Innovation – The Great Engine of Prosperity

Deirdre N. McCloskey, Professor of Economics, History, English, and Communication at the University of Illinois and author of Bourgeois Dignity.

Deirdre N. McCloskey, author of Bourgeois Dignity

In these tough economic times there has been much discussion of how to get the economy moving again: TARP, QE2, Keynesian Economics versus Supply Side Economics. Historically, however, Government is not what drives economic growth – innovation driven by intrepid entrepreneurship is the real engine.

National Review columnist Rich Lowry recently wrote an excellent article on this subject based on the book Bourgeois Dignity by Deirdre N. McCloskey, in which, she writes,

“In 1800 the average human consumed and expected her children and grandchildren and great-grandchildren to go on consuming a mere $3 a day. With their $3 a day the average denizen of the earth got a few pounds of potatoes, a little milk, an occasional scrap of meat.” The only people who enjoy more that a $3 a day existences were the few Lords and Earls of nobility, or the Bishops and Cardinals of the church – it had been this way for all of recorded history – in short, “all the world was Bangladesh.”

Literacy and life expectancy are rising – liberty is spreading
and tyranny is retreating

National Review columnist Rich Lowry expands on this excellent observation. “Then something happened that changed everything and even though the world has more than 6.5 billion more people than it did two centuries ago, starvation worldwide is at an all-time low and falling – literacy and life expectancy are at all-time highs, and rising – liberty is spreading and tyranny is retreating.

How did this happen? According to author Deidre McCloskey and expounded by Lowry, it wasn’t foreign trade (too small), it wasn’t imperialism (it didn’t enrich the ruled 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.” Her basic argument is that the world developed a new respect for the bourgeoisie – the creators of wealth. It afforded the shopkeeper the dignity that he had always been denied because he wasn’t a lord, a military officer, or a priest.

It began roughly 200 years ago in Holland and Britain. Combining this new dignity with liberty led to the amazing run-up in the world’s wealth over the last two centuries in contrast to what had been relative stasis throughout the rest of human history.
Innovation is the driver of wealth – the ceaseless search for
the new, the better, the cheaper.

In McCloskey’s view, many attribute this success to “capitalism,” but she argues the word is insufficient, because the mere accumulation of capital is not enough to bring about prosperity. Many kings and queens accumulated tremendous wealth, but there was no rising prosperity for their subjects, and no economic miracle ensued.

It’s innovation that’s the driver of wealth, entrepreneurial “alertness,” the ceaseless search for the new, the better, the cheaper.

While our nation struggles with 9.8 percent unemployment and the Congress and President posture to special interests that pursue anti-innovation trade and regulatory policies to protect the status-quo, Lowry and McCloskey reason that the basic recipe for economic recovery is simple, if not necessarily easy:

Celebrate, reward, and create the conditions
for entrepreneurial innovation.

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