EEconomics, as historically taught, often departs from a static analysis of societies in which economic activities are in perfect equilibrium. Only after this baseline is given are more realistic assumptions added to train economics students in more realistic economic models.
To the extent that economic theory is a tool to facilitate understanding of that aspect of reality that is economic activity, students need to be exposed to the fact that real-life economic activity is never in equilibrium and a static analysis misses it. The nuances that a moving figure can provide, in the same way that a photograph does not provide the same information as a film.
Different schools of economics have added different features to their respective tool kits that would allow for a more realistic understanding of how economics works, and for the purposes of this essay we need not distinguish between the many existing approaches; It is enough to know that they exist.
From the moment that social change was (again) accepted as an appropriate object of economic analysis in the second half of the nineteenth century, a debate about the nature and causes of these changes began.
Although with parallels in other areas of the social sciences and other applications within economics, discussions of changing economic conditions began as a result of the realization that in some countries institutional arrangements were better suited to allow, or at least, promote, economic growth. Compared to other countries.
So, if society’s institutions are no longer taken for granted, and economists begin to use existing tools to develop them new Theoretical tools for understanding differences in institutional settings, they soon generate interest in knowing what causes those changes and whether it is possible to make them happen or ameliorate them.
Think North and South America in the 1960s. What were the conditions that allowed or supported economic growth and development in the North that were absent in the South? Once these elements have been identified, the next logical step is to consider what can be done to create these conditions.
The idea of how to promote economic growth soon crystallized around two factors: institutions and culture.
This article is not the place to review the literature on economic growth. For our purposes here, it will suffice to give an example of each—and we will refer to the work of Douglas North and Deirdre McCloskey, respectively, as examples of arguments for institutional and cultural change as causes of economic growth and development.
Douglas North and Barry Weingast have written extensively on how institutional changes in late seventeenth-century England led to the creation of the Bank of England, a “credible promise” that government debt would be honored despite the Crown’s bad credit. Along with this, a financial revolution took place, creating the conditions for industrialization and increased productivity. By the same token, using their framework, William Summerhill analyzed Brazil’s foreign debt performance compared to other Latin American countries in the nineteenth century and found again that a “credible commitment” to lenders goes a long way in getting funds when you need them. This and at low cost.
Deirdre McCloskey argues that the “bourgeois virtues” invented in Northern Europe after the Protestant Reformation, an argument that goes beyond the earlier argument by Max Weber about the Protestant ethic, was the main cause of economic growth and industrialization in Europe before any other. civilization
The basic logic of their thinking is clear; It is impossible to do justice to their arguments within the limits of this article. Nor will we attempt to square the circle and reconcile their claims. Instead, we will offer an additional element for consideration in understanding how social change occurs in general, although we will continue to use the case of economic growth for discussion.
“If institutional changes are not embedded in society, they can easily be reversed. If cultural changes do not translate into social institutions, it is difficult to imagine how much sustained change will occur.”
First, we need a dynamic rather than a static analysis of the relationship between culture and institutions. We realize that once this process begins, it works in a spiral—cultural and institutional factors not only reinforce each other—but allow their reach to expand. If institutional changes are not embedded in society, they can easily be reversed. If cultural changes do not translate into social institutions, it is difficult to imagine how much continuous change will occur.
Second, if either or both are accepted as causes of economic growth, we still need to explain how the process begins. We argue that ideas are the triggering factor.
Of course, we are not talking about anything completely new. Regarding economic performance, Douglas North has already drawn attention to the fact that ideological support for market institutions is an important element for economic growth. In more general terms, Friedrich Hayek also postulates that ideas are triggers of social change when he explains how ideas are transmitted through society and result in social change in “Intellectuals and Socialism”. Another reference is to Ludwig von Mises, who in his last major work, Theory and History, The following argument develops:
- The real history of mankind is the history of ideas. It is this concept that separates humans from other animals. Ideas give rise to social institutions, political changes, technological methods of production and so-called economic conditions.
Let us return to the example of the answer to the creation of the Bank of England in 1694. As already mentioned, King William III was broke. William Patterson and his associates approached the Crown with a proposal to set aside a special, new stream of tax revenue to pay what they owed if the terms of the loan were accepted by the Crown. They were accepted, and a sinking fund was created to pay off that debt. Disagreements between the government and its creditors surround the Bank of England. The Crown agreed that from then on, disputes would be resolved through the Revenue Court. It is significant that Parliament, where the merchants were represented, had some say. All these features added to the “credible commitment” that the government, at the time, was serious about repaying that debt.
Thus, an idea became a reality through institutional change. The concept was so good that the change was tolerated. Over time, this has helped create a culture of financial innovation and intermediation that has led to a more efficient allocation of resources in the UK than elsewhere. Notably, the mediator between institutional change and cultural change was the new incentives created by institutional reforms.
In another day’s story, the renewal of liberalism after World War II bears important parallels with the story of the Bank of England. The main achievement of this path was the “ordoliberal”, a new framework for a liberal market economy in West Germany and other European countries after World War II—a new concept of a multilateral and rules-based international economic system centered on free trade. Renewing economic policy thinking. Other innovations in economic analysis of law, insights from public choice theory about collective action, “Austrian” insights about entrepreneurship, dynamic efficiency, and the use of knowledge in society, all supported the international wave of liberalization and democratization that followed—the opening of China to the end of the Soviet Union. It is these concepts that underpin the globalization that has raised the standard of living for billions of people, enabling more people than ever before to lift their way out of abject poverty.
Ideas deserve much of the credit as triggers for institutional and cultural change.
However, economic growth is not the only social change, as this essay has already made clear. Let us not forget that not all change is for the better. The continued growth of inequality and the resulting erosion of social cohesion and trust is a real problem in many societies, as are climate change and the loss of biodiversity. These are major challenges that require better solutions and where we again face big choices with great consequences for the future.
Postmodernism and cultural Marxism (of which critical theory and identity politics are a part) are powerful ideas in an era of polarization—ideas that are fueling massive cultural and institutional change in Western societies in general and the United States in particular.
Are you bothered by the attacks on American founding principles and values? Of course they did not start by spontaneous generation. They began with the proposals of original thinkers and intellectuals helped to propagate them – on a receptive and fertile ground – until they gained the support of a significant section of public opinion.
To avoid Western societies and their liberal democracies from being transformed in the direction of these ideas, new and better ideas need to be proposed and accepted by the masses.
Past experience may serve as a guide to what is achievable, but the future of essentialist Western ideas and realities may not be so bleak. We think it reasonable to understand liberalism’s greatest strength as embedded in its proven ability to reinvent itself in response to a changing world. But this renewal will not come from A status quo mindset, it can only come from new and better ideas.
Again, Mises understood something essential about concepts Theory and History That may be noticeable:
- The origin of every new idea is an invention; It adds something new and unheard of to world affairs courses. The reason why history does not repeat itself is that each historical state is the fulfillment of the operation of ideas different from those operating in other historical states.
Another reason for measured optimism about the future of liberalism lies in the well-known results of a high-quality meeting place for ideas: they stimulate and accelerate the process of generating new and better ideas through constructive and critical exchange and debate. Just take two obvious examples. Indeed, as a historical fact, it is very difficult not to appreciate the enormous amount of ideas that came out of the Walter Lippmann Colloquium in Paris in 1938 and the Mont Pellerin Society formed in 1947. These ideas had consequences.
Finally, it should be noted that shared experiences play a role in the productivity of networks of ideas. The devastating consequences of the interplay of extreme libertarians during the interwar period and during World War II sharpened the focus and reinforced the sense of urgency among participants in the Lippmann-Colloquium and the meetings of the MPS.
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We are once again facing new totalitarian threats to the liberal world order that once created a safe environment for liberal democracies around the world. At the same time, liberalism faces serious authoritarian and nationalist threats from within the West at a time when considerable social, economic and environmental challenges loom large.
In other words, there is little reason to expect that the “international society of liberal thinkers”—to use Hayek’s words to describe his own ideas for founding the Mont Pellerin Society—will once again become a major source of ideas in service. Human freedom and dignity.