Howard Burton - Enlightened Entrepreneurialism: A Conversation with Margaret Jacob

An economist, it is said, is someone who can predict the past with unerring accuracy. Historians, meanwhile, set their sights a little higher, trying to shed light on why, all things considered, the past happened as it did.

Sometimes, when the two join forces in the domain known as economic history, real insights are produced. But not always.

Margaret Jacob, Distinguished Professor of History at UCLA, has often crossed swords with economic historians throughout her career, but its certainly not because she diminishes the importance of economic factors towards understanding the past.

In her comprehensive analysis on the history of the Industrial Revolution, shes spent considerable time and effort assessing and interpreting the major economic motivations on the ground, comparing and contrasting daily life experiences in England, France, Belgium and the Netherlands.

So what is the problem here? Why the tension between Prof. Jacob and many economic historians?

Well, in the first place, there is the question of breadth.

For Margaret, a sophisticated understanding of the past naturally involves a composite approach that marries economic motivations with associated cultural factors of educational trends, religious influences and scientific and technological awareness, to name but a few.

Its taken quite some time for many economic historians to come around to this broader way of thinking. For decades, many have adamantly maintained that the Industrial Revolution inexorably resulted from two dominant factors: the high cost of wages that strongly incentivized the development of mechanized manufacturing and the preponderance of local coal that drove the resulting machines.

And while rising numbers of economic historians now seem sensitive to also incorporating the unique cultural and societal factors of 18th-century English life, there is still a long way to go towards a genuine meeting of the minds.

I think the statue has cracked now, and there are economic historians trying to figure out how you fit cultural explanations into this phenomenon of industrial development. What still prevails among the majority of practitioners of economic history, however, is a desire to find the single, sufficient cause.

Whether its abundant coal, high wages, semi-literate tinkerers, theres a sense that, Theres got to be one thing that really causes this; and I think thats a very flawed way of doing history.

Now, people may turn around and say, Well, youre saying that science is the key. But what Im really saying is that its just one key. You cant understand what happens on the ground unless you look at these people as thinking entrepreneurs and capitalists who are trying to work out problems. Theyre bringing to bear the knowledge that theyve learned in school, in private study groups, in scientific societies, and all kinds of places. If you leave that out of the story, you impoverish it.

As it happens, a closer examination of the data seems to reveal even more differences between the two approaches, even if one does limit oneself strictly to economic factors.

In the first place, Margaret told me, its not completely true that the cost of wages in England were uniquely higher than anywhere else. Wages in the Dutch Republic at the dawning of the Industrial Revolution, for example, were just as high, if not higher, than those in Britain.

But her next point is even more telling.

Even if you were to assume that British wages were the highest in the world at the time, these people living and breathing in Britain in the 1770s and 1790s dont know anything about that.

Theyre working on the ground with what theyve got; and one of the basic principles of economic life is that you always try to minimize your costs wherever you can and increase your profits. This is not rocket science.

So to say that the high wages in Britain are both distinctive and the motivating factor turns out to be problematic, because theyre actually not that distinctive, and this argument of the motivating factor relies upon a more fundamental assumptionwhich often goes unstated in the economic history literaturethat people are driven by the numbers: they understand immediately that something is too expensiveand so they go about finding ways to make it less expensive.

Well, theres not a lot of evidence for this. If you look at the figures of whats being paid to coal miners in 18th-century Newcastle, nothings changing: wages were very low and remained low throughout the century.

What you discover when you really go into a mine, look at the wage structure and see what the engineers say about their expenses, is that the single biggest expense that they keep recording is the cost of horses: feeding the horses. Now, the cost of feeding a horse in France versus the cost of feeding a horse in Britain cannot be that different.

These guys are not telling you that whats killing them and their factory is the cost of wages. Theyre not saying, Ive got to do everything I can to reduce the labour force, so Im going to mechanize. Theyre not saying that.

In order to advance that argument, you have to begin with an assumption that certain things move human beings more than others, that they have an instinctive feel for a high-wage setting and will do whatever they have to do to undo that. This is an assumption about the way human beings work that I dont think life experience bears out.

In the end, of course, it comes down to human values: why, as best as we can determine, do people actually do what they do? Oscar Wilde once famously defined a cynic as someone who knows the price of everything and the value of nothing.

Like most of Wildes aphorisms, its not obvious what exactly to make of it, but one point clearly hits home, at least: price and value are not the same thing.