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The Moral Consequences of Economic Growth by Benjamin M. Friedman

The Moral Consequences of Economic Growth
by Benjamin M. Friedman
Knopf. 570 pp. $35.00

Booms are better than busts. When the good times roll, people have more money, more options in life, more fun, higher living standards. The material case for prosperity seems incontestable. And now, it appears, there is also a moral case. Max Weber told us that good character promotes economic growth. Benjamin M. Friedman, who has taught economics at Harvard for 33 years, turns this around. He argues that growth not only relies upon morality, but also has “positive moral consequences.”

What might these be? In Friedman’s words: “Economic growth—meaning a rising standard of living for the clear majority of citizens—more often than not fosters greater opportunity, tolerance of diversity, social mobility, commitment to fairness, and dedication to democracy.” Conversely, Friedman warns, periods of economic stagnation threaten a country’s “moral character”—as, in his view, moral character is threatened right now in the United States:

The rising intolerance and incivility and the eroding generosity and openness that have marked important aspects of American society in the recent past have been, in significant part, a consequence of the stagnation of American middle-class standards during much of the last quarter of the 20th century.

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In tackling the money-morality nexus, Friedman is venturing into a crowded field, and in one sense going against the grain. Many thinkers have emphasized the corrupting effects of wealth, and the tensions between our material interests and our moral sensibilities. Edward Everett, another Harvard sage (but in the early 19th century), argued that “palmy prosperity” was actually a threat to “public virtue.” Egalitarians, who regard income inequalities as inherently immoral, worry that high growth rates in some developed countries, like the United States, appear to be associated with less equality. They tend to prefer the French-German-Scandinavian model, currently featuring far less growth but greater equality.

By calling for high levels of growth as a means to a greater “commitment to fairness,” Friedman is implicitly rejecting these familiar perspectives. In an opening chapter, he offers a kind of armchair summary of his reasons. His main point here is that citizens who feel confident about their own situation will be more generous in supporting those who are less well off. But Friedman’s case does not really depend on this proposition, which seems intuitively plausible if not exactly airtight. Ultimately, it rests on a massive exercise in inductive reasoning—specifically, on nine historical chapters that comprise three-quarters of his book and that present numerous examples of moral progress that appears to have been associated with economic growth.

This tour is prefaced by a chapter on the 18th-century Enlightenment thinkers who first began to conceive of morality in secular terms. Next, Friedman takes us through the moral consequences (mostly favorable) of the industrial revolution; then he offers four chapters that in effect make up an economic history of the United States; and then he serves up parallel chapters on Britain, France, Germany, and the developing world. With some exceptions, he finds both freedom and tolerance rising with the economy, and repression and bigotry on the march in times of stagnation. The book’s final section, less directly relevant to the main thesis, has chapters on the problem of inequality, on the environment, and—finally and inevitably—on what needs to be done in the United States today.

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Friedman has, without question, an impressive command of worldwide economic/technological history, and this book is a treasure trove of arresting details. One is reminded, for example, that L. Frank Baum’s The Wizard of Oz, published in 1909, was widely understood at the time as an allegory supporting the populist free-silver program. (Dorothy’s magical shoes are silver in the book, even if not in the movie.) One learns that the invention in 1856 of the Bessemer process for steelmaking suddenly made possible steamships that were far lighter, and therefore able to travel much farther. Also that steel gave men razors to shave with at home. Also that, since 1869, successive generations of Americans have exceeded their parents’ living standards by an average of 50 percent.

Such historical vignettes make for compelling reading. Yet how well does Friedman’s basic proposition about the link between economic growth and morality hold up? The answer hinges in part on his, and our, definition of morality.

In his guided tour of morality as it has been conceived by great thinkers in the past, Friedman leans hard on the ethos of self-improvement propagated by the Puritans. He cites Lincoln’s contention that in America, the only reason for a worker’s failure to rise above wage labor would be his “dependent nature.” He includes an intriguing commentary on Adam Smith’s The Wealth of Nations. This work, Friedman reminds us, had a powerful moral subtext. In the past, national wealth had been created by war, plunder, slavery, and other forms of exploitation. Now the world had a model for creating wealth via transactions entered into voluntarily, and expected to produce advantages for both sides. For the first time in human history, national wealth creation might be an exercise in virtue.

But in later chapters, where Friedman is searching out examples of economic growth encouraging moral behavior, he tosses all this overboard. Here he makes the concept of morality largely synonymous with government intervention on behalf of the underdog—whether or not the intervention has generated a positive result. In writing about recent German history, for example, Friedman speaks enthusiastically of the German chancellor Willy Brandt’s economic reforms in the early 1970’s, even while conceding that many of them proved counterproductive. It does not matter, says Friedman. The issue is not whether these measures “ultimately represented optimal policy”; what is important is that “they reflected [a] political desire to achieve both a fairer and a more democratic society.”

In the American context, Friedman takes morality to mean something even more narrowly defined: support for affirmative action, immigration, concern about endangered species, a belief in strong unions and in corporate social responsibility (as opposed to profit maximization). He identifies the federal welfare reforms of the mid-1990’s as reverse morality, triggered by the bitterness and bigotry flowing naturally from years of stagnating wages. Friedman’s unstated but obvious bottom line: morality is the liberal political agenda.

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It is worth noting in this connection that Friedman has never made a secret of his politics. A Democratic partisan, he has often advised the party’s presidential candidates. His last big book, Day of Reckoning (1988), was a full-bore attack on Reaganomics that got a rave review from the New York Times (“Every citizen ought to read it”) and a blast from the Wall Street Journal.

Needless to say, political partisanship need not prevent a scholar from writing a convincing book with a controversial thesis. But in this instance, partisanship has clearly skewed the conclusions. Thus, the case can easily be made that egalitarian policies, by undermining the very values like thrift and independence that economic growth hinges upon, often end up injuring their intended beneficiaries and are therefore immoral.

When trying to prove a generality by citing examples, it would seem essential that the examples be selected according to some unbiased principle. No such principle appears in the book. Nowhere does Friedman state how much living standards must rise in order to alter the moral climate, nor is it made clear how long a rise must be sustained. Friedman’s formulations sometimes assume that decades of prosperity are required, yet he also cites changes brought about in the span of a few short years. Sometimes he uses gross domestic product as his measure of growth. At other times he uses per-capita income. At yet other times, he uses the earnings of the “average worker in American business.” So, in making his basic case, he creates a lot of wiggle room.

Yet even with all this flexibility, Friedman is obliged to note the existence of numerous exceptions to his rule. By far the most important—he devotes a whole chapter to it—is the Great Depression of the 1930’s, when the economy was in tatters but New Deal labor laws, job programs, and welfare initiatives were judged to be scaling new heights of progressive morality. Friedman offers several possible explanations of this antithetical phenomenon, of which the likeliest reason, in his view, was the stark awfulness of the Depression experience. This, affecting people from all walks of life, and representing an unparalleled threat to the entire social structure, ultimately forced Americans to “pull together.” But the Depression was equally awful, if not worse, in Germany, and the Germans did not choose progressive policies. They chose Hitler.

Another major exception cited by Friedman is from late-19th-century Germany: Bismarck’s introduction, after years of economic decline, of social benefits like pensions for the elderly and infirm. Still another is Britain’s repeal of the infamous Corn Laws in the 1840’s; this step did wonders for ordinary working families, yet it came about as a “response to stagnation.” And then there were the British electoral reforms of the mid-1880’s, which broadly extended male suffrage—another example of moral deportment that followed fifteen years without significant growth.

Our current political landscape would appear to present special difficulties for Friedman. As I noted above, he regards the present period as politically regressive, and relates our supposed moral setbacks to stagnating living standards in the years from 1975 to 2000. In fact, median household income rose by 26 percent in that quarter-century, signifying rising living standards for a clear majority—and presumably passing Friedman’s acid test. Nevertheless, and highlighting the wobbly nature of his criteria, he deems this increase insufficient, and attributes our present moral shortcomings to those 25 years of “stagnation.”

But this brings us back to Friedman’s politically self-serving definition of morality. Given his blindness to the possibility that “progressive” polices (like affirmative action) might themselves be unfair, or (like unreformed welfare) positively harmful to the underdog, is it to be wondered that so many of his historical examples fail to uphold the argument laid out, engrossingly if tendentiously, over the 570 pages of this book?

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About the Author

Dan Seligman is a contributing editor of Forbes.




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