Chapter Six

The Age of Innovation

The Industrial Revolution

Why Britain?

The Industrial Revolution was a transition to new manufacturing processes from 1760 to 1840 which started in Britain and the Netherlands. What followed was an explosion in economic growth which lifted the typical person out of poverty for the first time in history. The change spread through Europe and the colonies descended from it and ushered in the Industrial Age.

Open Video Transcript

Do you know what city this is? It might not look like it, but this is one of the most populous and wealthiest cities in the world. This picture was taken in 1987 – incidentally the year I was born – and the look of this city has changed a lot since then. Here it is, viewed from the same spot, in 2013, just 26 years later. The city is Shanghai in China. The tallest building in the back, standing incomplete in 2013 but today fully built, is Shanghai Tower. It is over 2,000 feet tall, and for now the second tallest skyscraper in the world. Economic growth in China over the past 30 years has been nothing short of a miracle. Hundreds of millions of people have been lifted out of poverty, gotten educations, travelled the world, and been exposed to incredible new art, culture, and ideas. The reason for China’s recent success seems well understood: China’s economy industrialized, shifting from an agrarian economy of farmers to an industrial economy of manufacturers. Of Course. Case closed. But I have one nagging question about all this: Why didn’t China’s economy industrialize sooner? After all, the economies of Europe and America industrialized much earlier. Well, we might say it was because the Chinese were communists, of course, and they stopped it from happening. Ok, but that only gets us back to the 1950s. Why didn’t China industrialize in 1850? Or 1800? Or 1700? Or 1500? Or 1 AD? Or 500 BC? For that matter, what were the people of the rest of Asia, or Europe, or Africa, or the Americas doing for 10,000 years after farming that they weren’t able to get started on industrialization? --It’s not like the benefits were small. As we have seen, the typical person lived on about $3 per day in consumption, give or take a dollar or two. By that I mean, you could buy everything the typical person of 8000 BC, or 1 AD, or 1500 AD, or for that matter 1800 AD consumed in a year in stores today – clothes, food, shelter, all of it - at the cost of around $3 per day. The average person today produces and consumes nearly $50 per day when adjusted to the prices in U.S. stores. And we here in the United States enjoy an average of nearly $180 per day. That is a factor of 60. We produce and consume 60x more every day than our not-so-distant ancestors. Why did it take so long for this to happen? Imagine, had we stumbled upon this economic arrangement just 100 years earlier, we might be enjoying average annual incomes today as high as $2 million! --You’ll remember that in the 14th century, Europe, and Asia, and much of Africa as well was devastated by the bubonic plague. The 15th century, however, was a more optimistic time. They called it the Age of Discovery, and newly developed full-rigged ships were able to sail the high seas. Christopher Columbus sailed to the Americas, Vasco De Gama sailed around the Horn of Africa to reach India, and in the early 16th century Magellan led a voyage around the entire world. These expeditions, and the many in between, were all motivated by commerce. In 1498, when Vasco de Gama reached Cochin, India, he filled his ship with pepper. The price in Cochin was about 4% of the price in Europe, and the resulting profits made him and others very wealthy. In the centuries that followed, trade became a major focus of governments, who all consolidated their power in their lands. --In the New World, Britain found a great deal of success in the 17th century. Jamestown, the first British colony, was founded in 1607, and by 1664 the British had taken New Amsterdam from the Dutch and renamed it New York. Growing trade across the Atlantic began to incentivize changes to the British economy as they specialized in the handicraft sector. The colonies exported lumber, furs, fried fish, whale oil, iron, gunpowder, rice, tobacco, and indigo to Britain, while Britain exported manufactured goods, textiles, furniture, and other hand-made luxuries. At the time, all of these goods were produced by small outfits, usually just a small family of weavers or artisans who made their wares by hand. --Starting in the mid-18th century, these handicraft sectors started to see rapid change in their production processes. The textile industry was one of the first to be revolutionized. But the new machines didn’t owe much to scientific discoveries. None involved great conceptual leaps; instead, they required years of experimental engineering to come up with designs that worked reliably. The flying shuttle greatly improved the productivity of someone working with a loom, but it was a fairly simple invention. As was the spinning jenny, which helped make yarn. Eventually came steam power. The efficiency of steam engines increased so that they used between one-fifth and one-tenth as much fuel as the first ones did. The cheap costs led to the adaptation of stationary steam engines to rotary motion, which made them suitable for industrial uses and steam power underwent a rapid expansion after 1800.It’s all a little boring isn’t it? Little changes here and there which made this or that a little more productive. So what. Big deal. But the thing is that this part wasn’t so unusual. The Ancient Sumerians made little changes here and there to improve productivity too. So did the Egyptians, and the Greeks, and especially the Romans, who may very well have been on the verge of something within shouting distance of industrialization before the empire collapsed. The thing that is different here is that the tinkerers kept on tinkering. They kept working on the inventions and improving them, and they turned their eyes to other types of production and tinkered there as well. For some reason, unlike the past, the tinkering didn’t stop, and hasn’t stopped to this day. --That the Industrial Revolution did start somewhere and not everywhere is a little helpful. We know that it started in Britain, but also happened alongside similar advancements in the Netherlands, but everyone else were copycats. We can compare and contrast and try and get a sense of how the Industrial Revolution happened where and when it did as opposed to happening in France or Italy or China or India or Ancient Rome. To start to understand, we can begin with a story. Legend has it that in 1589 a man named William Lee was trying to win the affections of a girl but found that she was more interested in knitting than in him. So, he invented a labor-saving knitting machine called the ‘Stocking Frame’. The machine imitated the movements of hand knitters, replicating a very fine motion similar to softly rubbing your fingers together. He demonstrated the machine for Queen Elizabeth I, hoping to obtain a patent, but the Queen denied his application. The queen said to Lee: "Thou aimest high, Master Lee. Consider thou what the invention could do to my poor subjects. It would assuredly bring to them ruin by depriving them of employment, thus making them beggars.” Lee tried to make it work in France, but political instability stifled his efforts, and he died in distress in 1614. His invention did live on, and it was eventually important to the Power Loom and other developments, but you can see how innovation gets stifled. Even after the Glorious Revolution diminished the power of the monarch and promoted freer markets, workers would often take direct action against new machines, breaking them and running inventors out of town. John Kay, who invented the ‘fly shuttle’ in 1733, improving textile production, had to flee his town hidden in a wool sack, and eventually had to flee Britain. But by the 1770s, Richard Arkwright, the inventor of the water frame, was earning 20,000 pounds a year in royalties – roughly $4.5 million in today’s U.S. dollars - and he was reputed to be the richest commoner in the Kingdom. What happened in between? Why did the Industrial Revolution start in Britain?

Wrong Answers Only

Karl Marx attributed the change to the rise of Capitalism, and others have echoed this analysis by claiming it was due to slavery, colonialism, and exploitation. The Institutionalists say it was the Glorious Revolution of 1688 which brought about a new political order that favored limited government and liberty. Max Weber, the great sociologist, emphasized the Protestant work ethic. And most everyone else thinks it had something to do with the Scientific Revolution and the Printing Press. But I am here to tell you that all of these theories are wrong. Or at least insufficient.

Open Video Transcript

Why did the Industrial Revolution start in Britain? It is a question that countless scholars have offered countless theories about. --One such scholar was Karl Marx, who thought the explanation for the Industrial Revolution was Capitalism. The Enclosure Movement in Britain changed the open-field system used by farmers. Under the feudal system, lords were the owners of manorial estates and they distributed plots of land to be farmed as they saw fit. However, there were often small patches of land, sometimes just little slivers in between plots, which went unfarmed. British peasants, since ancient times, had been given the right to farm these commons, or land that was essentially unused. However, the enclosure movement privatized all of that land, shifting their ownership directly to farmers and eventually to capitalists who owned the land and hired wage labor to farm it. Marx did not like that the system deprived peasants of land, implements, and livestock so they had to become employees in order to survive. His philosophy, known today as Marxism, saw history through the lens of class struggle, and as his work took him from Germany to Paris and Brussels and Cologne and London, he saw how the Industrial Revolution had ratcheted up those class tensions. But the Industrial Revolution was not started in agriculture, it was started in the handicraft sector. The enclosure movement increased the productivity of British farmers, but the shift towards a more capitalist ownership structure did not lead to greater productivity. And so, this explanation just can’t be correct. It simply can’t explain the great enrichment, where regular people would today be 16x richer on average than they were when Marx was born. Marx, as is well known, was no fan of capitalism, which he saw as a more brutal form of exploitation than our feudal past. Marx was right to give capitalism some credit for industrialization, but he was wrong to suggest that capitalism’s success is due to exploitation. Indeed, Marx thought that this exploitation would prevent workers from ever getting rich, and he was very wrong about that. --Indeed, exploitation is a theme across many different theories of the Industrial Revolution. The Atlantic Economy which boosted the British handicraft sector is far more infamously known to have hosted the Atlantic slave trade, where Africans captured from their homes were chained and sold into slavery in the Americas. Slavery is and was awful – and there may be a temptation to associate greed with both slavery and capitalism and draw a connection – but thank goodness that this cannot be the reason either. Slavery was not new, in Britain or the rest of the world, and neither was any of the other ways colonization unjustly exploited other lands and people. That kind of thing dates back all the way to the Ancient Sumerians, and oppressing and stealing from other poor people is hardly a way to make a whole population rich. It would be bad news if a sudden burst of injustice had brought about the enrichment of the poor, but in this case the bad news is that injustice was not unique to this time or place. Further, the profits from slavery – blood money that they were – were not substantial enough to explain the rise in investment in Britain in the run up and during the Industrial Revolution. And it should be said, neither is pure capital accumulation. Pilling brick on brick, building up our empires, is what we were doing for millennia before the enrichment. It isn’t enough to explain it. --Perhaps then, liberty, not slavery, is the explanation. After the Norman invasion in 1066 – the last time Britain was ever conquered by a foreign power – they had the most centralized feudal system in Europe. But the Magna Carta, signed in 1215, created the first Parliament in England and sent Britain down the centuries-long path of eroding the crown’s power. Parliament gained supremacy over the crown in 1688 after a civil war called the Glorious Revolution. This sudden return of democracy to Europe is seen a boon to individual liberty. Property rights were more secure now that they couldn’t be snatched away by a greedy monarch. Taxation would be held down by tempered and responsible officials. And financiers would see Britain as the safest place for investment. But in truth, taxation was high – not low – and the revenue was used for the Royal Navy and colonial exploits which – as mentioned – did not bring about the Industrial Revolution. Exploitation was not new, and neither really was a democratic regime, if it can even be called that (only land-owning men could vote, a very small population). And Britain’s legal system – the envy of the world, which quickly copied it - was established long before 1688. And many places had seen periods of expanded individual liberty. In China during the period of free peasantry, in much of Ancient Rome, in the Middle East during the dark ages in Europe, and recently to the Glorious Revolution in Italy, none of which produced an Industrial Revolution. --One major change in Europe prior to the Industrial Revolution was the Protestant Reformation, in which many people split from the Catholic Church. The German Sociologist Max Weber – who did most of his work in the early 1900s – proposed this as an explanation. He noted that among the Puritan Calvinists, who were protestant Christians, there was a powerful work ethic tied to their faith. Discipline and hard work were driven by their faith and belief in a life of good work. This attitude, Weber suggested, was the spark that lit the fuse. Max Weber was extremely influential to Sociology and an important thinker, but unfortunately, he too was wrong about the Industrial Revolution. English Puritanism was discredited during the Glorious Revolution due to its ties to the Crown, and upper classes shifted their religious stance toward Deism in the 18th century, which imagines God as a retired engineer who set the universe in motion according to Newton’s Laws and who has never substantially intervened. The Protestant Work Ethic just wasn’t very widespread, especially in the areas where industrialization started. And indeed, data shows that these Protestants did not do better economically as industrialization got underway than did Catholic communities. --Another reason for the shift in religious attitudes in Britain away from Protestant religions was the Scientific Revolution. Finding its roots in the 16th century and continuing on, this was a period of unprecedented scientific advancement. “Galileo Galilei. He sat in a cathedral in Pisa. He watched a lamp suspended from the ceiling as it oscillated back and forth. He used his pulse to keep time and discovered that the period of oscillation was independent of the size of the arc. A few years later he contradicted the theory that a heavier body falls faster than a lighter one. Which took some guts back in 1609, when you consider that the theory he was contradicting was Aristotle’s.”Galileo’s observation was a critical step towards the invention of mechanical clocks, and a great deal of other things. Could this be why the Industrial Revolution happened when and where it did? Perhaps science brought us to the precipice, and Britain took us over it. --It’s hard to think of the scientific revolution without thinking about the printing press. Initially invented in China – as everything was back in this time – it was abandoned due to the many characters in the Chinese language, which limited the feasibility of a moveable-type system. But Gutenberg stumbled on the idea as well in 1450, and got to work printing his famous bibles. Prior to this era, authorship was less meaningful and less profitable. Author’s names were often lost as copies were made by hand across time and space. After the press, it became important who was saying what. It became possible to cite each other specifically, referencing a particular page number due to the consistent formatting. Copernicus gave us an understanding of the solar system. Isaac Newton published the Principia in 1687, modernizing our understanding of physics. And Rene Descartes claimed “I think, therefore I am.” --Actually, it is Descartes who might matter more to this story. He was part of the Enlightenment, an intellectual movement which questioned the institutions of power and hierarchy. These thinkers would push the societies of Europe to adopt a preference for individual liberty and the right to self-determination. --There is no doubt that a better understanding of the natural world was an important antecedent to the Industrial Revolution. It produced important science that eventually led to things like the steam engine. But there is little evidence that science made its way below the upper classes. Belief in witchcraft, for instance, was widespread at the time. Enthusiasm for science may have been a film floating on a lake of superstition. It is also important to note that the inventions of the Industrial Revolution were not so incredible as to be unimaginable to our ancestors. The technology had been there since the ancients and didn’t need science. And in most cases, the science explaining the more complicated inventions came after the inventions themselves. Plus, this was not knowledge unique to Britain. The rest of Europe participated in its development, but only industrialized after seeing it underway in Britain. Science doesn’t really explain it. --Maybe I am too much of a nerd about all this, but the question seems critically important to me. Look around you and just about everything you see is something whose production was made possible by this one unusual period in our history. Had the Industrial Revolution not happened you would have likely spent the day breaking your back plowing a field or tending to your herd of livestock. Instead you are sitting in front of a thinking machine watching a digital video streaming across fiber-optic cables getting an education not available to the people of the past as you work to improve yourself and open up unprecedented opportunities for personal advancement. Figuring out why this happened seems pretty important, especially if we don’t want to accidently break it. It wasn’t exploitation and it wasn’t liberty alone. But it also wasn’t just due to science, nor was it due to religion. It isn’t necessarily that these things did not matter. Fire needs oxygen, heat, and fuel. These may be part of that equation, but they aren’t the spark that lit the flame. So, what was it?

The Virtuous Cycle

What data we have suggests that Britain, unlike everywhere else, experienced a bout of high wages which incentivized entrepreneurs to find ways to save on labor. For the first time in history, innovations which could replace labor were worth the large investments needed up front, and they kickstarted a Virtuous Cycle which continues to push wages up to this day.

Open Video Transcript

Economic historian Robert Allen found evidence that wages in Britain were significantly higher than wages elsewhere, due to extensive foreign trade. Figure 1 shows the wages paid to laborers in select cities around the world where data exists. Measured in grams of silver per day, wages in London and Amsterdam started to pull away in the 16th century. These two cities, more than any others, benefited from the increase in trade across the oceans. But the real magic is when we look at the wages relative to the price of energy. In Figure 4 of Allen’s work, we see that Newcastle, the English town that was the birthplace of the steam engine, had the highest wages relative to the price of energy. But London and Amsterdam also come in at a ratio above one. That means only in Britain and Amsterdam were wages higher than the price of energy. In the other places around the world, like Strasbourg in Germany, Paris in France, and Beijing in China, hiring an additional worker was cheaper than buying the energy you’d need to get a machine to do the same work. --Higher wages in Britain and Amsterdam made investments in labor-saving technology viable. An entrepreneur making textiles will aim to reduce costs, and they will install one of James Watt’s expensive steam engines to run their loom if it cost less than just hiring a human being to run a loom instead. Robert Allan writes: “As a result of these differences in wages and prices [of energy], businesses in England found it profitable to use technology that saved on expensive labor by increasing the use of cheap energy and capital. With more capital and energy at their disposal, British workers became more productive – the secret of economic growth. In Asia and Africa, the cheapness of labor led to the opposite result.” --The same idea forms the basis of an economic theory of growth developed by Paul Romer. Wage increases incentivize investment in labor saving technology. Let’s take a more modern example. If accountants are expensive, we might look for ways to make them more productive so that we don’t need to hire as many. For example, we might pair an accountant with some spreadsheet software. Now the accountant is able to automate some tasks by using the spreadsheet software to do them. Where once we needed say 20 accountants to handle the books for our company, now we only need 16 accounts who each have Excel. That is only worth it if Excel costs less than those four accountants. But if that happens, the makers of Excel are going to see the boost in demand, and they will have an incentive to make sure Excel stays cheaper than hiring more accountants. They will tinker with it and improve the technology to make it even cheaper, and in doing so, they make it more applicable to different areas. With the new features, Excel isn’t just useful to accountants, but to other people in the business, and to all different kinds of businesses who can use it to automate certain tasks and increase labor productivity. Higher labor productivity means that a single worker is able to get more work done than before, which makes them more valuable to employers. That increases the demand for labor, and pushes wages up further, incentivizing another round of innovation. The paradoxical result is that when entrepreneurs try to save on labor, they end up incentivizing the creation of technology that makes labor all the more valuable to them. They seek the technology in order to eliminate jobs, but end up with technology that makes labor more profitable, leading them to hire more people. --The irony is that Britain innovated themselves out of their own comparative advantage. The unique situation in Britain and the Netherlands led to a boom in production of textiles and other manufactured goods which they could then sell to the rest of the world at low cost. But as their labor-saving technology improved, it got cheaper, and sooner or later it was profitable to install one of these new-fangled steam engines in Paris, and New York, and Tokyo. And so they did, and the Industrial Revolution spread. --The real question for this theory of the Industrial Revolution is whether or not British wages really were so high. It is a theory supported by limited evidence, because such data is in short supply. But if it was the case, as the limited data suggests, then it might be the heat we need to get things going. The scientific revolution, an enclosure movement in agriculture, increased trade, and greater economic liberty give us the oxygen. But we still need the fuel that keeps the fire going. We need to know why all of the innovations were not suppressed, as they were so many times before.

Creative Destruction

Technological innovation is scary. The perennial gale of Creative Destruction, as Joseph Schumpeter called it, replaces old processes with new ones, and in doing so it carelessly throws people out of work, threatening them with destitution. History now shows us that our fears about technology were misguided, but those fears were hard to shake off.

Open Video Transcript

People have long been anxious about technological development. We’re worried that new methods and machines will eliminate the need for our continued employment. And if we are lucky enough to keep our job, we are worried that the new technology will make it worse, either simplifying our tasks so as to stupefy us, or overextending the diminished staff. But if the past is our guide, these fears are misplaced. Technological progress also creates jobs, often new ones we could not have ever even imagined. The messenger who travelled by horseback from one town to the next had no idea that one day they would be replaced by people working a telegraph, who could never imagine they would become switch-board operators and technicians hanging phone lines, who themselves could not imagine becoming the engineers and programmers designing the infrastructure for text messaging. Nevertheless, with each new era of technology come the doomsayers who tell us that this time is different, and new technology really is going to put us all out of work. --Karl Marx explored these worries in a time after industrialization had taken hold, but before wages really started to rise for working people. Up until 1850 or so, the gains from the Industrial Revolution were being accrued mostly to the middle class – the Bourgeoisie as he called them – and not to the workers in the factories. Marx predicted that this trend would continue, placing workers into dehumanizing jobs that paid terribly. He saw how technological change would throw people out of work, and thought that competition for jobs from this ‘reserve army of the unemployed’ would keep wages at the subsistence level. Thankfully, this prediction turned out to be wrong, and as we know today, economic growth was widely shared, benefiting the formally poor more than anyone else. What this picture is missing is the change in the composition of these two groups. Over this time period, the Bourgeoisie - the middle class – grew their ranks by 725%, while the population of workers grew by 374%. Indeed, the rich were getting richer, but the poor were also joining the ranks of the rich. --To Marx’s dismay, work got less dehumanizing overall, and higher wages gave us greater leisure time and new ways to spend it. The very concept of leisure time was born out of the industrial revolution. Most people prior to this period worked on a farm – day and night for seven days a week – and the rest usually worked out of their home, never with a break. But with wage labor on the rise, people were able to clock out. There was their time they gave to the company, and the time they had for themselves. And people started to use that time to do more and fulfilling things. This period saw the birth of sports teams and leagues and eventually professional athletes. It also saw an explosion in art, literature, and the other finer things. --But this technological anxiety was nothing new. We heard about it already in the tale of William Lee, whose invention of the stocking frame was denied a patent in 1589 by Queen Elizabeth who worried it so good that it would throw too many people out of work. This is not unusual throughout history, where most of our awareness of trade between ancient societies comes from merchant guilds that kept records and who – with force if necessary – ensured they did not face new competition from technology or from other people. You were to do what you were told – to do otherwise was dishonorable – and the interests of those with power always and everywhere suppressed those seeking to disrupt it with dangerous new ideas. The urge to stop progress is not irrational or unnatural, and we deal with it still today. --The economist Joseph Schumpeter called the problem ‘Creative Destruction.’ He wrote: “The opening up of new markets, foreign or domestic, and the organizational development from the craft shop and factory to such concerns as U.S. Steel illustrate the process of industrial mutation that incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one. This process of Creative Destruction is the essential fact about capitalism. It is what capitalism consists in and what every capitalist concern has got to live in.”This new system of industrial capitalism that was emerging with the Industrial Revolution was one that was constant coming for your job. Indeed, capitalism today is still a system that is constantly trying to eliminate the need for your labor, to replace you with better ideas and new technology. That’s scary. It’s unsettling. And it’s hard to assuage those fears with proclamations about how such pessimism has been a poor guide for a few centuries now. We are not wholly comforted by the fact that new jobs will come with those changes, and higher paying ones at that. And for most of human history, those fears led us to snuff out invention before it had a chance to make us obsolete. And that – our rhetoric around innovation – is what had to change.

The Bourgeois Revaluation

At last we arrive at our best answer. In her book, Bourgeois Dignity: Why Economics Can't Explain the Modern World, Deirdre McCloskey lays out the reasons that prudence alone cannot explain the Industrial Revolution. It couldn't just be smart entrepreneurs seeking out a return on their investments. It took an embrace of more virtues than that, and 18th century Britain accepted this Bourgeois deal not only because it enriched them financially, but because it enriched them spiritually too.

Open Video Transcript

Deirdre McCloskey, an economist, historian, and transgender woman with an inspiring biography and an incredible talent with the written word, argues that Capitalism – or as she re-titled it: Innovism – makes us better people. The evidence of the last two hundred years is very clear that it at least makes us richer, but McCloskey argues that with this wealth comes an acceptance of the bourgeois virtues – which are what really enriches us as human beings. You may be more familiar with the seven deadly sins, but there are also seven virtues. Courage, temperance, justice, prudence, faith, hope, and love.In a capitalist society, courage is competition. Trying to outdo a rival not by committing violence against them, but in out-thinking them. Also, mock it if you’d like, but today courage is shown through identity. The courage to come out, to transition, to speak bravely for oneself and oppose intolerance. We learn temperance through savings and interest, and restraint only has meaning when gluttony is possible. Capitalism has taught us the value of human life. Remember, it was only after we got rich that we outlawed slavery and fought for universal human rights. Prudence, of course, is the virtue of commerce, of wise calculation and good business. We have much more faith in each other with capitalism. Capitalism encourages trust in sellers and in buyers across social, national, racial, and political lines. In the past you would never trust someone from another town for anything. Credit could never work in the past, but it does now because we have a great deal more faith in each other and each other’s potential. The only hope people of the past had was for a good death and passage into heaven. Hope is now the lifeblood of our economy. A belief in the possibility of self-improvement, betterment, and a life well-lived. And no society has had as much love in it as ours. No more arranged marriages made for political and economic reasons. No more women as property. We marry for love now because we are rich enough to do so. And we can espouse the power of love because we can back it up with industry. McCloskey writes, “The richer, more urban, more bourgeois people, one person averaged with another, I claim, have larger, not smaller, spiritual lives than their impoverished ancestors of the pastoral. They have more, not fewer, real friends than their great-great-great-great grandparents in “closed-corporate” villages. They have broader, not narrower, choices of identity than the one imposed on them by the country, custom, language, and religion of their birth. They have deeper, not shallower, contacts with the transcendent of art or science or God, and sometimes even of nature, than the superstitious peasants and haunted hunters-gatherers from whom we all descend.” Because of capitalism, we go on more vacations to more distant places, we listen to more music, see more art and movies, we have more museums and we visit them more often, we have the capacity to give more to friends and strangers both economically and emotionally. And much of our work is more fulfilling – contributing to our life satisfaction. --I speak so much about this idea of Bourgeois deal because that is the thing which changed. That sort of sweet talk, building each other up, praising accomplishments, and promoting the idea that you – yes, specifically you – can go out and change the world, is what changed. In Star Wars: The Empire Strikes Back, Darth Vader tempts Luke Skywalker to join the Dark Side. What is the attraction there? Why would anyone choose the dark side? The answer is control. In the past, virtue was doing your duty, and your duty was whatever honored your family. Set your own ambitions aside, live a life of sacrifice. Do you think you can do the work of the local blacksmith better than he can? Too bad. Want to open your own stables and spend your life caring for horses? The people of the town will burn it down before they see you try to escape your station in life. Creative destruction means that bad things will happen to good people. And we have the urge to step in and stop those things from happening. We want to exert control over the economy, but this is the dark side. Luke is tempted because he wants to stop the bad things that are happening to his friends. But he has gained enough wisdom to see the example of his father right in front of him, that if you try to exert that control, you become the bad thing that is happening. --Throughout all human history, society has been structured from God down to Dog. In Ancient Egypt, you were a fool to think you could change your station in life. In Rome, even just speaking to someone higher born could get you killed. And at the same time, the merchants, those who bought low and sold high, were placed towards the bottom of that social ladder. The dominant thought was “his gain is my loss”, and there was no opportunity for mutual gain. No making the pie bigger. But then we discovered the New World, and we met the native people there who challenged this logic. Truly, it was conversations with Native Americans that inspired the Enlightenment thinkers such that liberty, above all, became the ethos of European society. There was a reappraisal. The heroes in our stories changed from kings and nobles to regular people. Shakespeare has almost no middle-class heroes. They are all nobles and kings and queens. But then its Melville’s “blubber boilers” in Moby Dick and Mark Twain’s Connecticut Yankee stunning aristocrats in King Arthur’s Court with industrial devices. The way people talked, changed.In 1727, Cesar de Saussure noted, “In England commerce is not looked down upon as being derogatory, as it is in France and Germany. Here men of good family and even of rank may become merchants without losing caste.”It became respectable to try and better oneself. To buy low and sell high and earn your place in this world by providing a benefit to others that they would be willing to pay you for. This is what kept the fire going. And the same change that was seen in China, and in India, prior to their sudden adoption of industry. We hope it lasts for them and for us. --So, it was the combination of the liberty to live a self-directed life, and the dignity bestowed on it in our words, that provided the fuel we needed to keep the fire of innovation and growth lit. To get a little meta on you, I’ve summarized this conclusion with this popular format for memes. In his 1976 book, The Selfish Gene, the biologist Richard Dawkins noted that the same logic of genetic evolution could apply to ideas, and he coined the term “meme” as the equivalent of a “gene” in such a process. Just like genes, memes evolve through mutation when they are replicated in the mind of a new person. The ideas that will permeate society are the ones most likely to successfully replicate in other minds, to be believed, and be passed by those minds to other minds. Ideas are kind of like viruses, and the ones best suited to conquer our brains will be the most widely adopted. Deirdre McCloskey’s theory is that there was a memetic mutation which started to favor, rather than despise, commerce and innovation. Her contention is that it took hold because an embrace of commerce and innovation enriches us not just materially, but holistically. It makes us better people. Actually, I think the best example of this change in rhetoric can be heard in graduation speeches. You’ll finish this course, and you’ll finish your degree, and at your graduation I am certain one or several speakers will try to inspire you with their words about the unprecedented opportunities before you. And they’ll be right, the opportunities are unprecedented, in no small part due to just that kind of sweet talk.

Quick Quiz

Now is the time to test yourself on these concepts! This quick quiz is a great way to see what has clicked and what needs more attention. It is also a good time to reach out to your instructor with questions.

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Dr. Goegan Explains...

Example Question
A weaver working with a handloom is able to produce 17 yards of fabric per day. The typical weaver is paid £12 for a day's work.

A loom powered by a steam engine is able to produce 81 yards of fabric per day. The powered loom still needs a worker to operate it, earning £12 per day, but also needs 16 pounds of coal to power it.

At what price per pound of coal does the cost of producing fabric by power loom equal the cost of producing it by handloom?

Round your final answer to two decimal places.

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