Humanism Challenges Materialism in Economics and Economic History

Humanism Challenges Materialism in Economics and Economic History

Humanism Challenges Materialism in Economics and Economic History

Humanism Challenges Materialism in Economics and Economic History

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Overview

Most of the existing research on economic history relies either solely or ultimately on calculations of material interest to explain the major events of the modern world. However, care must be taken not to rely too heavily on materialism, with its associated confidence in perfectly rational actors that simply do not exist. What is needed for a more cogent understanding of the long history of capitalist growth is a more realistic, human-centered approach that can take account of the role of nonmaterial values and beliefs, an approach convincingly articulated by Deirdre McCloskey in her landmark trilogy of books on the moral and ethical basis of modern economic life.

With Humanism Challenges Materialism in Economics and Economic History, Roderick Floud, Santhi Hejeebu, and David Mitch have brought together a distinguished group of scholars in economics, economic history, political science, philosophy, gender studies, and communications who synthesize and build on McCloskey’s work. The essays in this volume illustrate the ways in which the humanistic approach to economics that McCloskey pioneered can open up new vistas for the study of economic history and cultivate rich synergies with a wide range of disciplines. The contributors show how values and beliefs become embedded in the language of economics and shape economic outcomes. Chapters on methodology are accompanied by case studies discussing particular episodes in economic history.
 

Product Details

ISBN-13: 9780226429618
Publisher: University of Chicago Press
Publication date: 01/23/2017
Sold by: Barnes & Noble
Format: eBook
Pages: 312
File size: 2 MB

About the Author

Roderick Floud is an economic historian and president emeritus of London Metropolitan University. He is an honorary fellow of Gresham College, London; Wadham College, Oxford; Emmanuel College, Cambridge; and Birkbeck, University of London. He is the author or coauthor of numerous books, including, most recently, The Cambridge Economic History of Modern Britain: Volumes I and II.Santhi Hejeebu is associate professor in the Department of Economics at Cornell College. David Mitch is professor in and chair of the Department of Economics at the University of Maryland, Baltimore County. He is the author of The Rise of Popular Literacy in Victorian England.

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Humanism Challenges Materialism in Economics and Economic History


By Roderick Floud, Santhi Hejeebu, David Mitch

The University of Chicago Press

Copyright © 2017 The University of Chicago
All rights reserved.
ISBN: 978-0-226-42961-8



CHAPTER 1

Philanthropic Endeavors, Saving Behavior, and Bourgeois Virtues

RICHARD SUTCH

Economic change in all periods depends, more than most economists think, on what people believe.

JOEL MOKYR

In 1816, near the end of November, Condy Raguet, the president of a fledgling insurance company and a newly elected Pennsylvania state representative, encountered his friend Richard Peters at the southeast corner of Fourth and Chestnut near Philadelphia's Carpenters' Hall. Raguet had recently received reports from England on the operation of several savings banks. These newly created Scottish and English banks provided a philanthropic service to the laboring class. With the subject fresh on his mind, he "immediately," by his own account, asked his friend to join with him to establish a similar institution in Philadelphia.

It was probably unseasonably cold. Philadelphia is always cold in late November. But that particular November was "indeed a cold blustering month, and there [were] rain storms and snow storms; cold north-west and north-east winds, ... froze very hard several nights, and some days were cold enough to sit by a good fire" (Peirce 1847, 220–21). In person, Raguet was tall, slender, and according to an acquaintance, "remarkably straight, with much of a military air ... and was always dignified in his deportment" (quoted in Camurça 1988, 181).

Peters and Raguet walked together eagerly discussing the idea when they met Clement Biddle and Thomas Hale in the financial district. They too joined in support of the proposal. Mr. Raguet was a man of local repute, and it was not difficult for him to recruit eight additional men of prominence as trustees. He was also a man of resolve. Only a few days later, an organizational meeting was held, and soon after, on December 2 — less than two weeks since his chance encounter with Peters — the Philadelphia Savings Fund Society opened its doors for business. It was the first savings bank established in the United States.

A local newspaper published the society's objectives:

To promote economy and the practice of saving amongst the poor and laboring classes of the community — to assist them in the accumulation of property that they may possess the means of support during sickness or old age — and to render them in a great degree independent of the bounty of others — is a duty incumbent upon all, who by their services or advice have it in their power to effect so desirable an end. ... [Our] design is to afford a secure and profitable mode of investment for small sums (returnable at the will of the depositor on a short notice) to mechanics, tradesmen, laborers, servants and others who have no friends competent or sufficiently interested in their welfare, to advise and assist them, in the care and employment of their earnings.

The reason for saving presumed by Raguet and his compatriots was to provide "support during sickness or old age." That same motive has remained the primary objective for saving and wealth accumulation for at least the next two hundred years. From today's perspective, we might add a few other provisions for the future — saving for children's education, saving for a down payment on a home, saving to leave an inheritance — but why we save is straightforward. We save today, consuming less than we might, so that we can consume more than we earn at some point in the future.

It might seem, then, that there is nothing very remarkable about the aims of the Philadelphia Saving Fund Society. Yet what is curious about this story of America's first savings bank might not be obvious to modern readers. Saving — putting aside some portion of current income for protection against whatever the future might bring — was a novel concept at the time. Saving was not commonly mentioned in letters and diaries originating from the newly independent states of America — that is, "saving" in the sense of saving money. There were plenty of references to saving lives, saving souls, and saving seed.

"Thrift" would be a word more frequently encountered, but its sense at that time did not suggest the act of saving money. Thrift was a moral virtue: the virtue of frugality. Frugality, moreover, was part of an ethical package, bundled with other bourgeois virtues: honesty, hard work, charity, sobriety, stewardship, and the like (McCloskey 2006). Saving money was not the object of frugality. The frugal person would avoid extravagance, minimize waste, and improve efficiency. The fruit of this parsimony need not be the accumulation of wealth; the practice of thrift was advocated to increase the individual's capacity for charitable deeds. The English cleric John Wesley, whose ministry was the founding inspiration for the Methodist movement, gave a sermon in 1744 on stewardship titled "On the Use of Money," which contained the catchphrase "Gain all you can, save all you can, give all you can." With "save all you can," Wesley challenged his listeners to live frugally. Avoid "elegant epicurism. ... Despise delicacy and variety." Do not waste money on "superfluous or expensive apparel, or by needless ornaments. Waste no part of it in curiously adorning your houses; in superfluous or expensive furniture; in costly pictures, painting, gilding, books; in elegant rather than useful gardens." Do not "throw away money upon your children. ... Do not leave it to them to throw away." If there is a surplus, "give to the poor." Do "good to them that are of the household of faith" (Wesley 1872). The goal of frugality was to demonstrate the ability to discipline oneself by the use of reason.

When he set out to promote "the practice of saving," Condy Raguet used the word "saving" in a different, modern sense: setting aside some portion of earnings for future use. In 1816, that was a rather novel definition. Noah Webster's Compendious Dictionary of 1806, with "the definitions of many words amended and improved," recorded these definitions:

Saving, a[djective]. frugal, careful, near, excepting.

Save, v[erb]. to preserve from danger or ruin, rescue, lay up, keep frugally, spare, except.

and Frugal, a[djective]. thrifty, sparing careful, saving of expense without meanness.

Webster's 1828 edition was more expansive and explicitly a compendium of American English. It recorded five definitions, but not Mr. Raguet's:

1. Preserving from evil or destruction; hindering from waste or loss; sparing; taking or using in time.

2. Excepting.

3. Frugal; not lavish; avoiding unnecessary expenses; economical; parsimonious. But it implies less rigorous economy than parsimonious; as a saving husbandman or housekeeper.

4. That saves in returns or receipts the principal or sum employed or expended; that incurs no loss, though not gainful; as a saving bargain. The ship has made a saving voyage.

5. That secures everlasting salvation; as saving grace.


Saving was not often mentioned outside of the few cities of the time because it was not a primary concern for early American farmers. Most Americans were not "mechanics, tradesmen, laborers, or servants" — the clients the Philadelphia Saving Fund Society reached out to assist. Around that time, approximately 82 percent of the white (nonslave) population lived in rural areas and were directly engaged in agriculture. More to the point, the great bulk of the farms they resided on were self-sufficient, owner-occupied, family enterprises. Aside from the tobacco plantations operated with slave labor in Virginia and further south, most agricultural production was still small-scale and intended to meet the needs of local consumers and not for export to distant markets. The farmer's income consisted of the physical product of the family's labor, and very little if any was sold for coin. Barter was the usual means of exchange, and the goods received in return were more often than not intended for immediate consumption. Apart from saving seed and storing grain, saving for the future was not common among American farmers. Their future was taken care of in another way. Family members, particularly grown children, were obligated by custom and law to provide support in sickness and also to give relief from the infirmities of old age. If that protection failed, neighbors might step forward to help. "Give to the poor," John Wesley advised the community.

Saving seed and storing grain are examples of prudence that require careful frugality. Such activities sustained the agricultural enterprise and preserved the farm from danger or ruin in the following year. Deirdre McCloskey properly describes this behavior as "necessary thrift" (McCloskey and Nash 1984; McCloskey 2011, 64–65). But this "desperate saving," as she describes it, is not saving as an economist would have it. Saving is technically defined as disposable income minus consumption (Sutch 2006, 287). But if saving and storing seed is compelled by the command of nature, the value of the grain saved must be subtracted from gross income (just like taxes paid are subtracted) to arrive at disposable income. Disposable income is what the income earner has left over (after taxes, fines, and other obligatory dues — including saved seed) to consume or accumulate as he or she wishes.

But the fact of the matter is that most Americans did not accumulate. Most didn't need to save. The few who did save might have had no easy means beyond hoarding to do so. And hoarding cash — say, in a sock or a hole in the ground — was considered sinful. In the Gospel of Matthew, Jesus relates the Parable of the Talents (Matthew 25:14–30). A master berates his servant who had hidden his master's talent (a unit of money), which was given to him for safekeeping, in a hole: "You wicked and slothful servant. ... You ought ... to have deposited my money with the bankers, and at my coming I should have received back my own with interest. ... Throw out the unprofitable servant into the outer darkness, where there will be weeping and gnashing of teeth" (Matthew 25:24–30, emphasis supplied).

Those of European descent in America before the nineteenth century invested in their economy but rarely invested at a distance or earned interest. Land was cleared, homes and outbuildings were erected, walls and fences and wagon roads were engineered and built with the exercise of a great amount of hard labor. As a consequence, the land was made more productive. To gain that advantage, some consumption was sacrificed as the labor devoted to farm building was diverted from the production of crops, hunting and fishing, and other activities required to provision the farm family. Yet the growth in output that can be attributed to these kinds of intimate investments would be approximately matched by the growth in the population. Virgin land would not need to be cleared; new farms would not need to be built, except to provide for a growing population. If output grows only as fast as population, per capita output remains unchanged.

Just because saving money was rare in this world does not mean that there was no wealth. In agrarian America, most wealth was land and the permanent improvements on the land. And some landowners were wealthier than others. Indeed, if you owned enough land, you could join the landed gentry, rent to others, and live off the rents without the trouble of engaging in hard labor yourself, like the eighteenth-century English aristocrats portrayed in BBC costume dramas. But whether you were a small farmer or an aristocrat, your objective would be to preserve what wealth you owned and ultimately to pass it on to your heirs. In this world, most wealth was inherited (or appropriated from the aboriginal population with or without the color of law). If asked to explain your wealth, your probable answer would be that you were born into a wealthy family.

Raguet was wealthy by the standards of both his time and ours. He had inherited from his French-born father, Claudius, who had amassed a fortune first as a privateer during the Revolution and then as a ship owner involved in the lucrative carrying trade across the Atlantic. Condy Raguet established himself as an independent merchant at age twenty-two. Six years later, he built a "mansion" on Chestnut Street. He owned land in rural Pennsylvania and Virginia. He was a successful merchant and private banker (Camurça 1998, 47–56, 308–13).

Even before his inspiration to establish a savings bank, Raguet had become interested in the problem of the insecurity of old age and the power of compound interest. With some experience in underwriting marine insurance, he interested himself in working out the principles of life annuities. It is probable that he was one of the private underwriters who organized the Pennsylvania Company for the Insurances on Lives and Granting Annuities, the first life insurance company in North America (Murphy 2010, 1–2). In any case, he was an early director. The company was granted a charter in March of 1812 just as the tensions that preceded the declaration of war against the United Kingdom made ocean travelers and wealthy Americans reluctant to purchase insurance from English underwriters.

The insurance business got under way in 1814 after a public address was published (Yorke et al. 1814). As a director of the company, Raguet was a signer of the advertisement. He became the company's president in May of 1816 (Morris 1896, 24–27). During his tenure, the primary business was in insuring lives at sea (typically for a single voyage) and selling life annuities, a novel concept at the time (Buley 1953, I:33). According to an advertisement in Paxton's Philadelphia Directory signed by Raguet and the company's actuary, Jacob Shoemaker, "a person aged 60 years would receive 11 3/4 per cent. per annum" for the rest of his or her life (Paxton 1818: n.p. at xxviii). If the Pennsylvania Company invested the monies received at 7 percent (the current rate on US Treasury bonds), this advertised annuity implies an expected thirteen years and one month of life remaining at age sixty. Shoemaker had calculated a life table based on the records of the Philadelphia Episcopal Church and the Philadelphia Board of Health and concluded that a sixty-year-old would have between 13.71 and 13.75 years of additional life (Morris 1896: table 1, 117–21).

According to the Address, "The object for which annuities were instituted was to enable persons not having a sufficient income to maintain themselves, or not being able to pursue their usual occupations for support, to provide against the infirmities of old age, inability to labor, or some other mischance which might reduce them to want" (Yorke et al. 1814, 102–3). Raguet's advertisement went on to point out that by saving $2.98 per year from age eighteen to age sixty, enough would be accumulated to produce an annuity of $100 per year for life (about $40,000 in today's living standards; Williamson 2015). Clearly, Raguet had thought deeply about the advantages of saving before he learned of the Scottish savings banks.

The economist who studies economic development is interested in the provision of funding for investment — funding at a distance. There would be macroeconomic consequences for economic growth quite apart from the advantages to the individual saver. Economists have known ever since they were shocked by the magnitude of "Solow's residual" that the most important ingredients in the formula for per capita growth are the optimistic ideas, the novel innovations, and the dreams that are the stuff of technological advancement. The phenomenal rise in per capita income that occurred in the United States between 1816 and 2008 was generated by adopting new technologies (steam and steel and hybrid corn) and creating new institutions (banks, corporations, and public high schools). Contrary to some thinking, the expanding abundance was not (primarily) the consequence of providing each worker with more capital. It was advancing technology — not accumulating wealth — that mattered most. For reviews of the evidence, see Oded Galor (2005) and Joel Mokyr (2005, 2010a). For a passionate defense of the role of new ideas and some straight thinking that puts the role of capital accumulation in its place, see Deirdre McCloskey (2010a and 2011).


(Continues...)

Excerpted from Humanism Challenges Materialism in Economics and Economic History by Roderick Floud, Santhi Hejeebu, David Mitch. Copyright © 2017 The University of Chicago. Excerpted by permission of The University of Chicago Press.
All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
Excerpts are provided by Dial-A-Book Inc. solely for the personal use of visitors to this web site.

Table of Contents

Introduction
Roderick Floud, Santhi Hejeebu, and David Mitch
1          Philanthropic Endeavors, Saving Behavior, and Bourgeois Virtues
Richard Sutch
2          Queering McCloskey’s Feminism in Location and History
Robin L. Bartlett
3          The Spread of Pro- and Anticapitalist Beliefs
Stanley L. Engerman
4          Following in the Path of Deirdre McCloskey: The Lutheran Ethic and the Nordic Spirit of Social Democracy
Robert H. Nelson
5          Economics with Varying Values: McCloskey’s Humanism and Fundamental Insights
Jack A. Goldstone
6          Liberal Advocacy and Neoliberal Rule: On McCloskey’s Ambivalence
Stephen G. Engelmann
7          Economics as the Conversation about the Conversation of the Market
Peter J. Boettke and Virgil Henry Storr
8          Rhetoric and Public Policy: Pathos, Ideology, and the Specter of Health Care
Paul Turpin
9          Humanism, Materialism, and Epistemology: Rhetoric of Economics as Styles in Action
John S. Nelson
10        McCloskey at Chicago
Steven E. Landsburg
About the Contributors
Index
 
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