strategy+business is published by PwC Strategy& Inc.
 
or, sign in with:
strategy and business
Published: May 30, 2006

 
 

Deirdre McCloskey’s Market Path to Virtue

According to Professor McCloskey, the better that government works, the more likely it is to be hijacked by special interests that serve the wealthy. There is a middle ground, she says, between communitarianism and unbridled individualism, one that recognizes “a positive duty to be a good bourgeois.… Placing duties ahead of rights comes naturally to a burgher of Delft or to a citizen of Rapid City,” she writes in The Bourgeois Virtues.


Deirde McCloskey finished her work on The Bourgeois Virtues while teaching at Erasmus University in Holland
Photo by Julian Anderson

Finding Herself
Professor McCloskey’s intellectual journey began in the 1960s at Harvard, where Donald McCloskey, the son of a Harvard professor, was a left-leaning undergraduate and graduate student. His pioneering work with cliometrics to explain British economic history drew the attention of Robert Fogel of the University of Chicago and led to a faculty appointment there. In Chicago, Professor McCloskey became a proponent of a rational and utilitarian view of both man and markets, and his ideas flourished in an atmosphere of academic eclecticism and intensity. Professor McCloskey ate lunch regularly with the finance pioneers in the business school, including Fischer Black, Eugene Fama, and Merton Miller, whose ideas about risk and portfolio balance influenced the work that won Professor McCloskey tenure: He studied the geographically scattered holdings of British peasants prior to the enclosure movement of the 17th and 18th centuries — a seemingly irrational arrangement that forced farmers to walk long distances and exposed them to the “externalities” of the farmers who managed neighboring plots. (For example, if a farmer failed to weed his own plots, the weeds might encroach on the surrounding properties.) Yet Professor McCloskey discovered that scattered plots proved to be a sensible form of risk insurance; a diversified portfolio of lands could insulate individuals from disaster due to variable soil and weather conditions.

By the time Donald McCloskey had won tenure in the mid-1970s, he’d already started building his reputation as a gadfly. While agreeing with many of the substantive positions of his colleagues, Professor McCloskey came to view their methods as narrow and their certitude as suspect. “They’d base an argument on the premise that such-and-so industry is perfectly competitive,” recalls Professor McCloskey. “And I got to be a pain in the neck in seminars by asking, ‘How do you know that this industry is perfectly competitive? What’s your evidence?’ And they’d look at me cross-eyed.”

By the late 1970s, Professor McCloskey had begun to have doubts about economics as it was practiced at the University of Chicago and other elite institutions. He had become suspicious, as his friend and fellow economist Arjo Klamer puts it, of its “aura of science” and illusion of exactness. His repeated call for economists to be more empirical, “to stop talking endlessly about the realism of assumptions and go out and measure,” as Professor McCloskey puts it, led to run-ins with colleagues, especially Robert Lucas and George Stigler, Nobel laureates who dominated the department. With the departures of his mentor, Robert Fogel, and with those of Milton Friedman and Gary Becker, the gadfly’s disillusionment only grew.

In the midst of this turmoil, Professor McCloskey developed a friendship with Wayne Booth, one of the 20th century’s most prominent literary critics. Professor Booth, also on the faculty at Chicago, asked Professor McCloskey to give a lecture to his undergraduates on the rhetoric of economics; Professor McCloskey agreed and then realized he had to figure out what that was. The discussions with Professor Booth eventually developed into The Rhetoric of Economics, in which Professor McCloskey deconstructed the writings of leading economists and argued that the mathematical methods of the profession are actually metaphors that serve as both a tool of persuasion and a powerful barrier to entry against speakers of plain English. Professor McCloskey further argued that the metaphors are not neutral, as has long been assumed; some, such as the “invisible hand,” Adam Smith’s mechanism by which an individual acting in his or her own interest is also helping the community, are subtly ideological. Others, such as the more startling metaphors of Gary Becker, who has likened children to durable goods because, like houses, they are “expensive to produce and maintain” and, like refrigerators, “they have a poor secondhand market,” are explicitly utilitarian. In Professor McCloskey’s world, the power of economists rests on the rhetoric. It’s not that their arguments are necessarily right analytically; it’s that they’re persuasive.

 
 
 
Follow Us 
Facebook Twitter LinkedIn Google Plus YouTube RSS strategy+business Digital and Mobile products App Store

 

Resources

  1. John C. Bogle, The Battle for the Soul of Capitalism (Yale University Press, 2005): Vanguard Fund founder’s acerbic and non-McCloskeyan view of managerial immortality.
  2. Ann Graham, “Lynn Sharpe Paine: The Thought Leader Interview,” s+b, Summer 2003: Research on ethical ambiguity anticipates some of Professor McCloskey’s ideas. Click here.
  3. Arjo Klamer and David Colander, The Making of an Economist (Westview Press, 1990): Provides hard evidence, based on a survey of graduate students, that economists have veered too far into mathematical models and away from real-world problems.
  4. Art Kleiner, “Daniel Yankelovich: The Thought Leader Interview,” s+b, Fall 2005: A different kind of management morality optimist. Click here.
  5. Deirdre N. McCloskey, The Bourgeois Virtues: Ethics for an Age of Commerce (University of Chicago Press, 2006): Tour-de-force defense of capitalism as ethical source.
  6. Deirdre N. McCloskey, If You’re So Smart: The Narrative of Economic Expertise (University of Chicago Press, 1990): Argues that the power of economists rests more on their abilities to persuade than their abilities to predict the future.
  7. Deirdre N. McCloskey, The Rhetoric of Economics (1985; University of Wisconsin Press, 2nd ed., 1998): How economic formalists have taken their reliance on econometrics and mathematical models “absurdly too far.”
  8. Rob Norton, “Derivative Wisdom,” s+b, Spring 2006: Survey of sources of financial wizards who influenced Professor McCloskey. Click here.
  9. Michael Schrage, “Daniel Kahneman: The Thought Leader Interview,” s+b, Winter 2003: The Nobel Prize–winning economist parses the roles of emotion, cognition, and perception in the understanding of business risk. Click here.
  10. Adam Smith, The Theory of Moral Sentiments (1759; Prometheus Books, 2000): Deirdre McCloskey credits the father of modern economics with much of her thinking on the virtues of capitalism.
  11. For more business thought leadership, sign up for s+b’s RSS feeds. Click here.
 
Close