Lauren Marshall – Economics Undergraduate
In this essay I will discuss McCloskey’s criticism of standard MaxU explanations of The Great Enrichment, a social and economic change characterised by unprecedented growth. MaxU theory lies within the field of neoclassical economics, championing mathematical models and rational choice theory. McCloskey’s argument builds upon an Austrian view of ‘discovery’ with the field of ‘Humanomics’, an arguably interdisciplinary approach which focuses on human meaning, language and the importance of “ideas”. Whilst there is debate to be had around McCloskey’s non-mathematical approach, I argue that her ideas trace back to Adam Smith and are thus perhaps more of the ‘essence’ of economics itself in comparison to the MaxU approach.
“The Great Enrichment” has been described as the largest social and economic change since the invention of agriculture; from 1800 to the present the average person has been enriched in real terms by a factor of ten, or some nine-hundred percent (McCloskey, 2016). Using Austrian terminology, McCloskey argues that this unprecedented growth had a great deal to do with ‘discovery’ (McCloskey, 2013). The classical rhetoric approach traces back to Aristotle, who viewed rhetoric as the art of persuading through discourse and argument. This definition has not altered significantly, despite its devaluation since the 17th century, and McCloskey today refers to rhetoric as the “study and practice of persuasive expression” (McCloskey, 1991). Thus McCloskey argues that the capacity to talk and persuade in exchange was a key driver of the economic change during “The Great Enrichment”.
Contrary to MaxU economic theory, according to McCloskey, growth has not been brought about by material or technological advances but by a new attitude towards the bourgeois virtues and dignity. Why we should focus on “ideas” rather than material causes such as capital accumulation lies in the fact that new gadgets and institutions require a great deal of thinking; “What had really changed was that innovation became common and widespread, even expected, because a British culture of innovation gave people the outlook and the intellectual and material tools to search for their own new ways of working”. This argument is convincing because, as stated in Kirzner’s theory of entrepreneurship, innovation requires alertness and therefore thought. If innovation begins as and is necessitated by thought, it is a
reasonable conclusion that “ideas” are the crux of modern economic transformation. It aligns with economic history that this would be the case; the Netherlands and England witnessed a historically unique improvement in dignity and liberty of the bourgeoisie between 1600-1800, releasing the bourgeoisie from ancient constraints and resulting in an intellectual explosion of ideas. It is therefore no surprise that the Great Enrichment also started in western Europe in the eighteenth century.
The Neoclassical school, of which MaxU belongs to, takes a view of rational individuals who seek to maximise their economic well-being, given their preferences and resources, subject to constraints (Mair & Miller, 1992). Neoclassical economics tends to view capital accumulation (or rather, material causes) and thus increased efficiency as responsible for modern growth. However, McCloskey, within the field of Humanomics, takes a focus on the importance of “ideas” rather than material causes for the transformation of modern economies, utilising concepts from the Austrian school. Through bourgeois dignity, or treating ordinary people as empowered and giving them the dignity that liberalism does, entrepreneurs can notice and take opportunities. In order to obtain the alertness that Kirzner saw as the essence of entrepreneurship, innovators necessitated a free society. And here we see how, according to McCloskey, “ideas” have transformed modern economies more than material causes, for this alertness involves language in its fulfilment; “an idea is merely an idea until it has been brought into the conversation of humankind. And so the modern world has depended on sweet talk” (McCloskey, 2016).
The trouble with MaxU is that it fails to explain sweet talk. Here lies an impossibility theorem: MaxU doesn’t have to talk, but it does follow the ‘rules of the game’. Yet perhaps the most obvious finding of game theory, the theoretical framework for situations amongst competing players, is that games always have rules, customs, and relationships – all of which are affected by language, and rhetoric. Particularly in repeated games, I view an understanding of language as necessary for the possibility of cooperation, whether discussed between players or implicit. McCloskey and Searle disagree with game theory’s claim that we can do without language and language created meanings; “you can’t use the analogy with games to explain language because you understand games only if you already understand language” (Searle, 2010). And so the strangeness of the modelling and mathematics of MaxU is that nobody talks, whilst humans do. Studies have found that around a quarter of national income is earned not from information transmission but persuasion, “sweet talk” (McCloskey, 2013). Business works with trust and in the previous two decades, experimental economics has shown that allowing experimental subjects to establish relationships through conversation drastically alters the degree of cooperation. McCloskey’s criticism of MaxU as insufficient lies in the superficiality of neo-institutionalists ignoring the constant discussion of what is to be done in the economy (McCloskey, 2015), alongside the view that the reduction of language to information transmission ceases to exhibit one defining feature of human language, the making of meaning.
The crux of McCloskey’s argument is that the MaxU model cannot work to explain real innovation. Whilst Mute MaxU fits smoothly with the conduit metaphor, which reflects the notion that language functions as a transfer of thoughts from one individual to another (Oxford Reference, 2023), it does not fit with a rhetorica theory of language and therefore McCloskey’s criticism is that the MaxU approach is unilateral; it stresses only prudence, not the six other virtues and thus the theory shouldn’t be discarded but it is limited. The point is not to throw away what is to be gained from MaxU subject to constraints, but to realise that it cannot do more than explain mere routines without regarding the creativity of humans in their language. Instead, she stresses the importance of a broader understanding of human means and the impact of “ideas” on discovery.
“The Great Enrichment” has previously been explained by material causes, such as expanding trade or exploitation. The trouble with these explanations is that such events have happened earlier and in other places, and therefore they cannot exogenously explain the Industrial Revolution and especially not its continuation. McCloskey writes that the case appears to be that “foreign trade, domestic thrift, legal change, imperial extractions, changing psychology, and the like do not explain the onset of economic growth in northwestern Europe. Material causes do not appear to work”. From this, she suggests that “we must recur to nonmaterial causes. Humanomics to the scientific rescue” (McCloskey, 2016). What appears to be needed to explain “The Great Enrichment” is a discipline that acknowledges humans as speakers of meaning, ‘Humanomics’. Whilst economics has ignored the humanities: philosophy, literature, related social science, McCloskey calls for a return to the study of human meaning which has dwindled following the expansion of neoclassical thought. Until around the 1930s, there were indeed intrusions of human meaning in the field, for example, Keynes on animal spirits and ‘The Theory of Moral Sentiments’ (Smith, 1761). Adam Smith acknowledged that economic talk is not merely informational or commanding, but persuasive. Under the influence of Robbins, Samuelson and Becker, the study has more recently been reduced strictly to ‘behaviour’ (yet ignoring linguistic behaviour) and it is this shift that McCloskey is critiquing. Without the intention of undermining McCloskey’s work, I argue that her ideas give new life to the work of some of the founders of modern economics.
The question is whether a broader perspective on human beings is needed in order to understand human behaviour and the impact it has on our daily life, or whether an approach based upon utility maximisation subject to constraints is enough. My personal critique links back to the definition of economics itself; is “sweet talk” ‘economic’? At which point in the discussion of rhetoric do we exit the field of economics and enter into the realm of sociology, social anthropology, psychology, philosophy and all other disciplines? I do not have an answer for this, but I do see an argument for ‘Humanomics’ in the recent rise of behavioural economics. The Chicago school has always cooperated with the rationality hypothesis, but,
drawing from the field of psychology, behavioural economics has finally started to find otherwise, as McCloskey stated in her interview with John Boe and Ed Kahn. I think that the future of ‘Humanomics’, and economics as a discipline, lies in drawing from other academic areas, rather than being constrained to the MaxU neoclassical model. In this sense I agree with McCloskey.
“If one believes that the human mind matters, that the content of purposes matters, then surely McCloskey must be right” (Eicholz, 2017). Almost three centuries later, there is a sense of coming full circle as McCloskey tries to reawaken Adam Smith’s discussion: “meaning matters, metaphors matter, stories matter, identity matters, ethics matters. Considering that we are humans, not grass, impartial spectators who sometimes climb up on stage for the moral sentiments and the wealth of nations, they matter a great deal” (McCloskey, 2016). In conclusion, I think that ‘Humanomics’ can add a great deal to the MaxU explanations of the Great Enrichment, but that MaxU should not be entirely disregarded.
Bibliography
- McCloskey, D. N. (2016). The great enrichment: a humanistic and social scientific account. SocialScience History, 40(4), 583–598. https://doi.org/10.1017/ssh.2016.23
- McCloskey, D. N. (2013). A Hayekian/Kirznerian Economic History of the modern world. Hayekand Behavioral Economics, 35–69. https://doi.org/10.1057/9781137278159_2
- McCloskey, D. N. (1991). Rhetoric. The World of Economics, 610–612.https://doi.org/10.1007/978-1-349-21315-3_82
- Mair, D., & Miller, A. G. (1992). A modern guide to economic thought: An introduction tocomparative schools of thought in economics. Elgar.
- McCloskey, D. N. (2016). “Adam Smith did humanomics: So should we.” Eastern EconomicJournal, 42(4), 503–513. https://doi.org/10.1057/s41302-016-0007-8
- Searle, J. (2010). Making the Social World.https://doi.org/10.1093/acprof:osobl/9780195396171.001.0001
- McCloskey, D. N. (2015). Max U versus humanomics: A critique of neo-institutionalism. Journalof Institutional Economics, 12(1), 1–27. https://doi.org/10.1017/s1744137415000053
- Oxford University Press. (2023). Conduit metaphor. Oxford Reference. Retrieved March 30,2023, from https://www.oxfordreference.com/display/10.1093/oi/authority.20110803095631283
- Smith, A. (1761). The Theory of Moral Sentiments. Printed for A. Millar; and A. Kincaid and J.Bell, in Edinburgh.
- Eicholz, Hans L. (2017, Winter). “Who Raised the Boats?” or Why Deirdre McCloskey Has to BeRight. Journal of Private Enterprise. Vol. 32, Iss.4. 71-82