I had the same feeling reading Philip Coggan’s new book More, which, as the subtitle indicates (The World Economy from the Iron Age to the Information Age), attempts to cover the whole economic history of mankind. The fact that Coggan is a journalist at The Economist may have something to do with this. On the one hand, he presents an exhilarating story of trade and human ingenuity over the millennia. On the other, he seems to view the expansive state as being as innocuous as John Maynard Keynes did.
Ingenuity and institutions / History offers a plethora of examples of human ingenuity. Genetic engineering through seed selection is thousands of years old. In the 14th century, the cost of a given amount of artificial light is estimated to have been 12,000 times higher than today. Despite the environmental scares of the 1970s, famines have become exceedingly rare, even if there is a risk that COVID-19 and the policies adopted by governments (lockdowns and export restrictions) take some countries backward.
Social institutions can encourage or discourage human ingenuity. The more economic freedom and private property rights, the more inventions and innovations. In ways reminiscent of Leonard Read’s 1958 essay “I, Pencil,” Coggan gives examples of the complexity and productivity of an economy based on free institutions. British designer Thomas Thwaites attempted to build a humble toaster from scratch but only demonstrated that no single person can produce the 400 parts and 100 materials typical of today’s toasters. After nine months of work, his rudimentary toaster melted down within five seconds.
But sometimes Coggan downplays the role of good institutions. Developing countries, he claims, have recently shown “that prosperity could be achieved with more than one model, including the Chinese approach of a heavy state presence.” In their 2012 book How China Became Capitalist — which Coggan does not mention — Ronald Coase and Ning Wang argue that China’s success is explained by the advance of free markets, not the persistence of authoritarian institutions. (See “Getting Rich Is Glorious,” Winter 2012–2013.)
Trade / One social institution that is closely related to economic freedom and property rights is trade, which constitutes a major thread in More. “This book,” Coggan writes, “is in part a story of how trade became broader and deeper over thousands of years, to the extent that cross-border trade encompasses more than half of everything the world produces every year.” Trade is both a consequence of, and fuel for, human ingenuity.
As far back as 7,000 BCE, the ancient world knew some long-distance trade. In the first millennium BCE, the Phoenicians and the Greeks established a trading network across the Mediterranean. The security provided by the Roman Empire further extended trade. Reactionaries already existed: “Pliny the Elder complained of the fortunes that were lost from the empire annually to purchase Asian products, ‘so dearly do we pay for our luxury and our women.’ ” Today, it is the workers in general who import from Asia furniture, clothes, and electronic devices (often just assembled there in the middle of long production chains).
In modern times, the first era of globalization runs from the end of the 19th century to World War I. It only took a few decades from the start of the Industrial Revolution around 1820 for salaries to increase and inequality to decrease. In America, tariffs were jacked up after the Civil War, but transport costs fell faster than tariffs rose.
The period from the beginning of the Industrial Revolution to 1914 was also a century of immigration. As Coggan points out, immigration does not generally reduce wages because more laborers mean more demand and thus higher wages in some parts of the economy. “If more workers mean lower wages,” he asks, “then how come the rise in the global population from 1 billion to 7 billion hasn’t led to mass poverty?” Good question!
The second area of globalization in modern times, from about 1979 to 2007, coincided with the Great Moderation (continuous growth without inflation) in developed countries and a dramatic reduction of poverty elsewhere. Developing countries grew rapidly, even relative to the developed world. Inequality decreased among countries, though in some cases it increased within them. The retreat of poverty is the big story of the time: between 1981 and 2015, the proportion of people living in extreme poverty in the world dropped from 40% to 10%. Over the same period, China’s real gross domestic product per capita increased 30-fold. Latin America, however, has had a checkered growth history because of nationalism, protectionism, government deficits, money creation, and often hyperinflation.
Janus’s other face / Coggan, like The Economist, believes that the state is very useful. He repeats a version of the Hobbesian argument for the state: Without it, prosperity is impossible. Before the modern state, “if your house was robbed or attacked, there was no police service to protect you.” What he does not mention is that we can imagine another scenario: the police come after someone attempted to rob your house and you defended yourself, and they arrest you. (This is common in the United Kingdom, where, for ordinary citizens, handguns are banned and self-defense is virtually prohibited.)
What if your house is attacked and robbed by government agents? Or perhaps the government wants to expropriate it to build something else? Siding with historian Ian Morris on the idea that government-guaranteed order is necessary for trade, Coggan criticizes Ronald Reagan’s pronouncement that the nine scariest words are, “I’m from the government, and I’m here to help.” For Morris, the scariest words are, “There is no government, and I’m here to kill you.” But both Morris and Coggan seem to forget that there is an even scarier set of words that is rather common in history: “I’m from the government and I’m here to kill you.” Keeping strict limits on the state is crucially important. Coggan, like The Economist, sometimes forgets that.
Coggan has an affection for the Roman Empire because it facilitated trade over its territory. Economies, he writes, “struggle when central authority is breaking down,” like after the empire fell in the 5th century CE. This does not give due credit to the insight of Walter Scheidel, that the political anarchy created in Europe by the fall of the empire led to the Enlightenment and Industrial Revolution, in contrast to stagnation in imperial China. The powerful Chinese state constantly impeded trade. In that context, French sociologist and historian Jean Baechler emphasized that “the expansion of capitalism owes its origins and its raison d’être to political anarchy.” (See “Let’s Travel That Road Again,” Spring 2020.)
Coggan acknowledges some monumental government failures. “It is hard,” he notes, “to think of a bleaker period of modern history than the three decades from 1914 to 1945.” World War I, in which governments sleepwalked into the conflagration for no good reason, wrought death and destruction besides increasing state size and power. After the war, the German experience demonstrated (again) the danger of money creation by the state. Workers needed wheelbarrows to carry their money. “On a single day in November 1923, the price of a loaf of bread rose from 20 billion marks to 140 billion.” The Soviet Union showed the catastrophe of central planning, including in terms of famines. The Chinese government followed suit a few decades later. Is the state really so trustworthy?
Consider the 2008–2009 economic crisis. Coggan suggests that it was caused by too little financial regulation, instead of too much interventionism. But he correctly notes that residential mortgage-backed securities were pioneered in 1970 by a government-sponsored enterprise, Ginnie Mae (the Government National Mortgage Association), and that there was “a deliberate attempt by the US authorities to expand home ownership in the 1990s and 2000s.”
He misunderstands the origins of money. It was not an invention of government authorities, but rather of private actors. Government intervened afterward to certify the value of gold or silver coins, and soon to debase their value. Contrary to what he assumes, central banks are not an existential necessity — except for state rulers. He ignores the experience of free banking and private currencies in Scotland as well as in Canada, where a central bank was only created in 1934.
The author of More admits the failure of the Federal Reserve, the American central bank, to stop the Great Depression: “The Great Depression was a failure that has haunted central banks ever since it happened. They failed both to preserve currency parities and to safeguard the financial system.” The Fed had been created in 1913 with the (stated) goal of preventing banking crises. Coggan does not seem to realize that, in the United States, state and federal regulations prevented or forbade banks to open branches, which led to the creation of tens of thousands of small, one-branch banks that were set up for failure. The Fed was a false solution to the problem of too much government intervention.
Why does he not consider the experience of Canada and its notably stable private banking system? Around 1890, Canada had only a few dozen banks, but with cross-country branches that soon reached into the thousands. Renée Haltom, an economist with the Federal Reserve Bank of Richmond, notes that from 1840 until today, the United States experienced 12 systemic banking panics, an average of one every 15 years, while Canada has had exactly zero.
Coggan argues that the state plays many essential roles: protecting the rule of law; financing or supplying public infrastructure, education, and health; providing welfare assistance; maintaining macroeconomic stability; funding research and innovation; as well as regulating to prevent or correct a “tendency towards monopoly,” negative externalities, and asymmetries of information. He sees the “mixed economy” as the natural result of democracy. Governments, he claims, “increase welfare, in the sense of the greater good,” but he does not inquire what that means when individual preferences differ. Similarly, what is “the country’s interests” as opposed to the interests of politicians, bureaucrats, and their favorites?
He believes that the state must expand, but only to a point. “Authoritarian capitalism” and autarky must be avoided. Industrial policy and protectionism are inefficient. But how to stop such a powerful state? Benito Mussolini may have been more realistic when he predicted that the 20th century would be “the century of the state.” His prediction was in large part realized. And thus far, the 21st century looks even worse.
Influence of Keynes? / Why don’t intelligent analysts like Coggan and others who write for The Economist see the risk of a powerful and expansive state? Do they not fear an Argentinian or Venezuelan future, or worse? A big part of the answer may lie in the work of Keynes and his followers.
Keynesian economic theory views the whole economy in terms of fragile aggregate demand, not as a production possibility frontier in a general equilibrium mechanism. (On the concept of a production possibility frontier, see “Cheaper Oil Cannot Hurt the Economy,” Spring 2015.) For example, and contrary to what Coggan seems to think, an increase in the price of one good or service will not per se generate inflation. What will happen is that fewer other goods or services will be produced (along the production possibility frontier) and consumed, which means that their relative prices will decrease to compensate for the price increase elsewhere. When one does not clearly see this tendency toward equilibrium through the adjustment of relative prices, macroeconomic stability becomes unthinkable without the state. Coggan notes that Adam Smith “did not deal with issues like … a general deficiency of demand”; indeed, Smith was interested in exchange and limited government, which are the keys to long-term growth.
“Aggregate demand” is a misleading concept. Coggan claims that economies boomed after World War II because of “pent-up demand waiting to be satisfied.” How can we make sense of this? There always exists “pent-up demand waiting to be satisfied” because people always want more (as the title of Coggan’s book suggests). The problem in World War II is that governments grabbed resources to allocate to war activities. What happened after the war is simply that those resources were released to satisfy consumer demand and private investment for future consumption.
Another aspect of Keynes’ influence was his confidence that, through the state, “dangerous acts can be done safely in a community which thinks and feels rightly, which would be the way to hell if they were executed by those who think and feel wrongly,” as he explained in a letter to Friedrich Hayek. Keynes obviously saw himself as very representative of the people who think and feel rightly, and believed that, at least in Western countries, they would always be at the helm of the state. Public choice theory, developed after Keynes, has shown that politicians, bureaucrats, and even majorities of voters may not think and feel rightly (at least in the view of those who have different preferences).
Pluses and minuses / “Economic history is all about connections,” Coggan writes. “The more people with whom we can connect, the more likely it is that those connections will be useful. … Trade is good.” These vast interconnections, capable of producing goods such as a toaster, cannot be coordinated by any individual mind. Coggan reports the story of the Russian official who asked British economist Paul Seabright, “Who is in charge of the supply of bread to the population of London?” Alternatively, as Coggan also notes, “Just because government is in charge of planning doesn’t mean that the environment will be protected.”
Arguments like these make much sense, but Coggan’s underlying political philosophy seems flimsy and sometimes leads to inconsistent proposals. If free, decentralized trade is good, why does economic freedom in other areas have to be controlled by the heavy hand of government? How can we argue for strict limits on government intervention in trade and for expansive government power in other fields of social and economic life?
Coggan admits that his book is a journalistic book, not an academic book. It has the benefit of being easy to read and showing “the big picture.” It is good journalism (although not all his sources and citations are equally good). The reader trained in economics will find small technical errors and ambiguities here and there, like in Coggan’s definition of the labor force participation rate or his confusion between Ronald Coase’s theory of the firm and the issue of limited liability. But let those who have never made errors cast the first stone against him.
He often provides good explanations. The old-style manufacturing that was at the heart of the Industrial Revolution was replaced in rich countries by the services that consumers now prefer (for example, streaming music instead of buying compact discs) and by more sophisticated manufacturing. The 1.5 million lines of computer code used in a high-performance car are a service, not a manufactured good. Workers in developing countries are happy to get the old manufacturing jobs, and consumers in rich countries benefit from cheaper goods.
More fails to account for all the debates and their subtleties. The author misses the growth of libertarianism in the 20th century, an intellectual current issued from classical liberalism. He puts conservatism and libertarianism in the same “right-winger” bag. Finance, he says, may not be “socially useful,” a strange, Marxist notion. His attraction to the state leads to an incomplete interpretation of economic history. From this viewpoint, John Hicks’s A Theory of Economic History (1969) is more interesting, even if not as exhaustive. (See “John Hicks and the Beauty of Logic,” Winter 2014–2015.)
In the past few years, Coggan notes, we have seen an advance of nationalism and populism. Regarding Donald Trump’s protectionism, he says, “More worrying is the ideology that underpinned this approach.” I am not sure that “ideology” is the right word because Trump does not seem to have one. If he does, it is a general preference for collective over individual choices, which characterizes the left as much as the right. Coggan correctly suggests that ignorance is part of Trump’s obsession with the trade deficit and his expressed belief that foreign exporters, not domestic consumers, pay tariffs.
In the economically literate part of the political establishment, of which both Coggan and The Economist are guiding lights, the Keynesian presumption for, and trust in, the state easily overcomes the concern for individual liberty. This is as serious a problem as the current populism.
