 You may know it as capitalism, or the Industrial Revolution. Most economists call it modern economic growth. Deirdre McCloskey calls it the great enrichment. Whatever you call it, it transformed our standard of living from something like $3 a day to $120, or maybe $300 a day. How it happened is the most important question in economics, and of course many economists and other academics have tried to answer it. McCloskey's answer, which she will be talking about today, has been a development for her entire career. As an economist, McCloskey is classically trained. BA and PhD from Harvard, tenured as a professor of economics at the University of Chicago. McCloskey's scholarship was initially focused on the economic history of Great Britain before the great enrichment. Such topics as industrial productivity, international trade in the gold standard, poor laws, and the enclosure of open fields in England. As an economic historian who was on the vanguard of using data and quantitative techniques to answer historical questions, McCloskey has always been interested in not just what questions we ask, but how we answer them. Increasingly, McCloskey's focus turned to the profession of economics himself. I'll skip one there. And the writing of economics, the rhetoric of economics, the teaching of economics, and where the field of economics was using its way, especially the exclusive use of mathematical optimization models, what McCloskey calls the max view economics, and the misuse of statistical significance as a substitute for real economic analysis. On that note, just last spring, the American Statistical Association issued a statement that affirmed and brought urgency to what McCloskey and co-author Steve Zeliak have been arguing emphatically for over 20 years. The essay statement reads in part, a p-value or statistical significance does not measure the size of an effect or the importance of a result. So statistical significance is not equivalent to scientific, human, or economic significance. In 1994, I started graduate school at the University of Iowa, intending to specialize in economic history and study under Donald McCloskey. I ended up switching my specialty to sports economics, which was a big change. But it was certainly not the biggest change that happened at that time. I kept dear to McCloskey as my dissertation advisor because I so valued her insight on how to think about economics, regardless of topic, and especially her ability to write about it. Since her transition, Deirdre has continued to grow as a scholar in both depth and scope, which brings us to her most recently completed project, a three-volume epic to explain the great enrichment and redeem the values of the bourgeoisie. She argues that all of the classical virtues, courage, justice, temperance, and courage, and the Christian virtues, faith, hope, and love, are essential to the bourgeois commercial society, not just prudence alone. She then shows that the great enrichment was not caused by greed or exploitation of natural resources or other peoples, or technology, or even trade and specialization. Instead, the great enrichment was born and persisted because liberty and dignity have extended to a larger and larger share of the population, allowing more people to, as she says, have a go. It takes a special writing skill to sum up Deirdre McCloskey in a few words, so let's have her do it. I'm a literary, quantitative, postmodern, free market, progressive, Episcopalian, Midwestern woman for Boston who was once a man. Not conservative, I'm a Christian libertarian, and I just learned yesterday that I should change libertarian to liberal. And it is my great honor to introduce my advisor and mentor, Deirdre McCloskey. Thank you, Deirdre. That was lovely. That was good. Well, thank you very much. I'm honored to be here, of course. I've actually taught in Sweden a lot, but only in English, so I can't say anything in Swedish except, hey, hey. So I apologize for my idiocy. I'm going to speak today about a project which you see the outcome of here in three books, which I've been obsessed with for 20 years. I call it the bourgeois era. And I'm using the word bourgeois to mean simply middle class, but it also has an intent of making people stop saying bad things about the bourgeoisie, about the middle class. The way a 12-year-old girl whose father won't allow her to go on a sleepover, she says to him, oh, daddy, you're so bourgeois. I want to get away from that. And in particular, I want to get away from the assumption that what we normally call capitalism is corrupting. I take an ethical view. I'm an amateur, very amateur, theologian. I take an ethical view of life, and not that I'm ethical. I'm afraid. I try, but I don't succeed too well. But I try. And I view our market society, our society of what I prefer to call trade-tested betterment. If you want one word, inovism, that society, I think, is capable of being ethical. And indeed, largely already is ethical. It's not an ethical disaster to buy low and sell high. It's not an ethical disaster, as Paul said, to show up for work as a school teacher for pay. It's not an ethical disaster to be motivated by money, as John was saying. So I have three volumes that are available on Amazon.com. Cheap, cheap. I'm hoping for a, I've argued with my editors now to try to get a boxed set. How cool is that? Like Harry Potter? Makes a beautiful gift for your mother. She'll be delighted to receive 1,700 pages in defense of a market society, which is what it is. The first volume, which was published in 2006, was called, now here are the whole title, the bourgeois virtues. When I first proposed to speak on this at the Institute for Advanced Study at Princeton, the secretary laughed and said, isn't that a contradiction in terms, the bourgeois virtues? And it was my initial purpose in these volumes to contradict her, to show that they're not, to contradict her claim that it's a contradiction. The bourgeois virtues, ethics for an age of commerce. Volume two is the most economic. That first volume is philosophical, theological, sociological. I always use a lot of examples from Shakespeare and Jane Austen and so forth. And I do that through all the books. But the second one's the most economic. And I go through the explanations of how we got so rich and show that the standard explanations, some of which you've heard in this conference, are at best partial and often quite wrong. And then the third volume, which is the largest, the first two are 500 pages each. That's bad enough. But the last one is 700 pages. Because I was going to do at 1.4 volumes, then I decided, though a trilogy on this matter might be considered somewhat self-indulgent, a tetralogy is an abomination. So three volumes is all you get. And the third volume asks how what I think caused the great enrichment, as Jeff mentioned, how it came to be originally confined to Northwestern Europe. But now you see it in Botswana. You see it in Hong Kong. You see it in India and China most spectacularly. So here's a brief. I'm an economic historian by scientific trade. I also do some other things. But economic history, as Jeff said, is my core field. So I'm going to give you a brief economic history of the world. And in a way, it's the most important thing I'm going to say this afternoon. So if there's one takeaway, it's this. My finger has a remarkable feature. You know, like a concert pianist will say that the music is in her hands. My finger can do scientific diagrams there. It's in the finger. So here we are back at, say, the beginning of Homo Homsapiens. The Adam and Eve, so to speak, in Africa. Everyone here is an African, by the way. Let's get that clear. Mine, according to a cheek swab I did about 10 years ago, not too informative. It said, your people came out of Africa about 30,000 years ago and turned left. Well, I'm Norwegian and Irish and English, so that's not too surprising. But anyway, let's start back in 200,000 BCE and represent what a hunter-gatherer society got along on per person per day. And it's about $3. Now, tried to live in St. Paul or St. Peter or all the other saints in this state on $3 a day, and you're going to find it tough, particularly in the winter. So there you are, $3 a day. And it goes along like this. See the trembling in my fingers, the ups and downs. $3 a day, $3 a day, $3 a day. That's 200,000 BCE. We'll make this little cross here, the present. And now we're at about 8,000 BCE. And in nine different parts of the world, completely independently, the domestication of plants and animals takes place. The so-called agricultural revolution. You'd think, well, boy, that's going to change things. We'll get from $3 to, I don't know, $20. No. What happens is it goes up, but then the population increases. Women are more fertile when they're well-fed. More children survive. Childhoods, so population, booms. And we get civilization in the literal Latin sense of the word. We get town life. We get towns. And then people learn to read and so forth. So it goes back to three, on Malthusian grounds, on grounds of diminishing returns to land, essentially. So then it goes along at 3, 3, 3, 3, 3, 3. Now we're in 1800. Now it's very important that you see this and hear it. Then it goes in countries like the United States or France or then ultimately South Korea and other places. It goes like this. The sound effects are quite important. Now how much is there? Well, as you can see from Orly's data across country, it increases by a factor of 10 at least. And in countries that have taken full advantage of the great enrichment, the innovations, and so on of the 19th century and the 20th and the 21st, it goes up by a factor of 30 conservatively measured. Sweden, for example, mentioned one of my favorite countries. Sweden in 1800 has been called the impoverished sophisticate because though most people in Sweden could read both men and women because they had to read the Bible, nonetheless, Sweden was the second poorest country in Europe. The only poorer country was Russia. So you can see that it was pretty bad. And then Sweden grew when it adopted liberal policies in the middle of the 19th century. Faster than any grew in per capita income, real per capita income from this $3. It grew faster than any country in the world except Japan in this matter. And so now Swedish national income per head per day now. So you have a scale is $110 a day. So it went from $3 a day in modern terms. Modern, we're correcting for inflation. It went to $110. In the United States, it's about $130 a day per person. In Norway, which is where my people come from, because of the oil this irritates the Swedes very much, it's $145 a day. And the Swedes have been accustomed for centuries to thinking of the Norwegians as their poor country cousins. And it really sticks in their craw that the Norwegians are better off. My grandfather grew up in a Norwegian-speaking community in Illinois. Used to say, 10,000 Swedes went through the weeds one day at Copenhagen. 10,000 Swedes went through the weeds all chased by one Norvegan. I don't know really the historical origin of that, though I'm a historian. So this great enrichment, and I think it's fair to call it a great enrichment, because you'll notice in my diagram it never happened before. So the question really of the first book is to establish that it's possible to be ethical deeply so. It's possible, for example, to be a Christian as I am. Well, that doesn't mean you're deeply ethical, I'm afraid. But anyway, let me say it, to be an Episcopalian and yet still be an actor in the economy. That's the first book. And the second and third book are concerned with then this material consequence of the bourgeois virtues, as I call them, this amazing. Now, this question that I ask, those other people that have spoken here, they're talking about minor issues. I'm talking about the most important issue in economics. Actually, we all are. All of us are. We're talking about the nature and causes of the wealth of nations. And I think most of the explanations are wrong. And I'd like to, but answering that scientific question is very important. It's like discovering the periodic table of the elements, if you can figure it out. It's that important. Because maybe, and here I would want to disagree with my new friend, John List, maybe you'll want to know why it happened two centuries ago to help you understand why it might continue to happen, as I think it will. So we've got a factor of 10 at the minimum, factor of 30, kind of at the average, not the average of the rich countries, a factor of 10,000, factor of 10,000. No, no, not a factor of 10,000. A factor of 100, a percentage increase 10,000, if you include improvements in the quality of goods and services. Medicine, for example, up until the 1920s, as Louis Thomas, a great doctor, pointed out, it was really a bad idea to go to a doctor, unless you had a broken arm or something that was very simple to fix. So there's been an improvement in quality, even the quality of economic analysis since 1800. So OK, there's this enormous increase. That's what we're trying to explain. Now here's how it's been conventionally explained. On the left, let's talk about politics here. On the left, Bernie Sanders says, it's caused by exploitation. Marx, when I was an undergraduate at Harvard College, Bernie was an undergraduate at the University of Chicago. And at that point, we both had the same politics. I was a Marxist, he was a Marxist. The difference is that since then, Bernie hasn't changed his opinion or his facts. But OK, he says and Marxists and people on the left say that, for example, Europe is rich because of imperialism. Europe is rich because it's exploiting what we once called the Third World. Or we're rich because the working class in the early 19th century was terribly exploited. And that allowed capitalists to accumulate. And that made us rich, surprisingly, also the working class, or else slavery made America rich. This is embodied in the wonderful poetry of Abraham Lincoln's second inaugural address. All of those are wrong. All of those are mistaken on grounds that I could go into. Let's take imperialism as a simple example. Yes, King Leopold II of Belgium was an appalling tyrant in the Congo. He wanted rubber at the end of the 19th century for the new applications, for gaskets in steam engines and other things, gaskets, rubber gaskets. He wanted them for tires, for bicycles, and so forth. So he took this place that he owned personally, Congo, and he sent his soldiers in. And they forced people to go into the jungle to tap rubber trees at the same time this was happening in Amazonia. But then you'd say, aha, Belgium was made rich by exploitation of Africa. But the trouble is that all the money from this profitable trade went to the king himself. It didn't go not a dime. Essentially, not a dime went to ordinary Belgians in the late 19th century, late 1800s. All the money went to buy castles for King Leopold in the south of France and that sort of thing. So the ordinary Belgian was made no better off by this terrible, terrible exploitation. And I don't make any bones about it. This was among the worst instances of European imperialism. So far as the much more extensive British empire was concerned, it's been shown over and over again that in economic terms, it didn't matter much. Maybe or maybe not South Asia as the jewel in the crown of the British empire was damaged by imperialism. I happen to think that by now they've probably gotten over this effect, but let's not get into that. I'm asking what caused the quck in Britain? And you can see again by the example of Sweden. I'll give a lot of Swedish examples. You can see by the example of Sweden that it can't be the possession of empire that makes a place rich. Because people got bananas or curry for their breakfast or for their dinner in Sweden just as well as they got it in Britain. If you look closely at the accounting, it turns out that the British empire was paid by ordinary taxpayers in Britain. It was supported by ordinary taxpayers in Britain. Half of the expenses of the Royal Navy went to protect the sea routes to India. Culling stations in the days in which warships ran on coal were scattered all across the world in order that the British Navy could wander around and stop anyone from cutting Britain off from India. But it's not as if India was some cow. Let's go to Wisconsin analogies. It was not as if it was some cow that was being milked all this time. That's not true. There was essentially free trade between Britain and India. So there was not masses amounts being taken from India. Indeed, if you think of the business plan of seizing a poor country like India for the benefit of a rich country like the United Kingdom, it's kind of crazy. Would you do well by robbing from the homeless people in your neighborhood? No, I don't think so. If Britain was going to steal from someone, it should have stolen from France or Germany, not from India. But half of the Navy was on this assignment. And the Navy was paid for by the great British public. It was paid by taxes on beer, for example, beer that was drunk mainly by poor people. And then the poor people would serve in the Imperial armies to fight on the Northwest Frontier in South Asia or to fight the Africans armed with spears or then in the First World War and the Second. So ordinary people in Britain got nothing from the empire, but the pleasure of seeing a quarter of the world's map painted red if you include Canada and Australia. So the left story, that exploitation is the key to what they call capitalism, is mistaken. And I'll be glad to argue with someone who thinks not argue, I'll be glad to convert. Anyone who has the other view, if you think that bargaining strength is what determines wages, speak to Orly Ashenfeller and he'll tell you it's not. He'll tell you, as we know since the 1930s, a great book by Hicks, The Theory of Wages, wages are determined by supply and demand, essentially. Unions, I belong to the faculty union at the University of Illinois at Chicago. When I was a kid, I belonged to the National Maritime Union. I'm in favor of unions. My whole family, I'm fond of saying, I'm the only person here, and even in a large audience like this, I'll bet you, I'm the only person here who could become an apprentice electrician in the state of Michigan. I don't intend to, I must say, but I could, because my grandfather, Fritz, my uncle Joe, and my cousin Phil, were all electricians and members of the union in a closed shop state. So I could do it, you all, sorry, you can't. But I'm not against unions. I just don't think that they cause enrichment. So it's not the struggle on the picket line a couple of years ago. I was on a picket line. I sang the old labor songs, which, by the way, I challenge anyone here to know more left-wing songs than I do. When I was a kid, when I was in college, I was a Joan Baez Marxist. I, Joe Hill, I dreamt I saw Joe Hill last night alive as you and me, and Joseph Hillstrom from Sweden again. So it's not bargaining that got us the 40-hour week. It's not the government policies that the left wants that made us rich. They may help a little bit, but they're not. The bulk is caused by increasing marginal products, as we say in economics, increasing real wages, such as Orly was talking about. OK, so that's on the left. Oh yeah, that's the left from your point of view. Now over on the right from your point of view, the argument's also mistaken. On the right, the argument is basically, and it shares some features with the left, is that it's investment that made the modern world. Now I would challenge Paul Collier in this point, although I think in the end, I think we actually agree on this, that investment by itself without innovation, without what I call trade-tested betterment, without electric lights or microphones that don't work a third of the time, or wood cheaply, not cheap, but inexpensive wood, such as these things here. The amazing projections we have here. Look, God, look at my hair. I've got to fix my hair. This is terrible. Oh well, this is it. This is what you get. You can't do any better. Any investment by itself doesn't accomplish anything. The classic case is Ghana, which received per capita a lot of foreign aid, 50s, 60s, 70s, and so forth. And Ghana started out after independence one of the richest countries in sub-Saharan Africa. And it rather quickly became one of the poorest. The foreign aid didn't do anything. The pouring of the making of artificial lakes to refine bauxite into aluminum, or the various plans they have, didn't work. Because there was no real innovation behind it. There was no novelty. There was no really clever idea. Uber, which has been mentioned, is a very clever idea. And it's an idea all by itself. Once you've realized that you can do reputational tests on both sides of an exchange with the web and iPhones, then you have essentially the whole business plan of Uber. So investment, John Maynard Keynes, the hero of my youth after I'd started to study economics and had stopped being a bone bone by his Marxist, John Maynard Keynes said this in his great book of 1936. He said that within a generation, the return on capital could be brought down to zero if, and this is what he was implicitly assuming, there was no innovation going on. If, look, we have this nice fieldhouse here, hockey stadium, or whatever you call it. Let's see. This is a success. Let's build another one next door. And of course, the other one next door is not going to be as valuable as this one. Well, OK, let's do a third one. Well, down goes the return. Probably by the fourth one, if not fourth, a identical building like this with no innovation, no change, no new use, the investment is going to be less than zero in return. So that basic idea, which is very fundamental to economics of diminishing returns, applies very strongly to investment by itself. Therefore, all the talk since Adam Smith, who was the first to make this kind of argument in a serious way or Marx, I guess I should give him a other side because the main application was in Russia, and Keynes, and then Walt Whitman Rostow, acquaintance of mine. The idea that simply accumulating capital is what capitalism is all about is a mistake. In fact, that's one of the reasons that's the main reason. I don't like the word capitalism. Not because it was coined by the enemies of trade-tested betterment or innovism, but because it suggests very strongly to practically everyone, the people on the left, the people on the right, the people in the middle, that capitalism is all about capital accumulation. How do I know the very word capitalism says it? I mean, what more evidence do you need? Well, it's wrong. Humans have always accumulated capital. You go back to the Ausulian handaxe of our forebearers, very much our forebearers, used for 1.3 million years among the genus Homo. And you find in archaeological sites masses of these so-called handaxes. They weren't actually axes. They were used for other things. So we've been accumulating stuff forever. So that's one of the reasons why accumulation of capital can't be it. Over here, the exploitation can't be it because, look, we've always exploited each other, especially since the invention of agriculture. In hunter-gatherer communities, you can't exploit very much because the exploity can be knocked off very easily, can be killed if he starts misbehaving. Whereas the Lord and the lady, the Lord on his horse with a sword, he can dominate an agricultural community. The economist Mansur Olson called these people stationary bandits. That is, the ruling class, the priests and the lords who collected the surplus from agriculture, they had this power through violence. And it's always been true. Now it's the government that's the stationary bandit. Sometimes, as Paul would argue, for good. Sometimes, as I would argue, for bad. But anyway, they're the ones who collect the surplus. So it's always happened. There's been exploitation of the surplus, agricultural surplus by these people over here, the exploitation people. And there's always been capital accumulation over here. Those are the historical reasons why the usual explanations don't work. Why the can't be caused by foreign trade leading to accumulation or the profits of the slave trade to go to the left again that caused the increase in capital. No, capital accumulation doesn't do it. And in the middle of this political spectrum I have here, you might talk about institutions, the orthodoxy in the World Bank these days. Once, when I was a development economist, a transport economist, when early in my career, once the World Bank orthodoxy was add capital and stir. Add capital and stir, pour investment into some country and stir it around, and then you'll get economic growth. Now the orthodoxy, coming from my old friend Douglas North, is add institutions and stir. And I think neither of these makes a lot of sense, because as Paul points out, the institutions need ethical support or they don't work. You can add all the good laws you want to Chicago 100 years ago when every policeman, every judge was for sale, and you could add laws and have good institutions and it just wouldn't work. It wouldn't change anything until there was, as there has been slowly in Chicago, a change in ethics, change in the conversation that Paul was talking about, the conversation of the society, the attitude towards the corruption. Towards, towards, towards. It's not so much bourgeois virtue that I think is the cause of the modern world, but a change in attitudes towards the bourgeoisie. So if these, and then there are economic grounds, as I've described to you, on the left it doesn't work. On the right, the diminishing marginal returns to capital you can easily show can't possibly let capital, even human capital, human capital. Education doesn't do it by itself. You can educate millions and millions of people if you don't give them the freedom of enterprise that they need. You'll just get more and more educated, unemployed people. That's what you'll get. So neither of these works, and the one in the middle, the institutions, what's wrong with that historically. Doug North, this man who died about a year ago, marvelous guy, he said that there was a big change in the quality of institutions in Britain or England to be specific for the date in 1688. In the glorious revolution, which was the end of the 80-year struggle between the Crown and the Parliament and Parliament won. And Doug says that meant that now property rights were secure in Britain. And that's to use a technical term in economics. That's baloney. Property rights had always been secure in England, except during episodes such as the Law of the Roses. But back to the time of Edward I, common law was in full bloom in England in property and contracts and anything you want to name. And indeed, the law only changed after, well after, the beginning of the Great Enrichment starts around the middle of the 18th century in England. The institution started changing in the 1820s and especially the 1830s and 40s. So the institutions changed after the economy started changing. So things that come after can't be the cause of things that come before. That's among the numerous problems with this new institutionalist story of modern economic growth. So dear, OK, dear, stop dumping on my colleagues and stop complaining about economic arguments that I think are wrong. What's my explanation? Well, my explanation is technology. I think Jeff misspoke when he said I was against technology as a cause. No, no. I'd join with my friend Joel Mokir, a great economic historian and Jack Goldstone and a bunch of other people in saying that technology is it. It's not exploitation. It's not investment. I don't think it's changes in institutions because they don't change. And institutions anyway are often conservative. It's technology. Both mechanical technology, electrical technology, look at this marvelous cheap, I mean, handsome carpet here, which would be impossible in the 18th century. Look at the steel on your chairs, impossible before the middle of the 19th century. Look at this. Oh, my hair again. God damn. Look at this amazing technology. Those are the technologies, but they're also institutional improvements, institutional improvements such as what we're in right now, the modern college, the modern college that combines research and teaching. That was invented in 2010 by a man named Van Humboldt at the University of Berlin. Or take McDonald's once again. Let's talk about McDonald's. Ray Kroc invented the idea of the hamburger chain. Actually, the first idea of this was called Howard Johnson. You've never heard of Howard Johnson's, most of you. But back when I was a kid, that was the chain. But it was an institutional innovation that McDonald made, that Kroc made. By the way, his widow has given the money to NPR, which I think is great. So the institutional change, the investment, is necessary. You've got to embody this, what would you call it, this movie system we have back here, in actual stuff that you have to invest in. But it was the ideas for it. The idea in Ray Kroc's mind, the idea of a research university, those came first. The idea of a new spinning machine, the idea of a steam engine, the idea of electricity, the transistor, et cetera, et cetera. Now, in a way, this is a completely obvious point. Once you've gotten over thinking that it's either exploitation or investment or institutional change and can look at what it actually was in the 18th, 19th, and 20th century, it's pretty obvious, as Paul Romer, a student of mine at the University of Chicago, has said, it's pretty obvious that ideas for technological improvement or institutional improvement come from people's brains. I mean, where else are they going to come from? Outer space? They come from people's brains. So that's the first point completely obvious in my explanation. But the big question is why all of a sudden, in the after 1800 especially, in many countries and in an increasing number of countries, people, as Jeff mentioned, have a go? Why did so many people start thinking of innovations? An example that I have in mind, I've had in mind for decades, is an exhibition at the Wisconsin Historical Society about 40 years ago, maybe even longer, about 40, of cherry piters. These, Wisconsin was not a dairy economy in the 19th century mainly. It was a fruit growing economy. There were a lot of fruit orchards, and people grew cherries. Then they had the long Wisconsin winter to think of ways of getting the pit out of the cherry. And in this exhibition, I'm not making this up. Hear this. In this exhibition, there were 200 cherry piters of various designs. 200. Now this is loco. This is potso. This is insane. Heck, as we say in Dutch. Meshugana. Come on. 200 cherry piters. But that's ordinary people having a go. So the key is that a mass of people feel entitled, feel empowered to open a hairdressing salon, or start a computer business in their garage, or invent the Chicago Board of Trade. Ordinary people. Because if it's just a bunch of elite, I don't know, college professors or something, it's not going to work. That had happened before. Innovation has been something homo sapiens have been doing forever. But nothing like the volume that they did after 1800. OK. Why the change? Why rather suddenly after 1800, starting in Northwestern Europe and spreading to the world, did we get this crazy outburst of invention? My friend Matt Ridley, an English science journalist, calls it ideas having sex. So I know it's kind of vulgar, but I can't help it. Neither can he. You invent, rather obviously, to get coal out of horizontal mines in northeastern England. You invent rail cars that you push, or the pregnant women drag or something, along rails to get the coal out. And then you invent the high pressure steam engine. The atmospheric engine won't do it. It has to be high pressure. And then you put the two together. They have sex, and you get the railway. And then there are little baby ideas of the railway. And they have sex with each other. And everyone, the grand baby ideas and the great grand, and you get this enormous explosion. Because ordinary people are having a go. As Walt Whitman said, I contain multitudes. I contain multitudes. And he did. He and Americans. Now, why did that happen? It happened because of what is properly called liberalism. Not the way it's used in the United States and in Britain, especially in the United States, to mean slow socialism. I was once a socialist, so I sympathize with this error. But it's an error nonetheless. Liberalism is what Adam Smith called the liberal plan, now hear this, of equality, liberty, and justice. Equality before the law. And in, let me see, let's get this right. Equality of social standing. Liberty to open a business. Look what happened in China after 1978, when the Communist Party started allowing people to own business. And justice. That is equal justice before the law, the motto on our Supreme Court. So that's it. It's a species of equality. I call it Scottish equality, to contrast it with Rousseau's French equality, which is equality of outcome. I've written a long review of Thomas Piketty's big book on capital in the 21st century, in which I treat the book with respect. It's a serious book. But I conclude after 50 pages that it's wrong, and that equality is not our problem. Our problem is raising up the poor. The problem is poverty, not equality of outcome. The problem is the failure of the public schools that John was speaking of to give everyone a proper start in life. So liberalism is what made us rich. It's also what made us free, more or less, by definition. This is an 18th century idea. The clericy, as I call them, the intellectuals and the artists, the theologians and the novelists since the 18th century have had three ideas, three ideas about society. One was this liberalism. So Voltaire and Ben Franklin, Mary Wollstonecraft, Tom Paine, that's liberalism. The other two ideas were just terrible. Socialism and nationalism. Nationalism came first than socialism. And if you like nationalism or socialism, maybe you'll like national socialism. That is fascism. You know, you need to consider whether that's the kind of world you want. And the liberal idea turned out to be correct. It turned out to be that when you had the liberal plan of equality, equality, liberty, and justice, you inspirited masses of people to have a go to try out trade-tested betterment that's accounted for the free. Now why was that? Why did it happen in Northwest Europe? Is this more Eurocentric pride? Pride, the chief sin against the Holy Spirit? No, it's not. It's very, it was a close thing. Could easily have gone the other way. In 1500, if anyone could have conceived a factor of 10 or 30 or 100 increase in real income per head for ordinary people, they would have bet on China. Because China made most of the world's inventions. We once used to think that the blast furnace was a Swedish invention and know it wasn't, it was Chinese. We tend to think of the printing press as a German invention, know it wasn't, it was Chinese, et cetera. China had an enormous free trade area, low taxation. It had a comparatively educated population, at least by comparison with Europe at the time. And it had, what else, it had most of the world's a panoply. Most things were invented in China and you would have thought it's going to go on, China's going to be the place. But no, it was this crummy little corner of the Eurasian landmass called Northwestern Europe. And emphasize that it wasn't in Italy, where on internal European grounds you would have supposed that economic development would start taking place. Now it was around the North Sea, Holland to begin with, the Dutch, then England when it got a Dutch king, then Scotland when it escaped from strict Calvinism, the English American colonies, North American colonies, then Belgium, Northern France, et cetera, et cetera. It gets, it spreads. But it's Northwestern Europe, in fact, accepting Holland, and there's some, actually some involvement of Sweden in this, but not much, accepting Holland, it's the Anglo sphere, it's the English speaking world. Now why there? Well, it's not because of some ancient English or European superiority. It's not science, for example. And Joe McCarr argues it's the scientific revolution. I don't think so. I think now the scientific, high science, is terribly, terribly important for economic growth, for further economic growth. But in the 18th and 19th century, indeed in most parts of the economy, well into the 20th century, it's technologists, tinkers, skilled machinists, people who are not doing thermodynamics or something. It's not high science, it's low technology that made the modern world. And certainly the institutional developments have very little to do with high science. So it's not science, it's not English common law as some of my colleagues think. Asimoglu and so on, they think it's that. No, no, because it didn't happen in Britain, now properly called Britain with the act of union until the 18th century. So what was it? It was accidents of Northwestern European politics and social change, especially politics. The Reformation, not the way Max Weber claimed it as a change in the doctrine of salvation, but because of a change in radical Protestantism, not the kind I espouse or the Lutherans or the Catholics, and certainly not the Catholics espouse, not a hierarchical church but a democratic church. Congregationalists, extreme example in the 17th century are Quakers who have no minister at all. If you've been to Quaker meeting, they sit around in a circle until the Holy Spirit descends. Reading, not a German invention, but the printing press was crucial to the success of the Reformation. Martin Luther's address to the nobles of the German nation is highly radical pamphlet against the Pope. In its first week, 4,000 copies. In its second week, another 4,000 copies. Within two weeks, 8,000 copies of this revolutionary pamphlet on the order of the communist manifesto was circulating in Germany, in German. Revolt, the successful Dutch revolt against Spain. Which was the northern low countries, what we could conventionally call Holland, against the largest and best army in Europe, name of the Spanish army. And in an 80 years war, it actually didn't really last that long, but it's called the 80 years revolt, they finally won. That made people bold. The English Revolution, you can call it, the English Civil War of the 1640s, made people bold. The English Revolution, the glorious revolution, 1688, I've mentioned, made people bold. The American Revolution, you know about that. The French Revolution, 1789. All these could have gone the other way. Without Martin Luther, without, well, maybe even without Gutenberg, but certainly without Oliver Cromwell, without King William of William and Mary, without George Washington, who finally learned how to fight, without the French Navy intervening at the right points, without, without, without. It could easily have gone the other way, that's why I call it an accident. So by an accident of history, Northwestern Europe became somewhat liberal. Now understand, the United States was a slave society well into this, this event. So I'm not saying that these were perfectly liberal societies, but they were more liberal than the alternatives. There were societies in which ordinary people could have a go and wanted to have a go. So I'm going to make a bold claim, and then I'm going to sit down. I think I've solved the central question in economics. And if you don't believe me, buy the books and read them. Anyway, buy them. It is that ideas, as I say in the subtitle of the third volume, ideas, not capital or institutions, enrich the world. And if I had had my wits about me, I would have sold more copies. I've sold a fair number already. I'm glad to hear it. I'll be glad to hear it. This last volume came out last spring, this spring. If I'd had my wits about me, I would have said, I would have added one more word. I would have said, how liberal ideas, not capital or institutions, enriched the world. Thank you very much. Come on up. I think you know the drill. Our panel will join us. We'll hook up and we'll have our conversation here in a few moments. Thank you.