Modern economic growth—that stunning increase from $3 a day in 1800 worldwide to now upwards of $130 a day in the richest countries, and anyway $30 as a worldwide average—can't be accounted for in the usual and materialist ways. It wasn’t trade, investment, exploitation, imperialism, education, legal changes, genes, science. It was innovation, such as cheap steel and the modern university, supported by an entirely new attitude towards the middle class, emerging from Holland around 1600. (It has parallels in classical music and mathematics and politics, in all of which the Europeans burst out, 1600-1800.)
What led you to focus on dignity?
I was backed into a corner by the facts! For half of my career I assaulted the notion that sociology and politics mattered for growth. Now I seem to be condemned to spend the last half contradicting my earlier self: one minus one equals . . . zero! Innovation, with its handmaidens of creativity and of persuasion, is not a matter of efficient allocation or the exercise of power. Economics of the usual sort, whether Samuelsonian or Marxist, can’t get at why Europeans and then the rest of us started around 1800 to become insanely innovative. A new dignity for innovation and its market applications can: that’s a sociological change, supporting sensible economic policies. Look at China after 1978 and India after 1991. So too, I say, Holland in 1600, England in 1700, the English colonies and Scotland in 1750, and on and on. Praise God.
How does the concept relate to individual rights? Are they two sides of the same coin?
They are at least two coins that need to be paid up. If a place has dignity for the bourgeoisie but not liberty to exercise it—think of Venice late in its history—then it will not innovate. And having liberty without dignity—think of liberated Jews in Europe, and the dismal outcome in the Holocaust—then the liberty will prove in the long run a dead letter. My libertarian friends want the politics by itself, Liberty Alone, to suffice. I don’t think so: we need dignity, too. We need the sociological admiration for innovation and markets, to protect and inspire the liberated.
What is (are) the top lesson(s) that development economists should learn from economic history but haven't?
I don’t want to scold development economists, who like economic historians seek the answer to our most important scientific question—the nature and causes of the wealth of nations. I was trained as a Samuelsonian economist, and taught at Chicago for a dozen years in its most creative period, so I understand and admire the sort of economics that development economists use. We all want growth to be a story of disequilibrium, misallocation, followed by a movement to a blessed equilibrium. The trouble is that all you get that way are little Harberger triangles of efficiency gain—not enough to explain a factor of 10 or 30 per capita. The real story is not, for example, the deeply Samuelsonian notion that The Institution Is It (Doug North is criticized in the book). It’s that Creativity Is It, which is more Austrian than Samuelsonian, more historical than timeless. What you can learn from the history is that stasis reigned until we discovered dignity and liberty for ordinary people, and in particular for the disturbing, irritating class of entrepreneurs.
What does your work imply for development today?
Politics and sociology, not psychology and economics, are what make growth possible. You can kill an economy with a License Raj or a disdain for the bourgeoisie. People have always been maximizers in markets, but have not always been joyful innovators. Admiring economic novelty irritates the intellectuals, and giving rein to creative destruction pains the vested interests. But both of them, dignity and liberty, seem to be necessary.