LibertyMatters is hosting a discussion on Deirdre McCloskey, namely her notion that “economics can’t explain the modern world”: that is, that mass flourishing, the tremendous progress that was originated with the Industrial Revolution, is something we owe primarily to culture. McCloskey’s magnificent work aims to answer to one of the most interesting questions in economic history: why did it happen here? Why did the Industrial Revolution take off in England and not in China, and why did the rest of the West followed suit? Of course, many answers have been offered over the years, but McCloskey’s is among the most profound and illuminating.

The discussion is kicked off by Don Boudreaux, who contributes a most brilliant synthesis of McCloskey’s ideas. Writes Boudreaux:

Until the 17th century, those who earned their living through trade were the Rodney Dangerfields of their eras: they got no respect. Merchants and other people operating on the supply side of commercial activities and transactions were tolerated. But they were viewed and spoken of with contempt. Unlike warriors who dirtied their hands honorably (namely, with blood), traders dirtied their hands dishonorably (namely, with profit). Unlike the nobility who got their riches honorably (namely, by idly collecting land rents), merchants got their riches dishonorably (namely, by actively trading). Unlike the clergy who won their rewards honorably (namely, by pondering the eternal), the bourgeoisie won their rewards dishonorably (namely, by responding to what Hayek later called “the particular circumstances of time and place”).
Dishonor, you see, is a tax. (…) And like all taxes, this “dishonor tax” (let us call it) discourages the activities on which it falls while it makes alternative, untaxed activities relatively more attractive.

Explanations that build on “culture” are often dismissed on the ground that “culture” is impalpable and tends to frustrate clear definitions. It is one thing to say that “ideas have consequences”, another to explain how these consequences are brought by. And indeed, it is often difficult to explain how the “transmission chain” between the world of ideas and that of institutions work.

Boudreaux explains how repealing the “dishonor tax” made mass flourishing possible:

by finally giving dignity to traders and shopkeepers, the repeal of the dishonor tax greatly expanded and made more reliable the economic institutions necessary for market-tested innovation to be a profitable pursuit. To thrive, market-tested innovation needs extensive markets. As (of course) Adam Smith taught, increasingly extensive markets are a result of expanding trade. And the freer is trade, the more it expands. The more trade expands, in turn, the more extensive grow markets. Therefore, repealing the dishonor tax makes trade freer which, by widening markets, increases the rewards for successful innovators.

Read the whole thing and follow the discussion (Joel Mokyr and John Nye will also participate).