Can entrepreneurship survive? The New Theories of Moral Sentiments

April 4, 2012

Wall Street Journal:

Deirdre McCloskey certainly leaves an impression. With her robust frame, hoarse voice interspersed with an occasional stammer, and extraordinary charisma, she is anything but your typical economic historian.

On a recent trip to England, she gave a talk at Hartwell House in the heart of Buckinghamshire that felt like a good stand-up comedy show, on par with the better performances of Eddie Izzard or George Carlin. But humor and witticisms aside, the talk revealed her conviction that economists should not shy away from the subjects of love, friendship or virtue.

Ms. McCloskey sees a problem in the way that economic models are dominated by a strange, sociopathic character—”Max U” as she calls him, referring to the standard economic problem of maximizing utility subject to various constraints. Her own scholarly work has become increasingly focused on bringing love, hope, faith, courage and other virtues back into economics.

Ms. McCloskey enjoyed a stellar career in economic history before her apostasy, being among the earliest pioneers of cliometrics—the quantitative study of economic history. In her career as an economic historian, with appointments at the University of Chicago and the Institute of Advanced Studies at Princeton, she built and used historical data sets to answer seemingly arcane questions about the British steel industry during the 19th century and medieval agriculture.

But then Ms. McCloskey started crossing boundaries. She became interested in the way economists formulate their arguments and use persuasion in public discourse. Her research, questioning some of the fundamental tenets of neoclassical orthodoxy, was not always met warmly by her colleagues. In the context of her scholarly transformation, she is fond of quoting Mae West: “I used to be Snow White, but I drifted.”

In the mid-1990s, Ms. McCloskey went through another radical transformation, changing her gender and ditching her given first name, Donald, to become Deirdre. Although many of her colleagues in academia were supportive of her crossing, that period was difficult for her and her family. Her children have cut ties with her, and she has never met her 13-year old grandson. “People throw away love too easily,” she told me as we drove to Hartwell House.

If her talk of ethics sounds fluffy, recall that in 1759 Adam Smith earned his reputation by publishing “The Theory of Moral Sentiments,” in which he accounted for the emergence of sympathy and moral judgments. It was only in the 20th century that ethics disappeared from economics, partly as a result of the increased mathematization of the discipline. Ms. McCloskey says it was a fundamental error for economists to start making their arguments in terms of “Max U” alone. “In fact, ‘Max U’ would be a much more sensible person if he had gender change and became ‘Maxine U,’” she chuckles.

In 2006, Ms. McCloskey published a 600-page book, “Bourgeois Virtues: Ethics for an Age of Commerce.” In a meticulously documented volume, drawing from a range of philosophical traditions, she asks whether one can participate fully in the modern capitalist economy and still be a moral person. Ms. McCloskey is a free marketeer and used to be a close personal friend of Milton Friedman, as she eagerly points out. Her answer is therefore an emphatic yes. It would be ill-advised, she thinks, to claim that profit-seeking makes one inherently corrupt, especially if it is balanced by other virtues.

Four years later, she completed a 600-page sequel, “Bourgeois Dignity: Why Economics Can’t Explain the Modern World.” “I’ve forgotten how to write short books,” she says apologetically, adding that she would like both to be part of a four-volume series on the bourgeois era.

Unlike “Bourgeois Virtues,” “Bourgeois Dignity” makes a historical argument. Modern economic growth, she claims, is a result of an ideological and rhetorical transformation. In the Elizabethan period, business was sneered upon. In Shakespeare’s plays, the only major bourgeois character, Antonio, is a fool because of his affection for Bassanio. There is no need to dwell on how the other bourgeois character in “The Merchant of Venice,” Shylock, is characterized.

She contrasts this with attitudes 200 years later. When James Watt died in 1819, a statue of him was erected in Westminster Abbey and later moved to St. Paul’s cathedral. This would have been unthinkable two centuries earlier. In Ms. McCloskey’s view, this shift in perceptions was central to the economic take-off of the West. “A bourgeois deal was agreed upon,” she says. “You let me engage in innovation and creative destruction, and I will make you rich.” A commercial class that was not ostracized or sneered at was thus able to activate the engine of modern economic growth…

Read it all.

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