone knows that feeling too. A new model of your father’s Oldsmobile was so very expensive to plan and took so very long to bring to market—ask Airbus today about all this—that the demand had to be guaranteed with elaborate provision years in advance for advertising and distribution.

So let us adopt democratic socialism, said Galbraith. Let us concede that the new industrial state is one of massive corporations facing massive unions, under the benevolent and skillful regulation of massive governments. “The small competitive firm cannot afford the outlays that [modern, big-time] innovation demands,” he wrote. If modernity needs big corporate bureaucracies to do such big stuff, surely we need big governments to coordinate everything. The so-called free price system won’t do. “If the market is uncontrolled,” Galbraith wrote, “it will not know” when the new car will roll off the line or when a new drug will pass FDA approval.

McCraw's book on Schumpeter has an important anti-Galbraithian economic theme. McGraw argues that Schumpeter's search for "exact economics"—the ruling passion of modern economics, though not a passion that Galbraith indulged—was inconsistent with Schumpeter’s profound discovery about the marketplace, namely, that it depends on invention, innovation, and entrepreneurship, all things counter, original, spare, strange. In Schumpeter’s famous phrase from Capitalism, Socialism, and Democracy, borrowed from the German economist and sociologist Werner Sombart, capitalism depends on "perennial gales of creative destruction."

"I am not in the habit of crowning our bourgeoisie with laurel wreaths," wrote Schumpeter in his 1918 essay "The Crisis of the Tax State.” Notice the sneeringly aristocratic imagery, conventional by then in European rhetoric and prominent in all of Galbraith’s writings. As Schumpeter remarked a quarter of a century later, "The public mind has by now so thoroughly grown out of humor with [capitalism and the bourgeois life] as to make condemnation of capitalism and all its works almost a requirement of the etiquette of discussion."

But Schumpeter was bowing in 1918 to anti-bourgeois etiquette in order to set up the opposite point, that in fact the bourgeoisie "can do exactly what is needed now" and should be given its head. The irony, McCraw points out, is characteristic of the man, and of his theory of political economy: capitalism was wholly successful economically but doomed sociologically.

Galbraith, like many other economists of his generation, worried about private monopoly, though embracing public monopolies. Schumpeter never had such worries. Creative destruction, he argued, would take care of the trusts and pools and over-big corporations. In truth the list of companies that Galbraith held in awe as great forces in 1967 looks quaint now. U.S. Steel, AT&T, and General Motors belie his assertion “of great stability in [a great corporation’s] position in the planning system.” Eight years after the first publication of The New Industrial State, Bill Gates founded Microsoft. Let creative destruction rip.

McCraw himself italicizes a very unripping assertion of his own that "the two pillars that support all successful business systems [are] a modern concept of private property and a framework for the rule of law.” That’s nothing like Schumpeter’s idea. Laws are necessary, of course, but so are road mending and brick making. Private property and a framework for the rule of law have existed in written form since ancient Mesopotamia, and in every substantial civilization from third-century B.C. China to 12th-century A.D. Timbuktu. Roman law, with its detailed concept of private property, was worshipped in Europe for two millennia. Yet those civilizations, Schumpeter emphasized, never reached the standard of economic production and progress the modern West has. Not even close.

What was missing was the thing Schumpeter emphasized and Galbraith attacked, a thing unique about Europe since the Netherlands in 1600 and England in 1715: a business-dominated civilization. "Capitalism does not merely mean that the housewife may influence production by her choice between peas and beans," Schumpeter wrote in his swan song, a 1950 essay grimly entitled "The March Into Socialism.” Capitalism also "means a scheme of values, an attitude toward life, a civilization—the civilization of inequality and of the family fortune.” The last touch, incidentally, is pure Schumpeter: "The civilization of inequality" makes the socialists' case by adopting their words, yet Schumpeter politely disagrees on how we should judge the outcome.

The American "scheme of values" in the 19th century, Schumpeter said, "drew nearly all the brains into business"—witness, say, Mark Twain's failed entrepreneurial projects—"and impressed the businessman's attitudes upon the soul of the nation.” Schumpeter remembered wistfully the pre-1914 civilization of Europe itself as following "the beliefs and attitudes of the business class," "essentially rationalist and utilitarian. It was not favorable to cults of national glory, victory, and so on" (though favorable enough, Professor Schumpeter, to start and sustain the Great European Civil War of 1914–1989).

"Capitalism stands its trial before judges who have the death sentence in their pockets,” wrote Schumpeter. “The only success a victorious defense can possibly produce is a change in the indictment.” Thus the major indictment of capitalism by the socialists of the 1850s' was for immiserizing the working people. When this proved scientifically wrong, the socialists of the 1890s indicted it for imperialism. When that too proved wrong, at any rate by the lights of the best economic scientists who troubled to look into the matter (among them Joseph Schumpeter), the socialists of the 1950s indicted it for alienation. When this accusation seemed less fresh, the socialists of the 1990s indicted it for environmental decay. Schumpeter wrote that "such refutation," rationally proving the latest indictment wrong, "may tear the rational garb of attack [on capitalism and all its work] but can never reach the extra-rational driving power that always lurks behind it."

Schumpeter stressed the robustness of capitalism in the economy, the vigor with which new entrants dissolve the monopoly profits of the first mover, and the enormous dividend it leaves for the poor. Robust, yes, but in a certain important respect still fragile: "The emotional attachment to the social order," wrote this conservative in an almost Burkean way, was "the very thing capitalism is constitutionally unable to produce.” No one loves a Rockefeller. Everyone loves a Virgin Queen.

But there’s still something missing. What both Schumpeter and Galbraith got right, and most modern economists have gotten wrong, is what the sociologists call capitalism’s “embeddedness” in a society. The economy is nothing without the words supporting it, whether conventional wisdom or creative entrepreneurial projects. Schumpeter was mistaken about the future of self-doubt among the bourgeoisie. The bourgeoisie claimed back its self-confidence after Reagan and Thatcher, and more to the point after Hayek and Friedman—though there’s still work to be done in praising bourgeois virtues. Galbraith was mistaken in expecting the reduction of entrepreneurship to committees and the permanence of companies like General Motors. Entrepreneurship, even within a great organization, still matters. And as for the arrogant corporations, “nor is favor to men of skill; but time and chance happeneth to them all.”

What’s finally missing in both Schumpeter and Galbraith’s grim prognoses is a theory of language. Human beings swim in words. We’re just realizing this, after a long, long enchantment with Marxist or Freudian or behaviorist claims that secret or not-so-secret material interests rule everything, that the makers of the U.S. Constitution were driven by their property values, or that slavery was abolished to strengthen manufacturing. One quarter of national income is earned from sweet talk, that is, the persuasion that a manager or teacher or salesperson or foreman exercises on the job.

“About the end of the seventeenth century," Schumpeter wrote in his great 1939 tome Business Cycles, the English political world "dropped all systematic hostility to invention. So did public opinion and the scribes.” That’s exactly right. And it’s what is wrong with the materialist conviction since Marx that ideas are froth on deeper currents. Ideas, words, rhetoric, “reason”: the world is governed, another economist said, by little else.

McCraw argues that Schumpeter encouraged what business schools now call "strategy," "an attempt by firms to keep on their feet,” as Schumpeter put it, “on ground that is slipping away under them.” It’s practical business stuff. And of what is the “attempt” constituted? Plans, words, sweet talk. An economics that doesn’t acknowledge talk and its creativity may be in some pointless sense “exact.” But it doesn’t illuminate the world we have, the world admired by Schumpeter and zinged by Galbraith, of entrepreneurs—in the market, the corporation, the government, the laboratory, the street. Capitalism, like democracy, is talk, talk, talk all the way down.


I’m not sure how this fits here. It does, but where.
Chapter 27:

Ideology is Rhetoric

Talk, talk, talk, or something more sinister: “ideology”? We seem to be studying, to employ the usual word, "ideology," the change from a supposedly anti-bourgeois ideology in England around 1600 to a supposedly pro-bourgeois ideology around 1776. Presumably "ideology" can be used for a scientific study, because presumably a society always has some ideologies knocking about, and the balance of one or the other can be the subject of an historical inquiry. A good idea, if academic, would seem to be to get the word under control. But it keeps leaping up and growling and changing its spots. There is a reason for this: it is the wrong word.

The very word "ideology" itself is strangely recent. Maybe the recentness is not so strange, come to think if it, considering that in the Christian West a view of society as something other than God's own creation through God's own anointed kings becomes widely disseminated only in the 18^th century. Before that it had been a millennium or longer since people in the West had needed a word to speak about government skeptically from the outside.

"Ideology" was first used roughly in its hostile modern sense by, of all people, Napoleon, who attacked the academics and other airy-fairy—and freedom-favoring—theoreticians opposing his bold schemes as mere "ideologists," by which he meant ivory-tower thinkers. And then some decades later the Marxists gave it its modern sense of "prejudices in aid of power." "Marx was the economist who discovered ideology for us and who understood its nature," wrote the economist Joseph Schumpeter in 1949 (p. 281).

The word idéologie was first current in the 1790s to describe a science of ideas as derived from the senses alone, especially the system of the Abbé de Condillac. Until late in the 19^th century the word was used by non-Marxist people in a wider but related sense to label the study of systems of ideas. In 1881, according to the Oxford English Dictionary, the Proceedings of the Philological Society declared that "valuable evidence could be derived from comparative ideology, a branch of the science of language . . . hitherto much neglected." What the Proceedings seem to mean is that linguistics was at the time focused on its amazing discoveries of the laws of sound change and was not yet concerned with the figures of thought that language conveyed (a language "conveying" a thought is an example of such a figure, known in the Department of Communication as the misleading "conduit metaphor"). To put it in linguistic jargon, the science of language was obsessed with phonology and etymology, and was later to become obsessed with syntax. Busy with such matters, the linguists for a long time left aside such a crude subject as semantics—the study of meaning in language.

The original of the complete Oxford English Dictionary of 1928 does not so much as mention the Marxist and modern meaning of the word, nor does the Supplement five years later. The fact itself traces the ideology of bourgeois Britain from October 1899, when the section of the Dictionary containing "ideology" was first published, to 1933. Today at last the Dictionary, under continuous revision on the computer, gives a fourth and as it were ideological sense 4: "A systematic scheme of ideas, usually relating to politics or society, or to the conduct of a class or group, and regarded as justifying actions, especially [a scheme of ideas] that is held implicitly or adopted as a whole and maintained regardless of the course of events," with the first English instance in 1909.

But in English the Marxist version of the word really got going in the 1930s, with the translation in 1936 by Louis Wirth and Edward Shils of Karl Mannheim's Ideologie und Utopie (1929). The crumbling political health of liberal capitalism during the 1930s didn’t hurt in making the new word fashionable. Analysts of the notion seem to agree that an ideology gets expressed more sharply in an era of political tension. Few times in modern history have been more tense than that low, dishonest decade.

Ideology "gets expressed" because people need words and other figures of thought just when the politics is most in dispute, the better to push politics this way or that. They need for example a system of thought about fasci, Italian "bunches," to justify the ending of Italian liberalism in 1922. Or they need a racial rhetoric, complete with a vocabulary of Jews as "vermin" (Ungeziefer) and non-Jewish Germans as Volk, to justify the ending of German liberalism in 1933. Or, to take a recent example, they need a metaphor of a "war on terror" and a corresponding ideology of neo-conservative imperialism to assault American liberalism.

Ideology moves dialectally. You do not need to be a Hegelian to think so. Obviously, in 4^th century Athens an aristocratic ideology of guardians and philosopher-kings was a reaction to the alleged excesses of a democratic ideology. The same aristocratic ideologue, Plato, invented, too, an intellectual ideology that he and we call "philosophy," in dialectical opposition to the democratic ideologies of the sophists and rhetoricians. And the science of rhetoric itself had risen a century before Plato, again dialectically, out of the fall of tyrants in Sicily.

Equally obviously, the ideologies of Baptism, Calvinism, Puritanism, Quakerism, and the endless other Protestant splittings—rubber tire Amish vs. steel-tire Amish—reacted dialectally to Papist plots, and especially to each other. An ideology of fundamentalism reacts to the ideology, and to the concrete politics on the ground, of Western orientalism, imperialism, feminism, republicanism, liberalism, and especially oil-ism.

Of course the dialectic is not independent of people and circumstances, and so ideologies are not autonomous systems of ideas dropping from the heavens, as claimed for their own ideologies by Hegel or St. Augustine. Without Greek systems of law courts, there would have been no call for a science of rhetoric in 5^th-century Sicily. Without Plato, there would have been no specifically anti-rhetorical "philosophy." Without George Fox, no Society of Friends. Without Russian backwardness, no Russian nihilism. Without Osama bin Laden, no Al Qaida.

When politics is not much in dispute, as in France before 1789—at any rate by comparison with France after 1789—one does not need such a word as ideology. "The function of ideology," wrote the late Clifford Geertz in 1964, "is to make an autonomous politics possible by providing the authoritative concepts that render it meaningful, the suasive images by means of which it can be sensibly grasped" (Geertz 1964 [1973], p. 218).

I would only quarrel with leaving it as Geertz wanted to do at the conscious level. That is, Geertz wanted to leave "unreflective" or "received" tradition aside. I don't think that's wise. The "traditional politics of piety and proverb" (p. 221) is best seen as an ideology, too. Unreflective Weltanschauung is "ideology," since otherwise ideology is something only for the clerisy and the more thoughtful politicians, a system of reflective belief. Geertz would have disagreed, arguing that a political thought becomes an ideology only when it is explicit and not taken-for-granted. Though he did not say why he did, he wanted ideology to be a matter of "strain, taking an intellectualist form, the [explicit, non-tacit, reflective] search for a new symbolic framework in terms of which to formulate . . . political problems" (p. 221).

Mannheim had in 1929 defined two sorts of ideologies, one "particular" and the other "total." The particular ideologies are "more or less conscious disguises of the real nature of a situation, the true recognition of which would not be in accord with [ones] interests. . . . [ranging] from calculated attempts to dupe others to self-deception" (Mannheim 1929 [1936, 1954], p. 49). It "never departs from the psychological level" (p. 51), the traditional politics of piety and proverb. In the 1970s Alderman Thomas Keane, who later went to jail, but not for perpetrating an ideology, defended an employment tax in Chicago from the perfectly rational charge that it would reduce wages in Chicago by asserting that “Chicago will never tax the working man.” The tax was imposed in legal form on the employers, you see.

The total ideologies are "the characteristics and composition of the total structure of the mind of this epoch or of this group" (pp. 49-50). Both particular and total ideologies, however, are viewed by Mannheim as objectionable, compared with a realm of Science free from ideology. That is, ideology is still in Mannheim a cuss word, a sneer by practical people at mere theorists, as it was with Napoleon. I have political ideas. You, by contrast, have mere ideologies.

Mannheim would have complained that to use "ideology" before the great ideological factories of the 19^th century in Europe is anachronistic. He argues that no conception of a "total" ideology, as he calls it, existed before then. True, he also argues that the notion of false consciousness is ancient—for example (p. 62), is the man presenting himself as Hebrew prophet a true or false one? His case for a wholly modern sensibility of "ideology" is that "in the place of the medieval-Christian objective and ontological unity of the world [which would itself seem to be an 'ideology'?], there emerged the subjective unity of the absolute subject of the Enlightenment—'consciousness in itself'" (p. 58), which seems right, but irrelevant. The pulling out of the Godly rug is of course central to the shift of ideology from religion to politics. Yet religion, or the Roman system of patriotism, or the philosophy of Socrates and his students, can be an ideology, words in the aid of power. Mannheim regards the sequence from God to consciousness-in-itself to historical world spirit to ideology as Kant-Hegel-Marx in the realm of ideas, but "discovered not so much by philosophy as by the penetration of political insight into . . . everyday life" (p. 59). He emphasizes the French Revolution as such a penetrating time, which again seems right, and also irrelevant to whether ideology is merely modern. In a somewhat broader sense of the word, none of his arguments seems to refute a hypothesis that earlier people, too, had ideologies.

As Geertz notes, "in Sutton, Harris, Kaysen, and Tobin's in many ways excellent The American Business Creed. . . an assurance that 'one has no more cause to feel dismayed or aggrieved by having his own views described as "ideology" than had Molière's famous character by the discovery that all his life he had been talking prose,' is followed immediately by the listing of the main characteristics of ideology as bias, oversimplification, emotive language, and adaption to public prejudice" (Geertz 1964 [1973], p. nn). Ideology is peculiarly subject to what the rhetoricians call the "circumstantial ad hominem," that is, an attack on the grounds that you have an idea because of your circumstances, and that it is shameful to be so influenced, which shame tends to undermine the very idea you have. It is no accident, comrade, that you express the bourgeois line---after all, you are objectively bourgeois. It's pure Marxian and modern cynicism: ideology is merely rationalized prudence.

The analysis of ideology is therefore a piece with the Shame of Rhetoric, so prominent in Western thought since the 17^th century. Bacon, Hobbes, Descartes, and Spinoza among other hard men of the early scientific revolution declared eloquently against eloquence. Since the 17^th century in Europe to be caught arguing a case has been thought somehow shameful. The realm of Science is supposed to be a rhetoric-free zone. For example, D. D. Raphael (one of the chief editors of the great Glasgow edition of the works of Adam Smith, from whom he could have learned the importance of rhetoric) declared that "ideology. . . is usually taken to mean, a prescriptive doctrine that is not supported by rational argument" (cite).

Geertz points out that embarrassment with ideology resembles embarrassment with religion. He and I would argue that religion and political ideology are similar things, and not to be set aside from the real or the philosophical analysis on that account. The "militant atheist" attacks religion the same way even sophisticated social critics like Raymond Aron and Edward Shils attacked communism, as "mere" ideology (Geertz 1964 [1973], p. 199). The philosopher of religion I mentioned earlier, Alvin Plantinga, has argued that the position of militant atheists is based on a similarly circular argument (Plantinga 2000, pp. xiii, 169). When Ludwig Feuerbach, Marx, Thomas Hardy, Nietzsche, Freud, Richard Dawkins, and other confident analysts of theism declared that belief in God comes from the need for comfort in a world that is actually mere matter or Hap or father-love or evolution, they are assuming their conclusion: that after all belief in God is silly because it of course is not true. This makes it easy to conclude triumphantly, after much scorn, that belief in God is not. . . true. "God," wrote Feuerbach in Das Wesen des Christentums in 1841, "is nothing else than man: he is, so to speak, the outward projection of man's inward nature."

Embarrassment with both religion and ideology, in other words, are part of that larger and modern embarrassment with human argument in all its crazy richness, that is, with "mere" rhetoric. Mannheim explicitly takes Bacon's analysis of the four idols as a "forerunner of the modern concept of ideology" (p. 55), with of course Machiavelli, and Hume's History with its focus on interest and on the "feigning" involved in politics (p. 56). All these, including Mannheim, are anti-rhetorical thinkers. Attributions of (mere) ideology are ways of damning (mere) rhetoric. Purging our thinking of such idols of the tribe or idols of the marketplace, said the anti-rhetorical rhetoricians of the 17^th century, with echoes in moderns like Mannheim, will lead to Reality.

Well, no, it won't.

In attempting to leap to a Scientific realm entirely free of rhetoric---a form of words that does not use the forms of words---Mannheim subjected himself to what Geertz calls the Mannheim Paradox, that you are being ideological if you oppose an ideology. As Mannheim himself put it, "it is no longer possible for one point of view and interpretation to assail all others as ideological without itself being placed in the position of having to meet that challenge. . . . Nothing was to prevent the opponents of Marxism from availing themselves of the weapon and applying it to Marxism itself" (Mannheim, pp. 66, 67). "Strange to relate," said Schumpeter, to mention of the opponents who did avail himself, Marx ”was entirely blind to its dangers so far as he himself was concerned, . . a bourgeois radical who had broken away from bourgeois radicalism." All the Parisian intellectuals of the 1840s, Schumpeter said, viewed society as a struggle of haves against have-nots. Consult Balzac.

Geertz distinguishes two theories of ideology, the interest theory—thus one might say that "an ideology of the bourgeois virtues emerges from the interests of the bourgeoisie"—and the other the strain theory—thus one might on the contrary say that "an ideology of the bourgeois virtues emerge to make people under strain feel good." "In the interest theory, ideological pronouncements are seen against the background of a universal struggle for advantage; in the strain theory, against the background of a chronic effort to correct socio-psychological disequilibrium. In the one, men pursue power; in the other, they flee anxiety" (Geertz 1964 [1973], p. 201).

Interest theory, he says, is all right so far as it goes, but "lacking a developed analysis of motivation, it has been constantly forced to oscillate between a narrow and superficial utilitarianism that sees men as impelled by rational calculation of their consciously recognized personal advantage and a broader, but no less superficial, historicism that speaks with a studied vagueness of men's ideas as somehow 'reflecting,' 'expressing,' 'corresponding to,' 'emerging from,"' or 'conditioned by' their social commitments" [Geertz 1964 [1973], p. 202]. What he is complaining about is the absence of any but a simpleton's theory of language, language "expressing" a base of material interests.

"Ideology is a patterned reaction to the patterned strains of a social role" (Sutton et al., quoted in Geertz 1964 [1973], p. 204). A monarch must be awe-inspiring yet have the common touch, as the fictional Prince Hal said he needed to in order to become Henry V, or as the actual Elizabeth learned and practiced, becoming both terrible and beloved: “I know I have the body but of a weak and feeble woman; but I have the heart and stomach of a king, and of a king of England too.” The “strain” in Geertz’ terms is that she must be both “king” and a beloved virgin. The patterned reaction was a theory of the great chain of being.

Or, at the other end of our story, Jane Austen's heroines must have both sense and sensibility. The strain was relieved in the English gentry c. 1810 by a theory of the self-fashioning ethical person, an essential bourgeois construction, free of the faux-aristocratic absurdities of Mr. ,,,,, claim to Position: ***QUOTE. You are who you make yourself, said bourgeois Jane, not who you were born as, at any rate within the narrow limits of the middling middle class.

Geertz analyzes the strain theory into four sub-theories, of ideology as pressure-relieving, morale-building, solidarity-creating, and politics-pushing. But he notes that such a functional analysis will often crash on unintended consequences, called in learned jargon "latent" function—mainly called so to conceal the sound of the crash. "A group of primitives sets out, in all honesty, to pray for rain and ends by strengthening its social solidarity; a ward politician sets out to get or remain near the trough and ends by mediating between unassimilated immigrant groups and an impersonal governmental bureaucracy" (Geertz 1964 [1973], p. 206; the theory of ward bosses he articulates here, by the way, is mistaken). "Commonality of ideological perception may link men together, but it may also provide them, as the history of Marxian sectarianism demonstrates, with a vocabulary by means of which to explore more exquisitely the differences among them" [p. 206]. In other words, so far as the connection between a particular "strain" and its outcome is concerned, you pays your money and you takes your choice.

The problem is that "Both interest theory and strain theory go directly from source analysis to consequence analysis without ever seriously examining ideologies as systems of interacting symbols, as patterns of interworking meanings" (p. 207). That is, the students of ideology ignore the humanities (cf. Geertz, p. 208). To be more particular—Geertz himself confines the word to footnotes by-the-by, pp. 209n22; 213n30—they ignore rhetoric.

My point is that we do better to leave aside the narrowing word “ideology,” which forces us every time to attribute any verbal device to material interests. We had better use the good old word “rhetoric,” which includes the political but does not force us to regard every piece of language as a cover for a political purpose. "Ideologies are ideas whose purpose is not epistemic, but political," declares the on-line Stanford Encyclopedia of Philosophy (2001). The remark encapsulates the philosophical attitude towards rhetoric. "Epistemic" ideas are honest, rational, etc. "Ideology"—or, worse, "rhetoric"—is dishonest, emotional, etc. An ideology can exhibit "false consciousness" (falsches Bewusstsein). A philosophical history—historical materialism, for example—cannot.

Geertz gives as an example the attempt by American labor unions to attack the Taft-Hartley Act of 19**… as a "slave-labor law." A more up-to-date example is the brilliant rhetorical move of Republicans recently to label the inheritance tax—thought by many economists to be a pretty good tax, by contrast at any rate with the income tax—the "death tax." Not only do I die, but they tax me for it. If you don't understand the figurative nature of language you think that people are mechanically fooled by such a metaphor. You miss that they might be playing with it, or find it illuminating, or be making a joke, or staking out argumentative ground, forcing the opponents to explain awkwardly why a tax at death is not a tax "on" death. And further, language can't be mechanical in its effects, because it is such an inexpensive machine. If "death tax" is effective as rhetoric mechanically, then why is not a locution such as "a tax on the unjustly inherited wealth of spoiled rich kids" equally effective? And if so, why would not some inexpensive counter-move? And a counter-counter-move?

As Geertz points out, the very meaning of the mobile army of metaphors we call "an ideology" depends on the context, material and ideational. It’s not always about interest, or power. Sometimes it is about language itself, or other human concerns. The metaphor of a "great chain of being" is drained of its meaning when the God term at the top is toppled. It's no longer an effective metaphor. Geertz quotes Kenneth Burke, who believed that Japanese smile rather than look as we do sad when a friend's death is mentioned, presumably from the pleasant thoughts the mention evokes. Without that social context, particular to Japan, a Westerner regards the smile as macabre.

“Ideology” is still another example of many of “rhetoric” in modern, scientistic drag. Consider again the very founding of the word. Antoine Louis Claude Destutt, comte de Tracy writes in 1801 in Les éléments de l'idéologie of a new science of ideas: "The science may be called ideology, if one considers only the subject-matter; general grammar, if one considers only the methods; and logic, if one considers only the purpose. Whatever the name, it necessarily contains these three subdivisions" (quoted in Mannheim p. 63n). The substitution of "ideology" for "rhetoric" here is straightforward: Destutt de Tracy is merely rewriting the trivium of grammar, rhetoric, and logic, the neologism ideologie taking the place of the ancient but recently dishonored rhetorique. That’s my point.

"But though science and ideology are different enterprises,” Geertz wrote in anticipation of the rhetorical study of science since the 1970s, “they are not unrelated ones. Ideologies do make empirical claims about the condition and direction of society, which it is the business of science (and, where scientific knowledge is lacking, common sense) to assess. The social function of science vis-à-vis ideologies is first to understand them —what they are, how they work, what gives rise to them—and second to criticize them, to force them to come to terms with (but not necessarily to surrender to) reality" (Geertz 1964 [1973], p. 232). But the same could be said of rhetoric.

So we are not studying "ideology." We do not want always, as popular as the move is in departments of English these days, to find the secrets of power concealed under language. Prudence-only is not the only issue in life. We should instead use the much older word, and take full advantage of the humanistic side of our civilization. That is, we should study the rhetoric of capitalism and anti-capitalism. "Ideas" come in rhetorical form, and can no other.

I do not want to spend much time here defending the word and subject “rhetoric,” since I and many others have done so at length since its revival by Kenneth Burke and ** Chicago guy and Chaim Perelman, not to speak of its 2500-year old history as the basis of education in the West (my own defenses of the subject, for example, are contained in McCloskey 1985 [1998], McCloskey 1990, and McCloskey 1994, which give full references to the literature). If you find the word odd you need to get out more. It does not mean “fancy talk in aid of lying,” as in “Senate Campaign Mired in Rhetoric.” That’s the newspaper sense, and we need to get beyond letting headline writers determine how we think. In sophisticated usage the word means, as Aristotle put it, the study of the available means of (unforced) persuasion. It covers all of human persuasion, from mathematical theorems to arguments from analogy. In fact, mathematical theorems often depend on arguments from analogy (McCloskey 1985 [1998], pp. 68-69).

As the classicist Werner Jaeger put it in 1933, rhetoric was “the first humanism which the world had seen” (Jaeger 1933 [1939, 1945], Vol. 1, p. 302). It was the first attempt to look back on language instead of taking words and logic as transparent names for things. It was the first second-order thinking. Rhetoric and its numerous descendants such as philosophy and theology and biblical criticism and linguistics and legal reasoning, and with its analogies in other cultures, such as Panini’s grammar of Sanskrit, composed about the same time as the early rhetoricians in Greece first spoke out, is what we mean by intellectuality. It has accumulated an impressive machinery of analysis, the study of ethos and pathos (called nowadays social psychology), the naming of figures of reasoning (called logic and statistics), the awareness of how words do their work (called literary criticism and communication theory). By contrast, “ideology” uses a greatly simplified theory of rhetoric, claiming that figures of speech such as the Great Chain of Being or the working man “free” to offer his labor need to be “stripped away” as misleading “ornament” to reveal the truth. Ideology as understood nowadays embodies the conduit theory of communication, and only the conduit theory. If we are going to get beyond thinking of political ideas as lumps transmitted unaltered from one mind to another through conduits of communication we need to become again rhetoricians. We need to get over the anti-rhetorical rhetoric of the 17^th century.

"Rhetoric" has another virtue as a name for what we are studying here. It names the belief that ways are many. The Chinese philosopher Mencius put it so: "Why I dislike holding to one point is that it damages the tao. It takes up one point and disregards a hundred others" (quoted in Richards 1932, p. 344: **find in Mencius). Jack Goody and Ian Watt find in such remarks a remnant of oral, pre-literate culture (Goody and Watt, 1962-63, p. 344). Its son "philosophy" by contrast, and its disreputable little great-great grandson "ideology," names the belief that the way is one.

Plato brought philosophy to maturity, as Hobbes brought political philosophy to maturity, after discovering mathematics as an adult. Aubrey tells (as usual we do not know his source) the famous story of how Hobbes decided that geometry was the one way:

He was forty years old before he looked on geometry; which happened accidentally. Being in a gentleman's library Euclid's Elements lay open, and 'twas the forty-seventh proposition in the first book. He read the proposition. “By God,” said he, “this is impossible!” So he reads the demonstration of it, which referred him back to such a proof; which referred him back to another, which he also read. . . . At last he was demonstratively convinced of that truth. This made him in love with geometry.

Aubrey, Lives **exact cite

Plato some two millennia before appears to have had a similar experience, since his dialogues suddenly, it seems (we are not entirely sure of their sequence), start giving Greek mathematics as an example of perfected thought. But the history of mathematics itself has undermined such monism. The way, the tao, the available means of persuasion are not one. Geometry was discovered with a jolt in the 19^th century to be multiple, depending on use. Logic itself was discovered in the 20^th century, with a larger jolt, to be multiple, depending on use.

And so I have been speaking of the triumph of a “rhetoric” of capitalism, arising in the city states of medieval Italy, perfected in Holland in the Golden Age, applied to everything from taste in clothing to the biology of worms in 18^th- and 19^th-century Britain, and triumphant in America and now worldwide. The word allows for many other ways, some of them hostile to capitalism, which is precisely capitalism’s virtue and capitalism’s problem.

Chapter 28: