For nearly all of human history, most people were very, very poor. But something happened after 1800. Average wages began to rise. For example, in the past 200 years, the average wage in the United States has gone from $3.00 per day to over $120.00 per day—and that’s adjusted for inflation. Why the sudden change? Prof. Deirdre McCloskey explains her theory.
Some argue that it is exploitation. Perhaps the wealthy are accumulating more at the cost of the poor. The problem with this argument is that exploitation has been occurring in the world throughout history, but it never caused economic growth of the kind we’ve seen after 1800. Others argue that the key was investment. But Prof. McCloskey says that’s wrong too. Instead, she says this incredible amount of economic growth has been brought about by new ideas & innovation.
That still leaves the question of why innovation didn’t cause great growth prior to the 1800s. Prof. McCloskey argues that two changes in Holland and England gave rise to the incredible burst of innovation we saw: first, an increase in economic liberty for trade and commerce, and second, the possibility of social honor for inventors, merchants, and manufacturers. These professions had previously been considered dishonorable. These changes resulted in the tremendous burst of innovation that had earlier been discouraged because innovators weren’t free and they weren’t honored.