Exposing the neoclassical fallacy: McCloskey on ideas and the great enrichment

In this paper, I discuss Deirdre McCloskey’s argument that ‘ideas, not capital or institutions,’ were the cause of the ‘great enrichment,’ the spectacular growth of the world economy since 1800. I disagree that the ideas of liberty and equality alone caused the great enrichment but agree that these ideas were central and necessary for it. Most theorists of development and economic history fail to recognise the importance of these ideas despite implicitly assuming them in what I call the ‘neoclassical fallacy.’ I also extend McCloskey’s views to include a greater understanding of liberty and equality through their implementation, which necessarily involves institutions that provide political officials with incentives to honour these ideas in practice. Ideas of liberty and equality are not self-implementing, and most attempts to implement them fail. Finally, I argue that a range of political theorists from Hobbes to Madison studied the problem of implementing liberty and equality. In the 150 years prior to 1800, they helped devise a series of institutions that sustained liberty, equality, and the rule of law. These ideas also contributed to the great enrichment.