Bourgeois Deeds: How Capitalism Made Modernity 1700-1848

Some of the immeasurabilities that have recently been proposed, however, are equally unsatisfactory. Liah Greenfeld has argued in an impressive recent book, The Spirit of Capitalism (2001), that "the factor responsible for the reorientation of economic activity towards growth is nationalism."¹⁰⁵ She summarizes her case towards the end of a long chapter on "The Capitalist Spirit and the British Economic Miracle" so: "The redefinition of the English society as a nation, which implied the fundamental equality of all Englishmen, freed economic occupations, specifically those oriented to the pursuit of profit, from the stigma attached to them in traditional Christian thinking."¹⁰⁶ Earlier she had posited that nationalism is "inherently egalitarian"—we all freeborn English together—and "allows for social mobility."¹⁰⁷ Thus the democratic theme in her model.

But more, the very "spirit" of capitalism is raised by nationalism, she writes, which "invested economic growth with a positive value and focused naturally defused social energies on it."¹⁰⁸ That is, Greenfeld believes that nationalism redoubled the energy of businesspeople. Britain's success against France inspirited them. "Because of the [British capitalists'] investment in the dignity of the nation, nationalism implies international competition."¹⁰⁹ "Empowered by their proud nationalism. . . . they made their economy boom and provoked [in France, Germany, Japan, for example] wave after wave of reactive nationalisms. . . . Nationalism was the ethical force behind the modern economy of growth."¹¹⁰

Greenfeld is quite right to claim that freeing from a peasant/aristocratic stigma on trade was necessary, and that earlier, as she puts it, "'merchant' was a term of derision in much of Christian Europe [yet not in Northern Italy, the Hanseatic League, the Netherlands north and south]; in England it became an honorable title, and commerce was an occupation of choice for many able and well-positioned people."¹¹¹

The stigma and derision, I too have argued, has always been a trifle silly. After all, an ordinary consumer, like you, who looks for the best deal in the Friday market, or an ordinary worker, like you, who will not accept lower wages than he can get, is a species of merchant. It was a rare member of the senatorial class at Rome, officially barred from trade, who did not loan money at interest or run a slum apartment house. As John Wheeler put it in 1601, quoted by Greenfeld, "to contract, truck, merchandise, and traffic with one another" (Greenfeld notes the anticipation in this of Adam Smith's famous phrase) is the habit of "both high and low, yet [some] . . . are shamed and think scorn to be called merchants."¹¹²

She is also right to claim that England in the early modern world is the place to look. "Economic action was visibly reoriented in Northern Europe," she writes, "specifically in England, somewhere around the 17^th century."¹¹³ She brings no evidence to bear, though, on the timing of "action," only of thought. That is a worry. Her heroes are writers: the mercantilists, the economic nationalists of early modern Europe, and especially the Englishmen Gresham, Wheeler, Raleigh, Fortrey, and Defoe. We hear of the rhetoric of economic ideology, which is good, but not much about the actual shape of economies.

But Greenfeld is also quite right when she defends Max Weber's argument that, in her words, "the emergence of a modern economy presupposed—that is, could not have occurred without—a set of motivations and a new system of ethics."¹¹⁴ It is my theme, too, and I join Weber and Greenfeld against the economic determinists and the historical materialists. My difference with Weber and Greenfeld is that I do not think with Weber that the "new" set was peasantly and Christian, specifically Calvinist, or with Greenfeld that it was aristocratic and territorial, specifically nationalist. I am claiming that the new "system of ethics" and "an emergence of new ethical standards" was bourgeois, townly, and libertarian, right from the start.

In keeping with her mercantilist economics, Greenfeld thinks the spirit of capitalism resides in competition, not cooperation, in economic conquest, not economic dealing. With certain other neo-mercantilists nowadays, such as the historian David Landes or the economist Lester Thurow, with most business-school deans, she believes therefore in an economic World Cup of "competitiveness." She admires the mercantilist Samuel Fortrey's claim in 1663 that England's greatness depended not merely in England's absolute prosperity but, as she put it, on "its economic supremacy (we would call it competitiveness) relative to other nations."¹¹⁵ "Competitiveness, " she writes, becomes "a measure of success in every sphere. . . and commits societies which define themselves as nations to a race with a relative and therefore forever receding finish line."¹¹⁶

At the end of her survey of the pamphlet literature of mercantilism before Adam Smith demolished it she praises Defoe's "clarity of vision—of nations racing against one another for economic supremacy."¹¹⁷ Defoe's metaphors of the economic race are "very suggestive" and "elucidate [the] nature" of England's commercial "supremacy," which she dates from 1690. Commerce, he wrote, "might be said to begin like the starting post or place of a race, where all that run set out exactly upon an equality, whatever advantage is obtained afterwards being the effect of the strength and vigor of the racers." England's outdoing of all the nations in the world began "when standing upon the square with the rest of the world England gave itself a loose and got the start of all the nations about her in trade."¹¹⁸

A race is a zero sum game. If Britain exceeds France in the league table of economics growth, then Britain wins, and France loses.

Such race-ism, just incidentally, brings to mind the other meaning of the word, a nascent racism. Race is not Greenfeld's explanation, certainly, though it is not far from the minds of some of her allies. Defoe boasted that a naked Englishman (Robinson Crusoe, for example) could "beat the best men you shall find in the world."¹¹⁹ And Benjamin Franklin, her quotes from him. In less boastful terms David Landes has recurred to 19^th-century theories of the superiority of the ancient Germanic community to explain European success since the 16^th century: quotes from my review of Landes.

Gain, a rise in status, racing for a finish line is not capitalistic only. And capitalism is not about a race. I argued in The Bourgeois Virtues that the talk of "competition" arises from a masculine nostalgia for aristocratic games, such as war, and is not especially capitalistic, contrary to much chatter on the subject.¹²⁰ As the anthropologist Alan Page Fiske argues in detail, "Market Pricing [his term for the last of four elementary forms of human relations] need not be a race." "Competition means trying to outdo others, but participants in a Market Pricing interaction may not be concerned about whether they come out ahead. . . . A person may seek a high benefit to cost ratio [that is, may seek profit in a trade of cotton cloth for port wine] without regard to how others fare, . . . never comparing himself to anyone else at all" (Fiske 1991 [1993], p. 397). In fact that's the normal case. When you offer a dollar to your newsagent or offer yourself for employment at KPMG you have in mind getting today's paper or getting the salary from consulting work to get the paper. You don't think, "Aha! I now have today's paper, whereas that idiot Jones does not" or "Yeah! Here I am beating out all the other consultants in the world in getting a dollar to buy the paper!"

Beyond the mercantilist assertions in the pamphlet literature, Greenfeld offers little evidence for her claim that nationalism inspirited the capitalists, leaving them "tense with collective economic ambition," "inspired . . . to incessant activity."¹²¹ She stays at the level of a national character, a personality called "England" or "Britain" who has loves and hates, ambitions and fears: it is to "the original, English, nationalism, to which we owe the forward aspiration of modern economy and its yearning [note the personalization here] for ever greater material power."¹²² Greenfeld gives no example of a British merchant letting his enthusiasm for British power get in the way of his private goals. She gives many examples of various scribblers justifying merchants in nationalist terms. But no actual merchant is shown in her book makes such a claim, and especially no actual merchant showing in his behavior that he in fact has substituted public gain for private. {check to make sure, especially in her Japanese chapters; use Hancock to show absence in actual 18^th-century British merchants]

And why would not love for some smaller polity than the nation work just as well? I’ve noted already that the Italian word campanilismo, that is, parochialism, means the loyalty to parish within the shadow, or at any rate the sound, of the local bell tower. To this day Siena is divided into cantrade, neighborhoods sponsoring a horse and rider in the twice-yearly Palio. Your contrada gives you the pride of a little nation. The pride of a Venice or a Swiss canton gives it, too, and can support economic venturing. Greenfeld praises English mercantilism of the 17^th century. But city councils in Lincoln or London probably heard identical arguments for keeping business at home in the 13^th century. Were the national boundaries of Europe in 1914 or in 1939 somehow economically stimulating? What is so desirable, economically, about a gigantic German Reich or a gigantic Soviet Union?

Perhaps large nations improve economies. Largeness itself might aid the gathering of large capital sums, for example, though it was notorious in England that the capital market in the 16^th and 17^th century was local. And later when part of it—the part financing the nation's wars—became national it also became international, making national boundaries irrelevant. Dutch and French investors financed British navies to fight against . . . the Dutch and the French. During the Napoleonic Wars British investors and exporters continued to deal in Paris. It would be an astonishing accident if what economists call the "optimal currency area," to take one of various possible concepts—the optimal bond-market area, the optimal iron-making area, the optimal insuring area—happened to match the borders of Britain in 1776 or of Germany in 1871.

Or large nations could improve the economic policy, bringing the wisdom of a Colbert or a List to bear on a wider field than merely local regulations. A French nation could lower internal tariffs—although in fact internal tariffs harried French merchants well into the 18^th century check. Or perhaps large nations have wise regulations of quality in production, wiser at any rate than those of Coventry or Lyon on their own—though the mercantilism which Greenfeld admires was local politics writ large. Perhaps large nations encourage the winning industries rather than propping up the losers—with exceptions such as French prohibitions on Indian cotton cloth in the 18^th century and the Common Agricultural Policy in the 21^st,

Against such claimed advantages should be set the disadvantages of adventurism in pursuit of glory, an adventurism encouraged exactly by the largeness of nations. Napoleonic France or Hitler's Germany achieved glory that smaller nations could not aspire to. France unification dates yielded a Louis XIV, glorious as the very sun but embroiling Picards and Gascons and Normans pick provinces late absorbed into France in his wars of intervention. Georgian Britons worried fix sentence the threat of their kings and ruling class to waste money in pursuit of empire, or, worse, to bring the armies home.

Greenfeld knows all this, and acknowledges it. That is, she acknowledges that nationalism has had a down side. For example, she emphasizes the egalitarianism that goes along with nationalism. {quotes} True enough. If we are all British or German together we are. . . well. . . all British or German. But fascist nationalism involves an egalitarianism quite different from that of liberal nationalism in, say, its full-blown American form. That's the downside: we are all equal in our craven subordination to Il Duce or Der Fuhrer, and gladly accept it because we are after all proudly nationalistic about being Italiani or deutcher Volk. In the first of Fiske's elementary forms, "Communal Sharing," "the individuality of separate persons is not marked."¹²³ Communal Sharing is the belonging/not of an infant's family, or a patriot's nation. Fiske's third form, "Equality Matching" (he offers persuasive evidence that the forms are stages in human ethical development), is "an egalitarian relationship among peers who are distinct but coequal individuals, . . . separate but equal" (Fiske 1991, pp. 14-15). In Fiske's terms what Greenfeld is claiming is that a rhetoric of Communal Sharing leads to a rhetoric of Equality Matching. Being an Englishman leads to the notion that you are free-born. As Fiske argues with overwhelming evidence from anthropology and human development, no, it does not, not always or even usually. Like as not it is paired instead, as in fascist nationalism, with Fiske's second relation, the especially vicious form of "Authority Ranking" that haunted Tocqueville, a Louis Napoleon standing over an equal body of undifferentiated, but equal, subjects. her talk of different kinds of nationalism. Why not just call it "British liberties"?

More here on Greenfeld

Quoting Mokyr, 2007: "The problem, of course, is that the Dutch not only did not have an Industrial Revolution when Britain did, theirs was unusually late (Mokyr, 1976, 2000; Van Zanden, 1993; Van Zanden and Van Riel, 2004)." I wonder why people are so exercised by the alleged decline, and the lateness. It comes from thinking always in national units, doesn't it? Suppose we simply viewed Holland (even in the strict sense) as a region of the wider region of progressive northwestern Europe, a region that specialized in finance and trade? Then it would be seen rather as London is—we do not get out the lyres and sing tragic songs about the "failure" of London to industrialize until the late 19^th century, or really the 20^th century, do we? Yet in 1830, say, everyone thought of industrialization as something northern, something in Lancashire and Yorkshire, with a bit of Scotland and the Midlands. Mokyr asks sagely, "Did the institutional experience of the two nations diverge at some later point? Or is the model simply incomplete? The timing, too, leaves some gaps: why was there so little economic progress between 1690 and 1760?" I think the worry is misplaced. True, the Dutch were very aware of their "lagging." But so were the southern English. Neither were justified.

Chapter 7:

Nor Institutions, as

North and Braudel Claim
Douglass North (b. 1920) is an astonishing economist who has repeatedly reinvented himself. The heir to an insurance fortune, merchant seaman in the War, apprentice photographer to Dorothea Lange, fishing buddy of Perry Como, in his youth he was a Marxist---as were many of us of a certain age---but became from the study of economics an advocate of capitalism. As a young professor at the University of Washington in the 1950s he was one of the chief entrepreneurs of the so-called “new” economic history, that is, the application of economic theory and statistics to historical questions, such as how regional growth happened in the United States before the Civil War. For this he was in 1993 awarded with Robert Fogel the Nobel Memorial Prize in Economic Science. The Prize citation was chiefly my work. I am a student of his student John Meyer, and am therefore one of North’s numerous admiring intellectual grandchildren.

North’s pioneering study of ocean freight rates from the 17^th century on (North 1968) led him in the 1970s to ponder the evolution of what had in economics come to be called “transaction costs,” that is, the costs of doing business. Moving cotton from Savannah to Liverpool entails transportation costs, obviously. Less obviously—it was the thought of the economist Ronald Coase—moving a piece of property from Jones to Brown entails transaction costs, such as the cost of arriving at a satisfactory contract to do so and the cost of insuring against its failure. By North’s own account in 1966 he had decided to switch from American to European economic history. With colleagues at Washington like Robert Thomas, S. N. S. Cheung, Barry Weingast, and John Wallis, North developed a story of the “rise of West” focusing on the gradual fall in such costs. Since the 1980s North has argued that Western Europe in the 18^th and 19^th centuries benefited uniquely from good institutions that held transaction costs in check, such as Britain’s unwritten constitution of 1689 and the United State’s written one of 1789.

North defines institutions as “the humanly devised constraints that structure political, economic and social interaction” (North 1991, p. 97). The word “constraints” here matters a good deal, because North means what economists mean by it. North is an economist right down to his wing-tipped shoes. Consumers and producers, economists say, maximize utility “subject to constraints,” such as the laws against murder and theft, or the regulations of the Internal Revenue Service, or the customs of Bedouin hospitality, or the Ford Way of doing business. In other words, the main character in North’s story is always Max U, Homo prudens—not Homo ludens or Homo faber or Homo hierarchus or, worst, Homo furiosus. The “institutions” stop people from doing certain things, such as theft from the local grocery store or turning away hungry travelers. Then we can get on with prudent exchange. They are barriers, good or bad. From the individual’s point of view they fall from the sky.

North does not notice that other observers of society do not agree with the economist’s metaphor of “constraint.” He much admires, for example, the anthropologist the late Clifford Geertz. It’s hard not to. But when North reworks Geertz to support an economistic notion that in caravan trade, such as in Morocco around 1900, “informal constraints [on, say, robbing the next caravan to pass by]. . . made trade possible in a world where protection was essential and no organized state existed,” he misses the non-instrumental, non-Max-U language in which Geertz specialized. The toll for safe passage in Morocco, Geertz actually wrote, was “rather more than a mere payment,” that is, a mere monetary constraint. “It was part of a whole complex of moral rituals, customs with the force of law and the weight of sanctity.”¹²⁴ “Sanctity” doesn’t mean anything to North the economist, who in his latest book treats religion with a contempt worthy of Christopher Hitchens and Richard Dawkins. Or rather religion to North means just another “institution” in his subject-to-constraints sense, that is, a set of rules. Religion is not about holiness or the transcendent, not about faithful identity, not about giving lives a meaning through words. It is rules about doing business, whether the business is in the market or in the temple. North asserts, for example, that in a pre-legal stage “religious precepts . . . imposed standards of conduct on the [business] players” (1991, p. 99). The world-view that goes with faith is not his concern. More, especially on his sneers at religion.

In any event, with the Max U character in mind North believes he has equipped himself to explain the modern world. The axiom is that “economic actors have an incentive to invest their time, resources [in the economist’s broad sense as means for achieving ends], and [personal] energy in knowledge and skills that will improve their material status.” The question, North observes, is whether Max U’s “investment” will be in swords with which to steal money, or in machines with which to spin cotton. Both investments improve Max U’s material status. Which path will he choose? North puts his finger on the main problem facing political economy from the caves to the 18^th century: “economic history is overwhelmingly a story of economies that failed to produce a set of economic rules of the game (with enforcement) that induce sustained economic growth.”¹²⁵ That is, before the 18^th century Max U saw his best chance in violence or influence, not in voluntary exchange. In a longer perspective than the 18^th century, that’s true enough. One is reminded of the Norsemen, who when they approached a coast decided whether to kill the natives or to trade with them. They were largely indifferent between the options—whatever maximized material utility. Thus A. A. Milne’s “Bad Sir Brian Botany” who “went among the villagers and blipped them on the head,” but received his comeuppance, and became “quite a different person now he hasn’t got his spurs on,/ And he goes about the village as B. Botany, Esquire,” not blipping on the head.

In fact the choice to escape from growth-killing blipping and “rent seeking”—investing in swords or in influence at Court rather than in good machinery to make things and good organizations to administer the machinery—happened in history only once, in northwestern Europe, 1600 to 1848. Why?

North’s answer resembles that of his friend the great French historian Fernand Braudel (dates; North among his other accomplishments is a francophone and a wine connoisseur). Braudel argued that out of local markets came, with the expansion of trade, the age of high commerce; and that out of the age of high commerce came, with the expansion of trade, the industrial revolution. More on Braudel. Likewise North writes, “long distance trade in early modern Europe from the 11^th to the 16^th centuries was a story of the sequentially more complex organization that eventually led to the rise of the western world” (North 1991, p. 105). Braudel was less celebratory than North has been about this progress from local to world-wide to industrial capitalism. He retained the French intellectual’s suspicion of les bourgeois.

But North and Braudel agree on the machinery involved. Expansion fueled it, they say, and so it awaited the late 18^th century to come to fruition. Foreign trade is their engine of growth. “Increasing volume obviously made such institutional developments [as modern capital markets] possible” [North 1991, p. 106]. “The size and scope of merchant empires” made arm’s length transactions possible (p. 106). “The volume of international trade and therefore . . . economies of scale” made for standardization and information (p. 106). The result was a virtuous spiral of economic forces: “the increasing volume of long distance trade raised the rate of return to merchants of devising effective mechanisms for enforcing contracts. In turn, the development of such mechanisms lowered the costs of contracting and made trade more profitable, thereby increasing its volume”(p. 197). To use the jargon of the recent mathematical “theories of economic growth,” the growth is “endogenous,” internally generated. Growth leads to growth, which leads to. . . growth.

Most of North’s story tells of routine search for better institutions. The search is “routine” because it is a pretty much predictable result of investment. If you reorganize at great expense the docklands of London, you or your heirs will reap returns. Ships will get in and out of port with less delay. Ship stores will be more readily available. Information about cargoes coming and going will be cheaper. Loss in storage will be lower.¹²⁶ Doubtless you might make a mistake, and over- or under-invest. But the prospect of net return, while not perfectly predictable, is what motivates you. The improvement is like the draining of the Haarlemmermeer, 1848-1852, one of the great projects of Dutch engineering. Cost: steam engines. Benefit: farmland.

There are two big problems with routine investment as an explanation of the modern world. For one thing, routine, incremental investments bring routine, incremental returns. North writes that his Max-U merchant “would gain. . . from devising ways to bond fellow merchants, to establish merchant courts, to induce princes to protect goods from brigandage in return for revenue [note the quid pro quo], to devise ways to discount bills of exchange” (1991, p. 109). Now it seems plausible—and was indeed the usual way of thinking in economics from Smith in 1776 through W. W. Rostow in 1960, as I have noted—that we grew as rich as we are by simply piling brick on brick, or contract on contract. After all, that’s how we as individuals save for old age, and it’s what we urge on our children. But no one, to repeat, grew very rich by routine investment, and neither did Western society 1800-2008. The investment was a good idea, just as the draining of the Haarlemmermeer was a good idea, and just as saving for your old age is—provide, provide. But the astounding growth after 1800 needs an astounding explanation.

And that’s the other problem. If routine investment explains the modern world, why didn’t the modern world happen in ancient times? Routine is easy. That is why it is called “routine.” Ancient China was peaceful and commercial for decades and sometimes centuries at a time. The ancient Roman Empire’s disturbances were usually minor matters of palace uprisings or frontier battles. The ancient Egyptians had command over resources and stable regimes. The Muslim empires grew at gigantic rates, in extent and in economies of scale, in the two centuries after Mohammed. The Aztecs and before them the Maya had great trading empires. If growth produces growth, which produces growth, why did modern economic growth wait to happen in the 18^th, 19^th, and 20^th centuries, and then begin in a turbulent corner of Europe?

North’s answer is the good institutions I mentioned, such as the settlement of 1689 in England. That has seemed reasonable to many economists, who think in terms of maximization under constraints, and therefore are intrigued by a claim that institutions just are constraints. Some of these too he wants to make endogenous, caused by the very growth. The Max-U merchant’s “investment in knowledge and skills would gradually and incrementally alter the basic institutional framework” (p. 109). But if they are endogenous, as against an “exogenous” (the Greek means “outwardly generated”), then again why didn’t the same institutional changes happen in Egypt under the pharaohs, or for that matter in Peru under the Incas?

In the circumstances of Europe as it actually was, furthermore, there is a North Gap. North praises a “credible commitment to secure property rights” (p. 101). Certainly no economy can prosper in which a Bad Sir Botany can go around blipping people on the head and seizing whatever he wishes. But much of Europe—or for that matter much of China or India—had credible commitments to secure property rights in the 13^th century.¹²⁷ Fredrick Pollock and F. M. Maitland’s great book of 1895 was The History of English Law before the Time of Edward the First. They showed that by 1272 English common law was firmly in place—though of course the endogenous elaborations, such as statutes against perpetuities and a wider law merchant, remained to be accomplished.

North also praises “laws permitting a wide latitude of organizational structures,” such as incorporation laws. But general incorporation laws were only passed in the middle of the 19^th century, and were taken up very slowly. By 1900 there were only N registered companies in England. And so the North Gap explaining a revolution c. 1800 is fully 700 years in length, or else it is 100 negative years, 1800 minus 1900. One cannot explain the exceptional applied ingenuity of northwestern Europe 1600-1848 with legal developments that happened centuries before or decades after. Hume had this right in 1741: “commerce, therefore, in my opinion, is apt to decay in absolute governments, not because it is there less secure, but because it is less honorable. A subordination of ranks is absolutely necessary to the support of monarchy. Birth, titles, and place must be honored above industry and riches.”¹²⁸ Security of property was an old story in the England of 1600, as in China or the Ottoman Empire at the time. What was new afterwards in England was a new honor for trade. North keeps bringing in “incentives” because that is what Samuelsonian economics can deal with. But the incentives to innovate were just as great in the 13^th century as in the 18^th. Property rights were pretty full at both dates. Money was to be made. What was different was, as Joel Mokyr puts it, “changes in the mental world of the British economic and technological elite.”¹²⁹ Indeed, the very idea that a mere inventor or merchant or manufacturer could be part of an “elite” was entirely new. And indeed the so-called “incentive” to innovate was plainly not the making of money in the first place. Ben Franklin gave away his inventions, such as the lightning rod and the Franklin stove. So did Michael Faraday. A recent calculation by the economist NNN Nordhaus revealed that nowadays an inventor gets a mere 2 percent of the economic gain from an invention. He had better, or else economic growth would be a case of Walt Disney Corporations getting richer and richer, with no gain spread to the consumers. Two percent of the economic gain from the high-pressure steam engine is of course immense. But most inventions were, Mokyr note, “micro,” improvements not revolutions in the way of doing business. As Mokyr then says, “the standard pecuniary incentive system [which does not in any case explain what it is meant to explain] was supplemented by a more complex one that included peer recognition and the sheer satisfaction of being able to do what one desires.” “When one loves science,” NNN Bertollet wrote to James Watt, “one has little need for fortune which would risk ones happiness.” ¹³⁰ Horace could not have put it better, or Adam Smith, the supposed prophet of profit: hobo sunning himself by the side of the road. Weak incentives that were fully present in the 13^th century cannot explain frenetic innovation in the 18^th and 19^th centuries.

One way of getting around the North Gap and the weak incentives is emphasizing the modern state as a source of growth. North would then join with Liah Greenfeld in elevating nationalism to a cause of modern economic growth, which has the merit of not depending entirely on monetary incentives. People can innovate for the honor of Britain, and did. “The state,” North claims, “was a major player in the whole process” (1991, p. 107). But the state can turn in a moment into a Frankenstein’s monster, and repeatedly has, as North understands and Greenfeld sometimes appears not to understand quite as vividly as she might as a native Eastern European. North nonetheless puts faith in “the extent [to which] the state was bound by commitments that it would not confiscate assets” (1991, p. 107). But capitalists in the law-abiding, capitalistic United States were haunted in the 1930s by Roosevelt’s gestures towards confiscation, which gained force by occurring in a world in which communist or fascist states had done just so (Higgs date). And in 1948 check the very home since 1272 of credible commitments to secure property rights, England, nationalized steel, health services, etc. get.

In his 1991 essay North has a canny section describing the different fates of the lands “north and south of the Rio Grande (p. 110). “The gradual country-by-country reversion to centralized bureaucratic control characterized Latin America in the 19^th century” (p. 111). Yes. The nation state has by no means always been good news for economic growth, and it is doubtful that Greenfeld is correct to credit the Good Nation State with modern economic growth. True, abstaining from violating property rights through seizing or taxing all the gains from trade is a necessary condition for any economic growth at all. Witness Zimbabwe in 2007. But refraining from catastrophic intervention in the economy is not the same as being “a major player in the whole process” in an admirable sense.

In his brief “Autobiography” for his Nobel prize (1993) North writes, remarkably, that “Individual beliefs were obviously important to the choices people make, and only the extreme myopia of economists prevented them from understanding that ideas, ideologies, and prejudices mattered. Once you recognize that, you are forced to examine the rationality postulate critically.” Unfortunately he became persuaded that “one simply cannot get at ideologies without digging deeply into cognitive science in attempting to understand the way in which the mind acquires learning and makes choices. Since 1990, my research has been directed toward dealing with this issue.” It is puzzling why he would go from doubting Max U in economics to adopting another form of Max U in psychology. I suppose the hold of “scientific” methods on men of his generation overwhelms his common sense. My humanism riff here on him, in the book. North believes that one can achieve “an understanding of . . . how individuals make choices under conditions of uncertainty and ambiguity” by the study of what he calls “brain science.” As a scientific program this seem doubtful, at any rate for the next couple of hundred years. In an Addendum in 2005 he writes, “I have gone much more deeply into cognitive science and attempted to understand the way in which the mind and brain work and how that relates to the way in which people make choices and the belief systems that they have. Clearly these underlie institutional change and therefore are a necessary prerequisite to being able to develop a theory about institutional change.” And the chemistry of proteins and the laws of quantum mechanics underlie institutional change as well, and therefore are a necessary prerequisite to a theory of institutional change.

North’s recent book on these matters is uniquely irritating, and puts one in a foul mood. In such a mood—for which I apologize: it is most unchristian of me, and I am ashamed of it— the book can be summarized, cruelly, as follows, as though by the great man himself:

Institutions, defined so that they are all of culture, are the place to look.  In looking we should follow meekly after the “brain scientists,” who are much smarter than we mere historians about history.  I've not actually understood their work, because I do not have the degrees in biology necessary to do so, and have not done the requisite study to bring myself up to speed. But it’s pleasant to think of myself as a Senior Scientist in company with all these smart people over in the Salk Institute.  We Senior Scientists disdain the humanities and religion, since the silly people practicing such rubbish are not brain scientists. What did Maimonides or Luther, Shakespeare or Goethe, know about human nature?  Nor should we look closely into how actual institutions have worked. Indeed, we should read as little in history as we can get away with, and, as I said, read nothing whatever in literature, philosophy, theology, or other Unscientific fields.  Why read actual historians when there are still popular articles in Discover about brain science to be dipped into?  Then we should repeat all this every three pages, over and over and over again.  After all, I, Douglass North, am a Nobel Laureate, one of those Senior Scientists, an Expert. This means I do not have to listen to anyone else. 

Biggest problem: p. 97f on Max U.

I said “cruelly.”

Finish it off here.
* * * *
Here a still disorganized treatment of Braudel:

• 
  Fernand Braudel's astonishing product of his old age, full title, and especially volume 2, The Wheels of Commerce.
  
• 
  Throughout Wheels Braudel admires markets and disdains what he calls "capitalists." [give numerous examples of both to prove].
  

It gradually becomes clear [arrange the quotes so it does so] that what he means by a "market" is the routine provisioning of a society. One goes to the Norderkirk market on Saturday in Amsterdam expecting to buy cheese or broccoli for a little less than the two nearby Albert Hijn supermarkets charge. One does not expect enormous savings, and neither do the stall owners expect enormous profits. The provisioning is routine, and profits as Albert Marshall put it in Principles of Economics (date) is "normal."

By contrast to the honest cheese vendor by the Norderkirk, or by contrast for that matter to the honest if more fancy and more convenient and more expensive Albert Hijn on Haarlemmerdijk [get right], a "capitalist" in Braudel's scheme makes big profits. The profits are abnormal, the "quasi-rents" as Marshall called them, the profits of the short run before entry brings normality back.

Braudel's capitalist makes the quasi-rents by Mafia techniques. He corrupts governments. Give French examples, and Smith's warnings. He organizes monopolies. Again, Braudel and Smith example. To defend his trading post in [African example from Hancock], his abnormally profitable turf, he is willing to engage in shocking violence, shocking at any rate to those who faced European imperial commerce 1600-1848,]. He eagerly leaps into any new opportunity to buy very low in, say, [give Braudel example from East] to sell very high, N times higher, in Amsterdam. He sneers at the suckers who work 9:00-5:00 for merely normal profits. He's a crook, a player, a wise guy. No wonder Braudel doesn't love such a "capitalism." Who could love Tony Soprano, really?

Braudel argues that peddlers 1100-1789 slowly become shop keepers and that the merchant fairs such as Champagne's slowly became warehousing entrepôts like Genoa or Amsterdam. Such developments, he says, were routine matters of population density and the cost of transport. Before Germany's population boomed in the 16^th century, the economical way to sell ribbons to Germans was by peddling, wandering from village to village or farm to farm in the style of Oklahoma or Chaucer's wandering merchant. Denser population makes it worthwhile for a peddler to settle in town. The fairs that had in medieval times services developed into the warehouses of Amsterdam—able in NN, Braudel reports, to hold nine years worth of Dutch grain consumption, had that been their main use (it was not: it was to hold the grain, lumber, cloth, spices consumption of all western Germany). The warehousers—the great merchants of Holland—were able to settle down, and not dust their feet in twenty fairs a year, because the Dutch fluyt, broad of beam and light of crew, cut costs of shipping between the Baltic and the North Sea. Such changes were reversible[if true:] The Thirty Years' War cut the population of Germany by a third and the peddlers once more hit the road.

One by one the little retail peddlers and the big wholesale merchants settled down, and no "capitalist" profit ensued.

Fernand Braudel was very far from being a Marxist, at any rate by the standard of, say, his contemporary Sartre or of the next generation, such as Louis Althusser. But like us all he imbibed in his youth Marxist ideas about how the economy functioned, echoing through followers of Marx like Karl Polanyi or even heavy revisionists such as Max Weber. You can't avoid Marxist ideas any more than you can avoid Darwinian or Freudian ideas. I can't, either. They're part of the rhetoric of the age, commonplaces. Braudel distinguished three levels of economic life, the "material life" of Volume 1, etc. The line between the market and the capitalists is written in ethics: the capitalists cheat, and because they are big-time cheaters they get ennobled rather than hung. "Mr. Moneybags" was Marx's indignant characterization of such behavior.

What Braudel gets very wrong because of his Marxoid rhetoric is his claim that there is line between normal markets and super-normal capitalism. No, there is not. I do not mean simply that there's no bright line. I mean that there's no line at all. Market participants are capitalists. You are, for example. True, you don't have Scrooge-McDuck amounts of moneybags to back your investment ideas—at any rate until you can persuade Scrooge to invest. But when you bought your home, or "invested" in a fur coat against the Chicago winter, you were engaging in the same activities as the masters of high finance. Buying low and selling high, expecting the capital gain on your condo to finance your retirement home in south Texas, expecting the fur coat to yield "profits" in warmth over many winters to come, runs all markets, haute or petite.

The analogy extends even to the misbehavior that Braudel assigns to the capitalist sphere. {everyone appeals to govt. True, oil executives granted numerous opportunities to chat up Vice-President Dick Cheney are going to do better, probably, than a local store owner complaining to her alderman that the opening of a WalMart will ruin her. But there's no difference in principle—or, adjusting for scale, in practice—between the two cases of lobbying. etc.

Alertness, not investment or corruption, is the heart of any successful economy. Kirzner talk. Examples from early modern.

Braudel's vision is of a routine world of normal profits. Economists call it the "steady state," [Smith's phrase]. It is not just normal and steady. It is stagnant. Innovation, the way modern capitalism has made us all rich, depends not on bribery, violence, and cheating. It depends on alertness. That is, it depends on noticing—and using by the exercise of internal and external persuasion, a necessary supplement to Kirzner's story—opportunities for super-normal profit. One can notice that the booming South Loop could really use a high-end grocery store, such as [give Chicago name of place on Erie]. That will make NNN profits in future years worth as a capital sum now, say, $1,000,000 (I offer the advice to NNN gratis, and have a suspicion that my advice is worth just what I charge). It's pocket change by the standard of big capitalists like Donald Trump. But it's nonetheless capitalism, and results, as the Donald's first big real-estate project in Manhattan did, in supernormal profits until the competition wakes up, too.

Something happened in the rhetorical world of Europe, during the 17^th century in Holland and England, in the 18^th century in Belgium, Scotland, and the English colonies in North America, in the very early 19^th century in France, and so forth, that made alertness explode.

The Marxoid vision attributes super-normal profit to large capital accumulation and to outrageous behavior. Neither is correct. On the whole you make a little or big fortune by alertness, not by theft, at any rate in a well-ordered community of laws. Clive of India, shortly before killing himself, defended his thefts so. . . . quote.

On the other hand, Braudel had one important fact right, which some of his fellows—Weber, for example—did not. Routine behavior yields routine profits. Braudel quotes Weber on sobriety, etc. Weber called it Protestant behavior—though he would admit that it was praised in numerous handbooks of proper business behavior by undoubted Catholics in northern Italy two centuries before the Calvinists got hold of the idea. But Braudel knows that sobriety, etc. does not yield supernormal profits.

Yet on the whole Braudel is an orthodox Marxoid—a rhetoric, I emphasize, he shares with most historians of the periods before and during the Industrial Revolution. He believes that the key to capitalism is the accumulation of profits. The "free financial force" (Trace origin) stood ready then to shift its Mafia-style attentions to manufacturing when that rather than long-distance trade in spices and chinoise was the place to make supernormal profits.

I've said why the "original accumulation" part of this way of narrating the birth of the modern is wrong. But the other half is wrong, too. It's not—pace Marx—the surplus value stored up by Mr. Moneybags that propels modern capitalism. Such profit is merely the hope tempting to the imagination. Profit pairs with productivity. Normal profits are earned not by exploitation but by alertness to the right way of doing business—running a grocery store, say—and super-normal profits are earned by superior alertness. The piled-up alertnesses have made us rich. The Astors and the Carnegies make the money in the first generation by alertness in the fur trade or in steel manufacturing. (And with an occasional but well-placed bribe, it must be admitted; but remember that this is no different from the Chicago restauranteur paying off the health inspector, small-time.) But when everyone figures out how to get beaver or steel, the profit goes back to normal, and we are left with cheaper beaver and cheaper steel.