Now, since Robert Solow and Moses Abramovitz started saying this in the 1950s, it's become clear that what makes us rich is commercially tested betterment, not capital accumulation. Now understand, capital accumulation is necessary. You can't build this building without reinforced concrete. The building is not going to be worth building unless you've already invented reinforced concrete, great windows like these, which would be impossible in 1800. Is this a dropped ceiling? Yeah. Dropped ceilings, electric lights, air conditioning, and so forth. Those ideas, those technological and institutional ideas, such as the modern university, founded in 1810 at the University of Berlin; these are what the causes are.

That property rights are necessary, that capital is necessary, that a labor force is necessary; it's like saying that a fire is caused by the existence of oxygen in the atmosphere. Little Joe, plays with matches behind the barn. The barn burns down. What's the cause of the barn burning down? Now, I admit readily, that you needed the oxygen. In fact, the whole point of fire suppression is to prevent oxygen from getting to oxidization, to fire; but the cause, in any sensible narrative, any way we could have a policy or a sensible understanding of what happened, must be that it's little Joe with his damned matches.

It's ideas that drove the modern world, not capital accumulation. It's certainly true, in case you're thinking, "Ah well, but it's exploitation. It's imperialism or the exploitation of the working class." That too, has the same problem. The exploitation of the Indian subcontinent by the British was not profitable to average people in Britain. It was profitable to a bunch of twits from minor public schools, who got to serve in the empire; but it wasn't the cause of enrichment to any substantial degree. In fact, on the whole, the British Empire was a big burden on the average taxpayer in Britain. Half of the budget for the Navy went to protect the sea routes to India. Well, you only want to protect the sea routes to India if you want to keep India. Whether or not the raj was good or bad for the Indians, and south Asians generally; it was not a big profit center for ordinary English folk. They paid for the guns; they paid for the ships.

Of course, again I don't need to remind this audience, that the core idea of Austrian economics is that entrepreneurs discover what no planner can lay down. Contrary to the salutary messages of the production possibility curve, opportunity cost ... What modern economic growth is, is a massive free lunch. You say there's no such thing as a free lunch. Yes, there is. The steam engine is a free lunch, or the separate condenser for a steam engine. Carbonized cotton as the filament for an electric light is the free lunch. The internet is the free lunch, and so forth.

As Israel Kirzner said, "Entrepreneurship is not about shuffling, since a hired manager can do the shuffling." He says, "The incentive is to try to get something for nothing. If only one can see what it is that can be done." Now that's a definition of a free lunch. My claim, in my three books, is that a new rhetorical environment in the 18th century encouraged, that is gave courage to the hope of, entrepreneurs. As a result, over the next two centuries, the production possibility curve leapt up. It's the conditions for free lunches that economics, and especially Austrian economics, ought to be studying.

“My claim, in my three books, is that a new rhetorical environment in the 18th century encouraged, that is gave courage to the hope of, entrepreneurs.”

What kind of society do we need to get these free lunches? Is it a heavily planned, centralized economy? That's how to get it? Do we need lots of engineers? Is that how to get it? Or do we need a free society in which ordinary people, as the English say, feel free to have a go? To open a hair dressing salon in the neighborhood when they want to. I'm not just talking about the glorious heights of technical change. I'm talking, as the Austrians do, about ordinary arbitrage, so to speak. Buy low, sell high. About all the opportunities in a society that are created by a lack of equilibrium. Once we're in an equilibrium, then it's the heat death of the economy. It's the maximum entropy, and nothing happens. In the meantime, the non-entropic state of the economy makes for opportunities.

Now, it's been very hard for economists to get this straight. In 1871, a century after Smith, John Stuart Mill's last edition of the "Principles of Political Economy," is the perfection of classical economics. Mill says, "Much as the collective industry of the earth is likely to be increased in efficiency by the extension of science and of the industrial arts, a still more active source of increased cheapness of production will be found, probably for some time to come, in the gradual unfolding of free trade and the increasing scale on which immigration and colonization will be carried out." Mill, you can imagine, is a hero of mine, but he was in error.

The gains from trade, though statically commendable… (I'm not against gains from trade. I'd have to turn in my economics union card if I said that, and I wish Trump had people around him who would turn in their economics union cards. It's well worth having.) These gains of further specialization were trivial beside the extension of industrial arts. Now, it's not evil to persuade someone, by sweet words, of a position already known. After all, it's better than shouting them down, or shooting them, or forcing them into Bantustans. The creativity of the West in the 18th or 19th centuries came from other, higher, good conversation rhetoric. You may know that's one of my favorite words.

Austrian economists, such as Kirzner and Hayek—both of whom, by the way, you may not know this, provoke snorts of disdain from Samuelsonian economics. I can give you some names—are focused on this notion of creativity and discovery. George Shackle, another economist snorted at by Samuelsonian economists, remarked wisely, "What does not yet exist cannot be now known. We cannot claim knowledge so long as we acknowledge novelty." Unknown knowns, as someone put it.

These discoveries will sometimes involve money payments, in which the two parties discover mutually advantageous deals. Smith argued, of course, that, "The offering of a shilling, which to us appears to have so plain and simple a meaning, is in reality offering an argument to persuade one to do so and so, as it is for his interests." But discovery involves other forms of non-violent persuasion as well. Examine the business shelves in the airport book stalls. You'll see that about a third of the books are about persuasion, about sweet talk, about persuading your employees, your banker, your customers to go along with this discovery you've made. Without that, and this is one of my criticisms of Israel Kirzner, without that the alertness of the entrepreneur falls on stony ground. If the entrepreneur is not a rhetor, a sweet talker, she's not going to survive the sharks. She's not going to get the investment, or the employees for that matter, to make her point.

The problem with all the economistic explanations lies deep, I say, within classical and most of subsequent economic thought. The conviction that shuffling around makes us better off, which is true; and therefore that the shifting makes us as rich as modern people are, which is false. Transportation, reallocation, information flow, accumulation. As Kirzner expressed it, the British economy flourished in the 1930s, Lionel Robbins and the Samuelsonians, economizing simply means shuffling around available resources in order to secure the most efficient utilization of known inputs in terms of a given hierarchy of ends.

Yet, the path to the modern [economy] was not through shuffling and reshuffling. It was not by the growth of foreign trade of this or that industry, here nor there, nor by shifting weights of one or the other social class. Nor indeed was it re-shufflings of property rights. Nor, to speak of another sort of re-shuffling, was it by rich people piling up more riches. They'd always done that. Nor was it by bosses being nasty to workers. They had always done that too. Nor by strong countries leaning on weak countries. Again, this is universal. Piling up bricks and money and colonies had always been routine, everywhere: in China, in ancient times, in Rome, and so forth.