| The Relentless Revolution |
| Joyce Appleby, W W Norton and Co, 2010, 494 pages, £19.99. |
| Economists become much too readily obsessed with the products of abstract reasoning – models, theories, principles and so on. They can learn a lot by studying what has actually happened in real life, in other words, by studying history. |
| There is therefore much to be learned from The Relentless Revolution, by Joyce Appleby, who is Professor Emerita of History at UCLA. Perhaps the biggest question that economic theory has been unable to answer is why economies grow. There has been no generally accepted explanation of why the Industrial Revolution (or ‘Industrial Evolution’, as Professor Appleby would prefer it to be called) began when and where it did, or of why some economies grow while others don’t. Professor Appleby has some interesting ideas of her own. |
| One of them is that Industrial Revolutions had to be preceded by Agricultural Revolutions. Before the Agricultural Revolution of the sixteenth and seventeenth centuries, in the ‘world of scarcity’, roughly 80% of the labour force had to be employed in agriculture in order to produce enough food for the whole population. Not enough labour was left over for secondary or tertiary industries to develop and grow. |
| Another of Professor Appleby’s interesting ideas is that England in the seventeenth century was fertile ground for fundamental change. The religious conflicts of that century, including the Civil War, undermined the effectiveness of the forces of established authority, which were the natural source of resistance to change. The view that weak government left scope for original thought and innovation seems highly plausible. |
| There is surely an inherent and unbridgeable conflict between maintaining the capacity for original thought and innovation and maintaining ‘firm rule’, including rule over matters of doctrine and belief. This conflict has echoes in the present day, in which the rise of managerialism and the insistent and overbearing demands of PR for simple and clear ‘messages’ mean that the chaotic process of original thinking is often regarded as too dangerous to be allowed by many public and private institutions. |
| Once the capitalist cat was out of the bag in England, it was inevitable that other countries would follow. Much of Professor Appleby’s book is an account of how that happened and what the consequences were. One of the most important developments was the institution of enterprises with limited liability for the owners. It seems pretty obvious that limited liability, by its very nature, entails moral hazard, which economic theorists regard as dangerous. Professor Appleby doesn’t address moral hazard directly but simply comments that “a great deal of attention has been given to the excellence of the English and American corporation as a vehicle for capitalist expansion.” In any cost-benefit analysis of limited liability, the benefits of increased growth would presumably exceed the costs of moral hazard. In spite of that, it is quite surprising that there has been so little debate in the wake of the financial crisis about whether limited liability is desirable for some kinds of financial companies. Professor Appleby has some harsh things to say about the origins of the crisis, but not about limited liability. The question is nevertheless a real one. Moral hazard has clearly done very serious damage in the past decade in the financial industry. |
| Notwithstanding its current travails, in the final analysis Professor Appleby is optimistic about the durability of capitalism. In Capitalism, Socialism and Democracy, written in the early 1940s, Joseph Schumpeter suggested that capitalism would not survive because it would be undermined by the intellectuals whose lifestyles it made possible. Professor Appleby doesn’t agree. “People do learn from their mistakes. There is no reason to think that societies won’t continue to modify and monitor their economies in pursuit of shared goals.” Let’s hope she is right. |
| Bill Allen |
| A longer version of this review is available at http://blog.enlightenmenteconomics.com/blog/_archives/2010/3/8/4474758.html |