How the West Got Rich by Following "the Four Rs"

We got rich because of a combination of reading, revolt, reformation, and revolution, which came together to cause us to rethink the bourgeois lifestyle.

For as long as there have been people there have been innovators, and for as long as there have been innovators there have been those who have sought to stop them. Until recently, the forces of resistance have won.

Beginning largely in the 18th century, however, there was a largescale shift in how we write, think, and speak about commerce. Societies in Western Europe—Britain, most notably—embraced an ethic of innovation, the Bourgeois Deal: “leave me alone, and I’ll make you rich.”

The Bourgeois Deal

Here’s the Deal, thinking about society in three acts:

“In Act I, allow me, an innovator and member of the bourgeoisie, to act on the hunch that I can do this a little or a lot better than it has been done before. In fact, allow me to act on the hunch that I can come up with a completely different and better way of living. Do not interfere with me, and do not interfere with those who wish to stake their hard-earned and hard-saved money on my idea.

In broad strokes, though, embracing innovation has unleashed the creative forces of the human mind in ways that have enriched… everyone.

“Do not interfere with those who vote with their money for my idea. Allow me, in other words, to creatively destroy. I accept, reluctantly, that my successes such as they are will attract competition from imitators and other innovators in the second act, and this competition will erode my profits. By the third act, however, we will all have been made better off by my venture.”

There are, of course, all sorts of problems with this—perhaps the most obvious is that it is hard to ensure credibility, as the creative destroyer has, in Act II, an incentive to work with the government to create barriers to entry with the effect being that in Act III we might be better off, but not as much better off as we could be.

In broad strokes, though, embracing innovation—even “embracing” it as nervous teenagers do at a Junior High School dance where they sway back and forth at arm’s length from one another—has unleashed the creative forces of the human mind in ways that have enriched… everyone, not just the barons and baronesses and kings and queens and clerics.

The Aristocratic Deal

Contrast this to the Aristocratic Deal, which basically says, “honor me, an aristocrat and your better by the accident of birth; do as I say; pay your taxes under threat of prison or death or worse. Think not that you have the right to seek ‘protection’ from another sovereign. Go forth, do battle, and shed others’ blood and your own in my name and for my glory, and by the third act, I at least will not have slaughtered you.”

Our ancestors and the kings and queens and generals who ruled them were broadly and often deeply suspicious of innovation.

Our ancestors and the kings and queens and generals who ruled them were broadly and often deeply suspicious of innovation. Indeed, the word itself originally meant something bad, as innovation in interpreting scripture meant the introduction of unorthodox or even heretical elements.

There were markets, yes, but entry was largely controlled by guilds and other interests that were able to earn above-normal profits for themselves by restricting entry. Such sophistry led Adam Smith to write An Inquiry into the Nature and Causes of the Wealth of Nations.

There are five textbook institutional prerequisites for a flourishing economy: secure property rights, open and competitive markets, political stability, honest government, and a dependable legal system. We don’t yet know the “right” mixes of the institutional causes of wealth and poverty, but insecure property rights and restricted access to markets can very clearly lead to stagnation rather than growth.

Commerce Became Socially Acceptable

These are the tinder, so to speak. The rhetorical change—where we began to esteem innovators and the bourgeoisie—was the spark that lit the fire. The British became, over this time, “a polite and commercial people.” Buying low and selling high went from being something morally suspect and undignified to something worthwhile.

Anyone with an idea and enough spare time to tinker in the garage can change how people live, work, play, and encounter information.

We see this in the United States today when we consider who we want our children to emulate. We heaped and heap great laurels on people like Henry Ford, Sam Walton, Bill Gates, Steve Jobs, and Warren Buffett. We live in a country where anyone can grow up to become president, but much more importantly, we live in a world where anyone with an idea and enough spare time to tinker in the garage can, as Jobs and Gates ultimately did, change how people live, work, play, and encounter information.

The Bourgeois Deal is radically egalitarian. Market exchange embeds a deep and important assumption: that one party to a trade is within his or her rights to refuse or to hold out for something better. It’s a right denied to soldiers and slaves, or peasants who have no option but to trade their labor for “protection” by a sovereign who would kill them should they seek a better deal elsewhere.

We Are Optimistic

Ebenezer Scrooge was wrong: there is no such thing as a “surplus population” when we allow markets to work.

Modern economic growth happened and continues to happen in spite of an unending stream of pessimistic predictions—that we are destined for subsistence, that the final crisis of capitalism is upon us, that this time is really different and we can expect to see all the jobs go away because of technological change, that we are gaining the world and losing our souls because we are so blinkered and blinded by consumer goods, and that we are destroying the planet in our pursuit of more, more, more. Literally: these are from chapter 7 of the third edition of Tyler Cowen and Alex Tabarrok’s 2014 book Modern Principles: Macroeconomics.

Ebenezer Scrooge was wrong: there is no such thing as a “surplus population” when we allow markets to work. The economist Julian Simon (1996) referred to the mind as the “ultimate resource,” for from it springs everything else in the world that we call a “resource.” Something isn’t a resource until we can think of a way to make it satisfy human wants. Until then, it’s just a collection of atoms and molecules and stuff. Embracing innovation set us free from a Malthusian/Hobbesian existence in which life was solitary, poor, nasty, brutish, and short. It will continue to overcome resource barriers that confront us, just as it has historically.

We are optimistic for a few reasons. First, with Peter Diamandis and Steven Kotler, we are extremely optimistic about the future that lies ahead of us because, within the next few years, billions of people will be connecting to the global Great Conversation that is already happening on the internet. Somewhere in Haiti, or Rwanda, or rural India, or even American Appalachia, a child has been born in the last few days who will have a far greater impact on the lives of everyone in the world simply because she will be born into a society that has embraced liberty and innovation to a degree greater than those who have come before.

We have overcome and will continue to overcome environmental challenges as long as we keep our ethical wits about us.

We hope for further progress so that those who are today left behind are tomorrow offered a seat at the table. Our prosperous modern world aided and abetted by our ability to communicate instantly with almost anyone almost anywhere provides us with an unlimited array of new ways to self-author.

The big winners, we think, from the 21st-century version of the Bourgeois Deal are those whose tastes and preferences lie outside the mainstream. There have developed on Reddit and YouTube and elsewhere a whole array of online communities devoted to even the most esoteric of topics. If you can think of it, there’s likely a Reddit forum, or Facebook page, or YouTube channel devoted to it.

And if there isn’t, creating one is easy. Technology and commerce have limited us from the soft tyranny of geography and birth and enabled us to connect with people the world over who share our preferences. This might not be too big a deal for someone with close-to-the-mainstream preferences, but for an 18- or 19-year-old male “Brony” who likes My Little Pony: Friendship is Magic, the value might come in knowing you’re not alone.

In spite of the possibility that global warming could be very, very bad, we are, with the science writer Matt Ridley, Rational Optimist(s). We have overcome and will continue to overcome environmental challenges as long as we keep our ethical wits about us. Anti-capitalism has been cloaked in the rhetoric of environmental defense when, it can be argued and even shown, that better protection of private property rights and a stronger rule of law are necessary if we are to defend the environment.

The Four (Plus One More) Rs

Furthermore, the Bourgeois Deal encourages the kind of innovation that can make us less reliant on fossil fuels and mere material. If resources become a constraint and as people get richer, they will substitute better for more, and continued innovation in areas like cloud storage (e.g. Dropbox and Evernote), online document signing (e.g. DocuSign), e-books, and online textbooks will mean lower demand for paper, chemical-intensive paper processing, and the fuel burned to move books around.

We got rich because of reading, revolt, reformation, and revolution, with these four Rs coming together to create a fifth R, revaluation of the bourgeoisie.

Electronics come with their own sets of environmental problems, of course, but with secure property rights and competitive markets, people will develop ways to recycle electronics components efficiently and effectively.

Economic change comes from a mix of material and rhetorical and ideological factors. So what was it that enabled us to become rich? We got rich because of a combination of reading, revolt, reformation, and revolution, with these four Rs coming together to create a fifth R, revaluation of the bourgeoisie and of bourgeois life. Respect others’ liberty to create, even if such creation has a destructive element to it, and in the long run, we will all be richer.

Moreover, don’t impose too heavy a social tax on the bourgeois values of buying low and selling high (prudence, in other words), and we will see more people direct their time and energy toward making the world a better place for all of us.

The Glorification of "Honest" Work

From the 18th century onward, the West was brined in the rhetoric of prudence, of oikonomia, of its close cousin phronesis, or practical wisdom. It wasn’t always so. Ancient societies did not trust the bourgeoisie or bourgeois life. Neither did Shakespeare or others of his day. To work in the world of Plato or Aristotle was low, meager, undignified, lacking in honor. Contrast this with the rhetorical honor heaped upon hard work today in the maxim, “an honest day’s work for an honest day’s pay.”

“Honest” in this sense means virtuous in that one adheres to the truth, but it can also be used in its older sense of “being worthy of honor, dignity, or respect.” There was a shift in the 18th century in the way we have come to read, write, and speak about commerce, about betterments tested by trade in the crucible of the market.

Figures like Steve Jobs and Bill Gates and Warren Buffett and others are, in spite of failings and limitations, admired for their innovation.

We see in the development of what we read and wrote that “Free innovation led by the bourgeoisie became at long last respectable in people’s words” (McCloskey, 2010: 386). The innovators became gentlemen (and women), or people of esteem. This was fueled, as Joel Mokyr shows, by a pan-European republic of letters, intellectually integrated but politically fragmented (and therefore competitive), that developed the view that progress is possible and progress is desirable, even for those whom Aristotle might call fit only to be ruled.

In short, we came to praise (or at least tolerate) dissent with modification, such that figures like Steve Jobs and Bill Gates and Warren Buffett and others are, in spite of failings and limitations (which, in Jobs’ case, included pathological inattention to family responsibilities for some time), admired for their innovation. Buffett’s modesty and prudence—as one of the richest men in the world, he still lives in the modest Omaha home he bought in the 1950s—are sources of esteem where ostentation and pomp and circumstance would have in many other contexts been the calling card of the elite. The world is complicated by the fact that these are not wholesale changes.

The villains in books and movies are far too often the heads of large corporations bent on poisoning the children for fun and profit. But that said, even the rhetoric of business and of prudence has changed. The most influential book after the Bible has been, for many people, Atlas Shrugged. TV shows allowing the viewer to gawk at the excesses of “extreme couponing” nonetheless celebrate the couponers’ thrift and hold it up, perhaps, as something to be emulated, or at least admired.

This is an extract from Chapter 10 of ‘Demographics and Entrepreneurship: Mitigating the Effects of an Aging Population’

Reprinted from CapX.

Further Reading

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