Liberalism Caused the Great Enrichment
Authors: McCloskey Deirdre Nansen 
Published: February 2023

Any innovation—mechanical, biological, institutional, scientific, artistic, personal—begins of course as a new idea in a liberated human mind. The point is obvious. But it has not been prominent in economics. The agent in economic models does not have agency. He merely accedes to a budget line or to a law or to a custom or to a habit of thought facing his already known utility function. He does not create, that is, but reacts in requisite fashion. Human action, the liberated will, is absent. He is a vending machine, not an innovator, or not even an ordinarily choosy consumer exploring her tastes.

Therefore the unprecedented economic growth since 1800, a Great Enrichment of a fully 3,000 percent increase in real income per person, has been traced by economists not to “innovism,” as one might call it. The Enrichment has been traced rather to various routine and intermediate and largely material causes—investment; exploitation; the rule of law. Some of these are necessary, but none is sufficient to explain our enrichment. They are ancient. They are often trivial. They are sometimes necessary, but never have the great oomph to explain the Great Enrichment.

The creation of new ideas in human minds, in other words, has been firmly set aside by economists. The non-economists who might save the ideational day, meanwhile, have seized on the wrong ideas, such as the labor theory of value or disenchantment or the Enlightenment or sheer modernity.

The economic trouble with the economist’s non-ideational causes such as investment and institutions or exploitation is that they are merely allocative, and are, further, subject to sharply diminishing returns, and are commonly indeed zero sum. They are routine, not transformative. They are small potatoes beside the 3,000 percent increase in human material welfare.

And the historical trouble is that most of them, and even most of the non-economist’s ideational causes, are of very, very long standing—in ancient Mesopotamia, commercialization; in ancient Athens, enlightenment; in ancient Rome, good property rights; in ancient China, long canals; in medieval Italy, skilled craftsmen; in early modern Japan, long peace; in 18th century Prussia, cameralist policy; in pre-1860s Sweden, Protestantism; in Russia 1917-1989, fierce pursuit of profit; in China 1948-1978, fierce pursuit of central planning. Yet no Great Enrichment ensued in such places.

Early on, the cause of the Enrichment was said to be piling up physical capital, emphasized by Adam Smith, with the division of labor. Then it was indeed an ideational cause, put forward on the left or right of politics by anti-economists, such as the rise of “capitalism,” or “possessive individualism,” or “secularized asceticism.” All have all been rejected in later research. Then it was the alleged routinization of innovation, such as Joseph Schumpeter came to believe, against his early belief in human creativity. Then it was human capital, from elementary education to craftsmen’s skills. Then it was institutions of various sorts, from legal to scientific.

But all of them depend of course upon ideas conceived in somebody’s mind—and foundationally on her ideas about ideas, such as ethics, ideologies, political philosophies supporting the liberated imagination. The change of ideas in human minds, that is, seems a more promising hypothesis.

The ideational change is called liberalism. The idea of a non-slave society, it can be shown, has the oomph and the novelty to account for the 3,000 percent. I propose here, mathematically and quantitatively, by historical comparison and by the paradoxical logic of creativity, to offer, that is, a fresh ideational explanation for why the modern world became so very rich—well, “my” explanation is as “fresh” as can be a restatement of the 18th-century promise of human liberation.

The crux, I claim, was liberalization at the level of ideas in the Netherlands and then in Britain, favoring a culture of somewhat free speech and an economy of quite energetic enterprise. It was followed during the next century by actual liberalizations and a consequent explosion of creativity—in the U.K the civil emancipation of Catholics, the abolition of Jamaican slavery, the free importation of wheat from Kansas and Ukraine, and then similar liberalizing measures in the U.S., Sweden, Italy, Japan, and the rest.

Adam Smith and Thomas Jefferson and Mary Wollstonecraft had put forward in the Anglophere the then-bizarre notion that no one should be a slave, that all people are created equal, and should be permitted liberated speaking and liberated voting, and liberated buying and selling. Richard Cobden and John Stuart Mill in the mid-19th century extended the idea. The equality of permission in liberalism proceeded to erode the inequalities of hierarchies anciently stultifying. It made people bold to venture. As the British say in their sporting manner, appropriated by the economic historian Peter Matthias, ordinary people were permitted by liberalism for the first time, after 1776 or 1789 or 1848 or 1865, to “have a go.” And go they did. Liberalism was gradually implemented in northwestern Europe, as lately it has been, at any rate in the economy, even in far China and India. And the Great Enrichment came.

Both economists and their critics, in other words, need to understand the conditions for the flourishing of liberty and its fruits in novel ideas for enrichment, and to see that good laws and long railways and honored science and skilled craftsmen and strong institutions are all good, but are not themselves originating. Creativity depends on liberty and its ethical accompaniments, every time. Liberation in ethics and ideology yielded an innovism, not a “capitalism” that one can find in Mesopotamia in 2000 BCE or in England in 1066 CE or Mesoamerica in 1492 CE.

To use a mechanical image, the gearing in the historico-economic watch was, to be sure, investment and institutions, necessary for any economy at any time, from the caves of Lascaux to the caves of Wall Street, or for that matter in Crusoe’s cave. But liberal thinking was the new and largely sufficient spring imparting motion to the old and stiff gears. It happened in Britain, but not immediately in, say, France. It could have happened in Japan or the Ottoman Empire, but in the contrived corridors of history it did not.

The implication for policy is straightforward. Ideas in human minds, as Keynes said, largely rule the world. The Ukrainians defend themselves for the idea of liberty, not for the policies of left, right, or middle. Encouraging a loving and responsible liberty, with its mighty material and spiritual consequences, should be our chief aim. Coercive, illiberal nudges and taxes and subsidies and regulations and fines and imprisonments, of which policymakers are so very fond, are not the path forward. The liberal path of an honest and competent but restrained state, under which ordinary people are permitted without let or hinderance from other people to have a go, has already led in much of the world to a stunning enrichment of the poorest. It’s the Bourgeois Deal: “Leave me alone and I’ll make _you _rich.” In the next couple of generations, it promises to permit the rest of the wretched of the earth to raise themselves up.

The illiberal path of statism, by contrast, leads to the radical populisms of left and right, to Maduro and Putin. And even its middle path of well-meaning regulation and redistribution it leads adults back into childhood under the masterful state. It turns back to the subordination that characterized agricultural societies until 1776, and to its corresponding poverty of body and mind and spirit. Liberalism worked to overcome such childishness and subordination.

It works yet.