Michael: What do people commonly misunderstand
about capitalism in the past 200 years of
economic history?
Deirdre: Well, it's in the very word.
Both the left and the right think that capitalism
has to do mainly with the accumulation of
capital, so piling brick on brick and bachelor's
degree on bachelor's degree.
And it's true that that's a feature of the
last 200 years.
Unfortunately it's also a feature of the last
200,000 years.
Humans have always accumulated.
There's not anything strange about the rate
or amount of accumulation in the last 200
years.
What's bizarre is the amount of innovation,
the amount of what I call market-tested betterment,
and that's just exploded.
As Matt Ridley says, ideas started having
sex, and the baby ideas had sex, and the grandbaby
ideas had sex, and just more and more.
And then that made the capital investment
worth doing.
So capital in capitalism is just the intermediary.
It's not the real cause.
The real cause is technical and some institutional
change, and that in turn was caused by the
notions of equality in what used to be called
liberalism.
Free people equal before the law and equal
in social standing.
Michael: What about the role of institutions?
Deirdre: Well, as I said, institutions like
capital are mostly intermediate causes.
Institutions change largely in response to
good ideas.
You develop the telegraph, and that makes
centralized stock exchanges sensible, and
the smaller regional stock exchanges get less
important.
But it's the innovation, it's the telegraph
that determines the institution, usually not
the other way around.
Now, there are institutions in the modern
world that were new ideas and important.
For example, the idea of the research university
embodied in the University of Berlin, 1910.
But mainly it was an ethical and ideological
change that made the institutions possible.
The institution of free press only came...well,
it in fact came about as a result of the invention
of the steam press, the circular press, which
could produce tremendous numbers of copies.
And that made advertising the main support
of the newspapers, whereas in the 18th century,
the main support was political parties, including
the government itself, so there was not free
and independent press in the 18th century
as there came to be.
So the institution of the free press needed
the first amendment in the United States,
and that's an institution, but mostly it was
intermediate in the same way that capital
is.
You've got to have the capital, you've got
to have the bricks to make the building.
But if all you had was the bricks or the institutions,
you would run into very sharply diminishing
returns.
It's innovations, ideas, that's what made
the modern world.
