A behavioral approach to the political and economic inquiry into the nature and causes of the wealth of nations

Deirdre McCloskey's Bourgeois Dignity (2010) represents another breakthrough work in her career, and the second volume in a multi-volume work on the economic and intellectual history of western civilization. In a sense, the subtitle of the book explains well what this volume is all about – why economics cannot explain the modern world. An important modifier would be – modern economics cannot explain the modern world – because much of what McCloskey argues is the resurrection of an older argument that was associated with classical liberal political economists from Smith, Bastiat, Mises, Hayek and Friedman. Fundamentally, she reasserts the power of ideas to shape the world. McCloskey's narrative is simple and compelling – materialist stories (whether technological, genetic, or institutional) do not work; incentive based stories do not provide a complete picture of why some countries grew rich while others remained poor, let alone for the exact timing for the divergence in the wealth and poverty of nations with the Industrial Revolution in the 18th and 19th century. McCloskey proposes that incentive based explanations must reside within a broader narrative that addresses values and beliefs, as well as institutions, technologies, and material conditions. In doing so, McCloskey paves the way for a true behavioral approach to a political and economic inquiry into the nature and causes of the wealth of nations.

► McCloskey's humanomics can be seen as a “behavioral” approach to economic development.
► Humanomics is the study of human economies, not toy economies populated by robots.
► Incentives and institutions matter, but so do ideas/virtues, which robots do not have.
► When bourgeois virtues do not thrive, the results are very sad for the people.
► For her contributions, her work deserves nothing short of praise and celebration.