Future of Capitalism in Europe
List of important things
Important words and names
Text and author
When reading the texts, try to answer the 4 questions:
• What? —> What is the author trying to convince you of?
• How? —> How does he or she try to convince you?
• Who? —> Who is it that the author is trying to convince?
• Why? —> Why does the author try to convince his audience of a particular
point of view?
Textbook:
https://oxford-universitypressscholarship-com.proxy.uba.uva.nl/view/10.1093/oso/978019
0096205.001.0001/oso-9780190096205-chapter-8
Week 1 (Capitalism and the Great Divergence)
Mccloskey and Carden
Liberalism = the model of economic growth
Two elements of the Great Divergence
1. Population
- Population has been mostly stable throughout history.
- Technological advancements (“revolutions”) cause an increase in population.
2. Living standard
- Living standards mostly stagnated throughout history.
- Height is often used as a proxy for the standard of living.
Great Divergence = The Great Divergence or European miracle is the socioeconomic shift in
which the Western world (i.e. Western Europe and the parts of the New World where its
people became the dominant populations) overcame pre-modern growth constraints and
emerged during the 19th century as the most powerful and wealthy world civilization,
eclipsing Mughal India, Qing China, the Islamic world, the kingdoms and empires of Africa,
Joseon Korea, and Tokugawa Japan. > showing the explosive growth of Western Europe and Japan
from the early 19th century.
The largest jump in the divergence happened in the 19th century with the Industrial
Revolution and Technological Revolution.
Mercantilism is an economic policy that is designed to maximize the exports and minimize
the imports for an economy. It promotes imperialism, tariffs and subsidies on traded goods to
achieve that goal. The policy aims to reduce a possible current account deficit or reach a
current account surplus, and it includes measures aimed at accumulating monetary reserves
by a positive balance of trade, especially of finished goods. Historically, such policies
frequently led to war and motivated colonial expansion. Mercantilist theory varies in
sophistication from one writer to another and has evolved over time.
,“The Malthusian trap”: Increases in productivity do not lead to better living standards but only
to more people. The Malthusian Trap is the theory that, as population growth is ahead of
agricultural growth, there must be a stage at which the food supply is inadequate for feeding
the population.
Malthusianism is the idea that population growth is potentially exponential while the growth
of the food supply or other resources is linear, which eventually reduces living standards to
the point of triggering a population die off. This event, called a Malthusian catastrophe/trap
occurs when population growth outpaces agricultural production, causing famine or war,
resulting in poverty and depopulation.
It is not only that some countries are better off. The world as a whole is better off on many
important dimensions
What’s in capitalism?
A standard definition: An economic system where the means of production are privately
owned.
➔ Means of production: raw materials, land, tools, machines, etc.
➔ Private/collective (or state) dichotomy
➔ Marx’s story: feudalism -> capitalism -> socialism (communism)
➔ historical sequence
Socialism = Socialism is a political movement and a view of the economy and society.
Socialists believe that the means of production of goods and services should be owned by
society. These means of production are labor (the work itself and the people who work),
capital (money, land & machines) and nature (raw materials). The revenues from the
production of these goods and services must also accrue to society.
Text 1: McCloskey and Carden - Leave Me Alone and I'll Make You Rich How the Bourgeois
Deal Enriched the World (Part II)
1. What?
“What, then, caused the tidal wave of ingenuity (vindingrijkheid)? We argue, with solid
support in recent research in economics and in history, that the British got rich— and
then Westerners and then much of the world, and all humans in the next few
generations—because of a change in ethics and rhetoric and ideology. Strange, yes? Mere
ideas, not matter. But the more you think about it, the more obvious it becomes. New ideas,
understood as human intentions, precede new actions. Routine profit or routine exploitation
can’t make you or your world rich. It has to be a new idea that raises everyone’s game, and
there need to be thousands of them. The source of the wave of molecules, we claim, was
the new permission to have a go, inspired by the shocking new ethics and rhetoric
and ideology of liberalism. Give ordinary folk the right to life, liberty, and the pursuit of
happiness—against ancient tyranny (and modern regulation, industrial planning, and
occupational licensure)—and they commence thinking up all manner of new ideas. They
think up an ice cream store here, a frontier farm there, an iPhone at last. Then in a liberal
economy they have permission to put them into action, the billions of novelties, tiny and
titanic, that liberal innovism yielded, 1800 to the present.”
, 2. How?
Example of slavery
Some empirical/historical arguments:
➢ “It is said that there were large profits to be had in the slave trade. After all, as Karl
Marx put it, “Liverpool waxed fat on the slave-trade.” Indeed. But slave trading did not
have barriers to entry. It is such barriers that make for supernormal profit. A ship is a
ship, mobile of course between uses in Dublin or Dakar. It earns what a ship earns,
regardless of what it carries—a normal, and modest, return, if some of the cargoes
were abnormal and prideful. And the earnings of slave traders from Newport, Rhode
Island, or Bristol, England, were trivial sources of investment for industrialization. 3 If
the profits, such as they were, of the trade are judged crucial, why not the profits
from, say, the pottery industry, of similar magnitude, or from retail trade, much
larger?”
A mix of empirical/historical and theoretical/economic arguments:
➢ “The enrichment of the modern world did not depend on cotton textiles. […] And
making cotton cloth did not depend on Southern supplies of cotton. During the
cotton famine of the Civil War, supplies from Egypt started to replace the
South’s. Had the war continued until all the wealth said to be piled up by the
bondsman’s labor was sunk, Egypt and India and Jamaica could have supplied the
cotton with ease. Only in the short run is an existing region of supply “necessary.”
The King Cotton historians depend on the supply-chain fallacy, that if a supply
chain is ever interrupted, the game is up—there are no possible substitutes. All
links are claimed to be necessary. Such noneconomic economics inspired, for
example, the strategic bombing in World War II and then in Vietnam. It was ethically
repulsive, and it didn’t work on German industry any better than on the Ho Chi Minh
Trail. Such quasi logic doesn’t forge a chain of necessity from slave-grown cotton to
modern industry because there are substitutes everywhere.”
➢ “The King Cottoners think, for example, that owning a slave constituted “cheap
labor.” But as Fogel and Engerman, Richard Sutch, and all the economists and some
historians such as Kenneth Stampp noted, the productivity was capitalized into the
market price of a slave. If you owned a slave, you faced the opportunity cost of
the alternative use of the labor, net of maintenance costs. No supernormal
profits accrued to people who bought slaves, so to speak, secondhand, or
raised them expensively from babies. What profits that didn’t dissipate accrued to
the firsthanders, chiefly within Africa.”
3. Who?
• “Our friends on the left and right”?
• Other economic historians?
• General public?
• We need to also read between the lines…
➢ “If the capital fundamentalism of the Wall Street theorists were correct, then their
enemies the socialists would be correct, too. The socialists like Wallerstein assume
that the key to capitalism is capital and therefore that the big issue is its accumulation
and allocation. So do the Wall Street theorists such as Skousen. Both believe that
, ideas or entrepreneurship or management are easy. Ideas, they say, are a dime a
dozen. That’s why the Wall Street theorists dote on the TV program Shark Tank, in
which ideas are easily shot down by deep-pocketed investors, and it’s why the
socialists think that the government in Paris or Washington can easily order up an
appropriate socialization of investment. Both are sure that the future is easy to lay
down. Just accumulate. Liberals know that the future depends on unpredictable
ideas from free humans.”
➢ “The word capitalism is a Marxist coinage. Karl Marx himself never used the word
Kapitalismus, but let’s not get pedantic. He freely tossed around capitalist to describe
the bosses who were busily reinvesting surplus value on top of their original
accumulation of capital. In older usage, capitalist meant merely someone with a
lot of money to invest. Marx gave the word its theoretical edge. Like economists
and others before and after, Marx claimed that the accumulation of capital was
the watch spring of modernity. And so by using the word, one adopts without
realizing it a particular theory of how the world got rich: by accumulation.
Which is mistaken. The Marxian sociologist Immanuel Wallerstein, for example,
wrote in 1983 that “the word capitalism is derived from capital. It would be legitimate
therefore to presume that capital is a key element in capitalism.” No, it wouldn’t. So,
since the first part of the word astrology is derived from the Latin for “star,” it would be
legitimate to presume that stars are a key element in human fate. That people insist
on ruminating on something called “capital” does not imply that its accumulation was
in fact unique to modernity.”
➢ “Skousen told McCloskey that “the scarcity of investment capital has kept us
from advancing as fast as we could.” No, it hasn’t. Such a notion was popular at
the World Bank during the long reign of what the New York University development
economist William Easterly calls “capital fundamentalism.” Yet the historical and
economic evidence tells against such thinking. Pour capital into Ghana, yet it fails.
Don’t give China a cent, yet it succeeds. The liberation of ingenuity in human
minds is what mattered.”
➢ ““Capitalism” is a scientific mistake compressed into a single word. It is dramatically
misleading coinage by the enemies of liberty—and of the sadly misguided
among our friends who think they support liberty, but in their statism hitched
to capital fundamentalism end up not doing so. We recommend in its place
“commercially tested betterment” enabled by an ideology of “innovism,” itself enabled
by liberalism.”
He spoke about everything after the revolution: everything will be great after the revolution.
The decisions we make in a market vs. the actions we take when we are lead in a system
> The bourgeois deal = Leads to a Great Enrichment. Give people liberty and you give
them life.
> The aristocrats deal = honour be by blood and birth, natural superior to you, pay your
taxes. This was in a world where the aristocrats were eating 4000 calories a day and the
peasants were starving.
