Latest / The Capitalism and Freedom in the Twenty-First Century Podcast / A History of the West After Adam Smith’s Wealth of Nations With Niall Ferguson | Hoover Institution

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A History of the West After Adam Smith’s Wealth of Nations With Niall Ferguson | Hoover Institution · The Capitalism and Freedom in the Twenty-First Century Podcast

0:09
- This is the Capitalism and Freedom,
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the 21st Century podcast, an official podcast
0:12
of the Hoover Institution Economic Policy Working group,
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where we talk about economics, markets, and public policy.
0:17
I'm Jon Hartley, your host Today my guest is Sir Niall
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Ferguson, who is the Milbank Family senior fellow, and,
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and at the Hoover Institution,
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and also one of the greatest living historians,
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Niall's world renowned
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for his great works in international history
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and economic history,
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including many great books ranging from the histories
0:35
of Great Britain and America, biographies of Henry Kissinger
0:38
and the Rothschilds, the ascent of Money, and so much more.
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Thank you so much, Neil, for coming on the podcast.
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It's a real honor to have you on.
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- It's a pleasure, John. Great to be with you.
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- So, so you, you grew up in Scotland.
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What was your childhood like?
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I mean, how did it shape your interest in
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history and economics?
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Was it a coincidence that Scotland was also
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where the great Adam Smith lived?
0:59
You know, who wrote the, the Great Wealth
1:00
of Nations 250 years ago?
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- Well, I was fortunate.
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I was born into the bourgeoisie, the middle class
1:10
of the west of Scotland,
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and my parents were the first in their families to go
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to university.
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My father became a doctor, my mother, a physics teacher,
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and I grew up in the city of Glasgow.
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They could afford to send me to an excellent private school,
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the Glasgow Academy.
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And it was there that I began to think,
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I suppose in my early teens
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about questions of an economic nature.
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My father didn't believe
1:48
that his children should ever be ill.
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I think it somewhat affronted his self-respect as a doctor,
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one day I was ill
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and was lying in bed feeling sorry for myself.
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And as I recollect it,
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before he left for work, which must have been a rather an
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early hour, he came in,
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looked sternly at me
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and handed me a book saying, if you're not going to school,
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you'd better read this.
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And it was The Wealth of Nations by Adam Smith.
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And I began to leaf through it
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and found myself entering a new world, a world in which
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the economic life that of course I saw all around me
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as a boy, began to make some sense.
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So that was the point of origin.
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The combination of being in a declining city, Glasgow was
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early to slip from prosperity
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to rust belt.
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And then thinking about it with the help
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of the great founder of the discipline of economics, that,
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that I think was quite a decisive moment.
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And I thank my father for, for that.
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It was, it was, I suppose intended as a kind
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of subtle punishment, but it wasn't a punishment at all.
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- That's terrific. Were there other teachers or,
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or others that sort of pushed you toward becoming a,
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a historian?
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- The Academy had exceptionally good teachers in d just
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about every field.
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I was at a reunion of my contemporaries.
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We all left high school in 1981, so I hadn't seen some
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of these gentle in for 45 years.
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And I made the observation that we had been lucky to,
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to have been taught by an extraordinarily
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good staff.
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Some had served in World War II
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and could always dazzle us with tales of their exploits.
3:57
Others were younger, but many had been to Oxford
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or to Cambridge,
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and those that had been to the Scottish universities were
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also exceptionally good teachers.
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Ronnie Woods, Alex Farka, to name just a couple,
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introduced me to history as a serious discipline.
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And that was important
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because I had, I suppose as a young man,
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or at least as a child, expected
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to follow my parents in the direction of, of the sciences
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or or medicine.
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I remember toying with zoology as a,
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as a very young boy wanting to go off and study gorillas.
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But by the time I had spent a couple
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of years studying history seriously,
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and also reading widely in, in historic literature,
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I realized that I wanted to study particles
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with consciousness.
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I wanted to do the physics,
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or I wanted to do the physics of, of the human particle.
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And that led me to want to study history.
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I think Tolstoy played a key part.
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I remember reading War and Peace in the Garden.
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My parents had a rather small backyard in the tone of air
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by the time I was really studying history, seriously.
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And, and Tolstoy absolutely captured my imagination.
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War and peace is the greatest novel.
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And at the end of the book,
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there's this extraordinary theoretical appendix
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or coder where Tulsa says, well, what does this all mean?
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What does this tell us about the nature of, of things?
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And that question that he asks, what is the power
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that moves nations?
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Why did all these Frenchmen march hundreds of miles
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to Russia and commit violence?
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Why did the Russians fight them? Why did that all happen?
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Tolstoy poses the question brilliantly.
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Well, and it was at that moment that I thought, no,
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I will not study literature.
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I will study history.
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- Wonderful. You know, both excellent disciplines,
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and that's fascinating that you came from reading Tolstoy.
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I mean, so many great, so many great, you know,
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between Tolstoy and, and Dusti Iki, I'm a huge fan as well.
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What, at what point did you say you wanted
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to be an academic historian?
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And was this, when you were at Oxford,
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were there certain intellectual influences there?
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When did you sort of wanna
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or feel confident that you really wanted to be
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an academic historian?
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That would be writing books?
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- Not until my third final year as an undergraduate at,
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at Malin College Oxford, I'd gone up to Oxford
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expecting a quite different career path
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in those days, you must remember.
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So in the early 1980s, it wasn't as if one went to,
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to university expecting to to found a tech company.
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Oxford in the early eighties seemed
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to have only a few possible paths.
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You could make money in the city of London become a banker,
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you could become a lawyer,
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you could conceivably go into the foreign
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service, you could
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maybe go off to the BBC.
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That was about it. My thought was, in fact, in the area
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of, of drama, I suppose I quite wanted to write,
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but my initial impulse was to write plays or,
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or comic sketches.
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It was the era of Monty Python,
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and it seemed tremendously appealing that
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to be funny for a living.
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And I pursued that dream
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in a rather dissolute two years
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during which I did very little academic work.
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Part of the appeal of Oxford was that there really were no
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exams until the very end,
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and you could be quite badly behaved.
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And I was without any real penalty.
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Everything hinged on your final exams at
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ten three r essay papers over one week.
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And so as long as you excelled in those,
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you could have a whale of a time before.
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And I did, but it was, it was by the end of the second year
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that I realized I wasn't really good enough to act or,
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or write comedy.
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I, I, I wasn't actually that funny.
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And I also realized that I was rather miserable doing it.
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It wasn't really very fulfilling.
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And I, I remember vividly one night playing the part
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of the caterpillar in a musical version of Alice Wonderland
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in the Dean's Garden at Christchurch.
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So I, I thought I was sitting on a giant toad stool
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with a hooker thinking to myself, this is absurd.
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You must immediately stop all this
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and go back to the one thing that you are actually good at,
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which is, is writing history essays.
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So I gave it all up abandoned acting
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or decided just to act one part from then on,
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which was I suppose, the part of a historian.
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And I spent the final year studying very
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hard, and I was much happier.
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And I'm still much happier
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because that is what I really love to do.
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I like to read about history, think about history,
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and write about history.
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And I've, I've done ever since.
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But it wasn't really until that summer night in the,
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in the Dean's Garden at Christchurch
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that I had the epiphany.
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- That's terrific.
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I I feel like you still carry a lot of humor into your,
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your speaking engagements and, and in your writing as well.
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So I, I I think you, you, you've still carried on those,
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those skills as well.
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I wonder sort of going through your works
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and, you know, going through sort of different themes in,
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in, in your books, and I think one thing
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that just distinguishes your work is, you know,
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you often your willingness to use counterfactuals, you know,
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sort of think about what might have been
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otherwise that some different direction in
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history been taken.
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Economists like thinking about counterfactuals a lot, sort
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of the basis of, of causal inference.
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Where did that sort of approach come from
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and how would you sort of describe your approach to,
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to history in general?
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- Well, I think I came to counterfactual reasoning
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by doing it rather than by theorizing.
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I did my doctoral dissertation
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about the German hyperinflation of the early 1920s,
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the post first World War monetary disaster.
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And it's worth saying that that in itself was unusual.
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I chose to do economic history as an undergraduate
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and as a graduate student at a time when it was not in the
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least bit fashionable.
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And it still isn't, I think it's remained consistently
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unfashionable throughout my life.
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But I wanted to do both history
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and economics.
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I didn't find economics attractive as a discipline.
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I can remember picking up
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Samuelson's great textbook
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and leafing through it in a bookshop
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and thinking first it looked terribly boring.
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And secondly, that it had a chart showing
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projected gross national product
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of the Soviet Union exceeding that of the United States
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in the mid 1980s.
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And I remember thinking, well, any discipline
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that could possibly imagine that has to be bowls.
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So I didn't want to do economics at Oxford.
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It was done as part of PPE politics,
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philosophy, and economics.
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I'm actually quite bad at abstract thought,
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so I knew I'd be hopeless at, at, at, at philosophy.
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But once I realized the way economics worked,
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I realized I'd be bad at that too.
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The solution, the compromise was to do economic history,
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and you could do that at Oxford.
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It was regarded as a bit eccentric,
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but it meant reading Adam Smith instead of Aristotle
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and Cas instead of Russo.
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So I opted for the economic thoughts.
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I opted for the Industrial Revolution paper
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with the great Peter Matthias.
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I just chose every economic option that was available.
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And by the time I was trying to work out what to do
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as a doctoral topic, it seemed to me, with
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the advice of my old mentor
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and drinking companion Norman Stone,
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that the German hyperinflation would be a good challenge.
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I mean, Norman's argument was,
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you should do something involving a sip put
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at number crunching.
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In other words, quantitative economic history would
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be the way to go.
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And if you look at Norman's early work, for example,
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the Eastern Front Book
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or Europe transformed, there's really quite a lot
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of statistical material in there.
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Now, if you're gonna do number crunching, crunch,
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the biggest possible numbers,
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and they don't get bigger than German nominal
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prices in 1923.
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So I embarked on this enterprise
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and found myself sitting in archives in Hamburg and,
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and Berlin and elsewhere trying to piece together the story
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of the German hyperinflation.
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There was a moment as I was researching it when it struck me
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that it could have been avoided,
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that the whole monetary disaster of 1923
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was in many ways the result
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of decisions taken mostly in Berlin,
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but also in some cases abroad
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that propelled Germany down a path of fiscal
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and monetary disaster.
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And so I wrote not only the dissertation,
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but also a, an article based on it, arguing
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that the thing was avoidable
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and if they had taken the right decisions in 1920,
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they could have had no hyperinflation.
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So this was the counterfactual argument, the first
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of my career,
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and it implied a fiscal stabilization program
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to put it very simply, plus
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what Tom Sargent was then calling a regime change in
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other areas as policy.
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And sergeant was one of those economists I was reading.
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Then, as I tried to think
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through the more theoretical aspects of the problem,
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well this was then sent off as an article for peer review
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to the great Bohart who was the grand master
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of German economic historians.
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And I still remember vividly getting
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his not very anonymized comments back on the paper,
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12 single space pages
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of devastating criticism, the essence
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of which was it is not legitimate
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to speculate about alternative histories.
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That is not the role of the historian.
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And for about half an hour to maybe an hour,
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I sat there thinking my career is over.
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I have essentially been intellectually shot down in
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flames like a spitfire pilot in 1940.
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And then I revolted.
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I remember sitting thinking he's just, he's just wrong.
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He must be wrong.
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It can't be the case that the events
15:28
of 1923 were inevitable and predestined,
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and we shouldn't even contemplate alternatives because
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after all, the contemporaries at the time
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debated the alternatives.
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They talked about them,
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they had in their mind's eye a very different outcome.
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In fact, relatively few people in 1920 could imagine a
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complete collapse of the German currency.
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And that set me off on the path
15:50
that produced the book Virtual History.
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My response to Klin Bohart was,
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not only are you wrong about the German hyperinflation,
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but you are wrong about the philosophy of history too.
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- That's terrific. And I, I love Tom Sargent's work on,
16:08
on this topic, you know, on the European hyperinflations,
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the, the 1920s, you know, this famous paper, the ends of
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four big inflations is a classic.
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And you know, it's, it's been,
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what's interesting is I feel like we're getting more
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natural experiments in of this sort recently with, you know,
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the end of more big inflations, like
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for example, in Argentina.
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Yes. Following the big fiscal consolidation that, you know,
16:35
president have Malay there is undertaken
16:37
and you know, essentially successfully defeated
16:40
there, hyperinflation there.
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For now I wanna talk about networks
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because networks is something I, I feel like
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that's a theme in a, a number of your works.
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You, your early work on the Rothchilds, you know,
16:53
very archival and terrific.
16:56
You had also the Square and the tower
16:59
and you framed sort of history is sort of a struggle
17:02
between hierarchies and, and, and networks.
17:04
You always felt that networks were important in history or,
17:07
or at what point did you sort of come along in this idea
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that there were sort of key figures, key networks
17:13
that were important particularly in
17:15
financial and economic history?
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- Well, I think I felt it instinctively,
17:19
but again, it took me a while to get to the theory.
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So a lot of my early work is about networks.
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In the case of the Rothschild book, networks of, of bankers.
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When I wrote a history about the British Empire
17:34
that was really about networks of traders and,
17:38
and missionaries, I suppose I was drawn to study networks
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because the hierarchies
17:45
that you encounter in state archives,
17:50
the bureaucrats writing
17:51
to other bureaucrats always bored me.
17:55
And I found that the state archives
17:58
in Germany were much less interesting than the,
18:01
the private archives.
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It was in the private papers of the Banker Max VA book
18:07
that I got closest to what I thought
18:10
had really happened in Germany in the early 1920s.
18:14
Whereas in the Hamburg State Archives, one saw the world
18:18
through the eyes of, of bureaucrats who,
18:21
who almost seemed programmed
18:23
to ignore the extraordinary monetary revolution
18:26
that was happening around them.
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So I have naturally been drawn to the world
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of, of, of private actors,
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and when you enter, say, the realm of finance,
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you immediately realize that
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that things are in fact organized as, as networks.
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The Rothchild had a very large pool of capital of their own
18:50
by the end of the 1820s,
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and they became the dominant financial institution
18:55
of the 19th century.
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But most of what they did was through a network of agents
19:01
and corresponding banks.
19:04
It it was that,
19:05
that I encountered in the Amazing Rothschild Archive now in
19:10
new court, in the Rothschild
19:12
and company offices in the city of London.
19:16
That was eye-opening, but I sort of encountered it
19:20
before trying to understand the economy of the city
19:23
of Hamburg in the 1890s through to the 1930s.
19:28
If you're interested in the history of, of the economy, not,
19:32
not in the theory of economics,
19:34
but in how economies really work, then what you discover is
19:37
that economies are just lots and lots
19:39
and lots of interacting firms.
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Some very large, some very small,
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but they exist in some kind of network.
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And that is in fact the economy now.
19:50
I guess it took me many, many years, certainly
19:54
until I was probably a hoover thinking back
19:59
to understand the theo theoretical importance of
20:02
that insight.
20:03
Most historians go to state archives
20:06
and write the history of states
20:08
and the people who work for states from pri prime ministers
20:12
and presidents write down to lowly officials.
20:16
I intuitively and instinctively didn't like doing that,
20:20
and I preferred to see history from the vantage point of,
20:23
of bankers and, and businessmen generally.
20:28
I suppose it was in the late 2010s that I began to think
20:32
that there was something here
20:34
of meaningful theoretical importance.
20:38
And then I discovered
20:39
and moving to Stanford helped
20:41
that there was an entire network science
20:44
that was extraordinarily rich and,
20:46
and variated, it had its mathematical aspects.
20:50
The work of people like Leonard Oiler had created a whole
20:53
branch of mathematics devoted to the study of networks.
20:57
Physicists did it, biologists did it.
21:01
I met Jeffrey West at the Santa Fe Institute
21:04
who was working on a whole theory of networks
21:07
at every scale.
21:09
And the deeper I delved into it, the more thrilled I became
21:12
to discover that
21:13
what I had been doing in practice was also legitimate,
21:17
in theory, very pleasing, like counterfactuals
21:21
before that, Laslo Bar Bassi,
21:24
the great physicist whose work on networks is,
21:28
is really just so brilliant, was a source
21:32
of huge inspiration to me.
21:33
And I, I began to understand that I could formalize
21:36
what I was doing instead of using terms loosely.
21:39
I could graph the networks
21:41
and then I could calculate
21:43
who in the network was really important with concepts like
21:47
between the centrality all tremendously exciting.
21:50
And then COVID happened,
21:53
and as the pandemic began in January, 2020,
21:58
it suddenly struck me that it would be possible to think
22:01
of it as a network phenomenon.
22:04
And indeed it turned out
22:05
that Barabasi already had a chapter in his textbook
22:08
on epidemics and pandemics as, as network phenomena.
22:12
So from that point on, really, I had to write a book
22:16
that put all of that into some kind of a formal structure
22:21
and the square in the tower was the result.
22:23
- That's terrific. And in the Sanford economics department
22:27
we have Matt Jackson as well, who's a,
22:29
a great economic theorist of, of networks.
22:31
I wanna talk a little bit about economic history in,
22:35
in general and in financial history.
22:37
You wrote the Cash Nexus in 2001,
22:40
talking a lot about the relationship
22:41
between sort money and power over the centuries.
22:43
You, your fantastic economic history and,
22:46
and financial history, the ascent
22:48
of money published in 2009, probably perhaps fair
22:52
to say your your most widely read
22:54
book which trades this sort
22:56
of financial history from the Renaissance
22:58
to the global financial crisis of 2008.
23:00
What do you think economic policy makers today should be
23:04
reminded of from the history of finance?
23:07
- Well, I do wish
23:08
that more policy makers had some financial history
23:14
in their background
23:15
because it is a different discipline from
23:19
economics
23:21
and it does, I think provide some very valuable insights to,
23:26
to practitioners.
23:28
The way the ascent of money works is
23:30
that it sets out the history of each component
23:32
of the financial system, beginning with, you know, money
23:36
and, and then banking and then looking at, at bond markets
23:40
and, and stock markets, real estate insurance.
23:44
And then the way in all
23:45
of these things have been globalized.
23:48
And I think the most important of these
23:52
for today is, is the bond market.
23:55
Because I, I think we have to have a better awareness
24:00
of the extraordinary problems
24:03
that have been accumulating in public finance this century
24:07
because in most countries
24:10
and certainly most developed countries since the beginning
24:12
of the 21st century, there has been a sustained
24:16
but clearly unsustainable increase in public debt
24:20
and a habit of, of borrowing
24:24
that is produced in the United States, six
24:26
or 7% of GDP deficits as far as the eye can see that
24:30
that chapter's important
24:32
because it explains where the bond market came from,
24:35
that there really wasn't until,
24:37
I guess the mid 18th century in England,
24:41
a way in which investors could lend money over the long term
24:46
and get a predictable return with a standardized
24:51
marketable bond that, that
24:53
for which there was a secondary market,
24:55
this was a really new thing.
24:57
There had been antecedents going all the way back
25:00
to Renaissance Italy and the Dutch Republic,
25:02
but the, the emergence of the consolidated fund
25:06
and the bond called the console perpetual
25:08
or near perpetual bond was a really important part of
25:11
what became known in the literature
25:13
as the financial revolution.
25:15
So my basic argument has for 20 plus years,
25:20
the United States is heading towards some kind of reckoning
25:24
because it's accumulating debt
25:27
and running deficits in ways that are not sustainable.
25:31
And I've thought a lot in many books about this problem
25:37
with each year the problem getting bigger so that
25:40
that chapter on the history of the bond market would be a,
25:43
a good, a good read for any, anybody working in a treasury
25:47
or a finance ministry today.
25:50
- I, I couldn't agree with you more
25:51
and I think I'd probably go even further in saying that.
25:54
I think it would be great if we had mandatory economics and,
25:58
and financial education be, you know,
26:00
beginning in, in our schools.
26:01
Yes. And I think, I think that's, that's where it all,
26:04
I think we, if we could fix that, I think we, we could
26:07
fix a lot of things perhaps.
26:09
- I agree, John, financial literacy is a very grave problem
26:14
throughout the world, and it's astonishing
26:17
that it should be a problem in
26:18
of all places the United States.
26:20
But it's always struck me as, as perhaps to the advantage
26:25
of rent seeking institutions
26:27
that the population leaves high school more
26:30
or less completely ignorant of, of finance.
26:34
If they knew what they were doing, they,
26:36
they'd be much less easy marks, wouldn't they?
26:39
- Absolutely. And I, I'd love to get back
26:42
to America in a second,
26:43
but I, I want to get into the British Empire and the,
26:46
and the Commonwealth for, for a moment.
26:48
I, I grew up in Canada.
26:50
I was born in Canada, so this, this includes Canada and,
26:52
and the, and Australia and New Zealand as well.
26:54
But you know, I I want to talk about your writings there.
26:58
You, you wrote Empire in, in 2003,
27:01
and I think you claim that, you know,
27:03
the British Empire had some positive institutional legacies.
27:07
I'm curious, you know, what you think about, you know,
27:10
I guess like the current backlash
27:12
against Imperial history today.
27:13
I mean, we hear this often,
27:15
but also want to talk a little bit about, you know, your,
27:17
your 2013 book, which I thought was quite pressing.
27:20
This is the, the great degeneration where you,
27:22
you talk a lot about how the, some
27:23
of the West great institutions are failing, you know,
27:26
things like the rule of law and property rights.
27:28
I feel like certainly during COVID, we saw at this front
27:31
and center a lot of attacks on individual freedoms.
27:35
And, and since then, I think we've seen sort
27:37
of a further breakdown in, in free, free speech protections.
27:41
Do you think that this is, you know, particularly the case
27:42
in the anglosphere sort of outside the US
27:45
and the uk, Canada, Australia, New Zealand,
27:48
where you don't have some of the, you know,
27:50
you don't have strong written constitutions that are hard
27:52
to change like in the US
27:54
and the uk It, it wrote the first Bill of Rights in 1689
27:57
after the glorious revolution,
27:58
but it's since obviously been, you know, legislated over.
28:01
Do you think, you know, is there a hope in the sense that,
28:03
do you think it could, there there's hope that
28:06
legislators could legislate individual rights back into the
28:11
UK and, and other, you know, commonwealth countries?
28:14
I I asked this recently of Liz Truss
28:16
and she was very optimistic about this, this idea.
28:20
I'm not sure, sure if I, I'd be quite as quite optimistic,
28:22
but I think a lot of this came to the fore certainly
28:24
during COVID where a lot
28:26
of the commonwealth countries had some
28:27
of the most pernicious lockdowns.
28:29
I'm curious what, what you think about the, the legacy
28:31
of those arguments that you made over, over a decade ago.
28:35
- Well, it's certainly true
28:36
that the Anglosphere has been on a strange
28:42
well series of, of diverging paths.
28:47
I stumbled into this field
28:50
because I think in around 2001,
28:54
somebody at Channel four, the British
28:58
television station came to me
29:00
and said, Hey, we'd like a television series about the
29:02
British Empire, history of the British Empire.
29:04
We'd like you to do it. And I, I busted been at a bit
29:09
of a loose end because I, I said yes,
29:12
but I said on, on one condition, I said, I don't want
29:15
to do some kind of nostalgia trip.
29:17
I, I'd like to do a history of, of globalization,
29:21
because that's really what this would be describing
29:24
how the British Empire created a world economy in a way
29:28
that hadn't really been true before.
29:30
So I wanted to do economic history
29:31
and I thought doing it on television would be just a great
29:34
way to get to an audience.
29:36
I wasn't gonna re reach sitting in, in Oxford teaching the,
29:40
the elite writing
29:43
that history was very illuminating to me as,
29:47
as a Scotsman who who'd grown up
29:49
with like all Scots relatives in Canada,
29:53
relatives in the United States.
29:56
I I was familiar with the, the kind of social history
30:00
of globalization.
30:01
Families like ours had been all over the place.
30:04
It wasn't unusual to spend at least part of your time
30:06
as my family did in, in Kenya.
30:09
So I wanted to try and show how this had works
30:12
and how this small and rainy island
30:15
or archipelago off the coast of northern Europe,
30:18
but managed to conquer 25% of the world's land surface
30:24
because that just seemed like an amazing story.
30:26
How that worked
30:27
and empire was the results I can still find on YouTube,
30:31
a very young Ferguson striding
30:34
around exotic locations explaining every aspect,
30:38
at least most aspects of imperial history.
30:40
But as an economic historian,
30:43
I was really just doing a cost benefit analysis in a, in
30:47
what seemed to me a fairly straightforward way.
30:49
I said, look here, here are all these benefits
30:52
of integrated global markets for labor, for land and,
30:57
and the transfer of technology, et cetera.
30:59
All of this was in the economic history literature.
31:02
And then you look on the other side
31:04
and you see the costs, clearly slavery.
31:06
But then the British Empire abolishes, the slave trade,
31:09
abolishes slavery, there are other obvious shadow sides.
31:14
Indians are second class citizens in their own country.
31:18
On the hand other hand,
31:19
the British actually made the Indian subcontinent
31:22
into a single country.
31:23
And I, I went through all, I thought the costs
31:26
and benefits quite rigorously.
31:29
It came to the conclusion
31:30
that whatever you might think about the negatives, the fact
31:34
that the British Empire existed in 1939
31:38
greatly reduced the probability that much worse.
31:41
Empires like Hitlers and Stalins
31:44
and Hirohito would become dominant in the world.
31:47
The British Empire hadn't existed.
31:49
The axis would've a pretty decent shock at
31:51
winning World War ii.
31:53
That was the argument of the book.
31:55
And I expected a debate
31:57
because John, I knew that the left would disagree with this.
32:01
And I was looking forward
32:02
to a debate about the costs and benefits.
32:04
And I was expecting reviews to say, oh,
32:07
well he's understated the cost
32:09
that he's overstated the benefits.
32:10
None of that happened. None of it.
32:12
There were almost no reviews of that sort
32:15
where the book was reviewed.
32:16
It was just of the form,
32:19
here is a terrible person whitewashing racism.
32:23
That was the, the kind of guardian style response.
32:27
And I, I entered a new era in my life in which debate
32:32
was replaced with character assassination as a strategy.
32:36
And it was suddenly clear to me that,
32:39
that the left's approach had shifted away from economics.
32:43
'cause after all in the Cold War,
32:46
they'd been unequivocally beaten into the realm of,
32:49
of culture.
32:51
And in the culture war, anybody
32:53
who said anything positive about the British Empire must be
32:56
a racist, racist.
32:58
And that meant that there was no satisfactory debate
33:00
about that book.
33:02
Much to my great irritation.
33:05
I followed it up with the great degeneration as a kind of,
33:10
well, hang on, I'm getting my own chronology wrong.
33:12
I followed it up with a book about American Empire called
33:14
Colossus, which said, ah, there is an attempt
33:19
to run something like an empire
33:20
by another English speaking power.
33:23
It's probably not going to go so well.
33:25
That was Colossus the rise and fall of America's Empire.
33:29
But I went back to this field with civilization,
33:34
a book that went on an even larger scale to show the nature
33:39
of western civilization's ascendancy,
33:42
beginning from say the 16 hundreds.
33:45
And the great degeneration was the kind of counterpoint to
33:47
that showing
33:49
that western ascendancy was clearly over in our time
33:52
and we were entering a period of western descent.
33:57
That that was really the argument of, of those books
34:01
dig down
34:02
and you find that they're really arguments inspired
34:05
by the institutional view of economic history
34:08
by Douglas North
34:10
and others who of course were really building on the
34:12
foundational work of Adam Smith.
34:15
And I think I come out of all that writing
34:18
and indeed reading, believing
34:21
that institutions are pretty critical,
34:24
but also so are ideas.
34:27
And the ideas and institutions that were necessary
34:29
for Western ascendancy were like open source code.
34:34
Other people and other cultures could download them.
34:37
And that's what happened.
34:39
And so over time, beginning with Japan,
34:42
non-Western societies downloaded the killer apps
34:46
of Western civilization
34:47
and were able to replicate pretty much all
34:50
that had been achieved in Britain
34:52
and then in British colonies in the great degeneration.
34:55
I point out that what had made Britain,
34:58
all the United States so successful, the institutions
35:01
that were foundational were in some state of decay,
35:05
public finance, which we've already talked about in the rule
35:09
of law, which I argued was becoming the rule of lawyers
35:15
in the realm also of regulation
35:19
and in the realm of education.
35:20
And so I made an argument in the great degeneration,
35:23
my shortest book to date that,
35:26
that something was going wrong.
35:28
And I think what really became clearer in the last 10 years
35:32
was that it was going more wrong in Britain than it was
35:36
going wrong in the United States.
35:39
And it was also going somewhat wrong in Canada
35:43
and in Australia and New Zealand.
35:44
And COVID was really the revelation which showed that,
35:48
for example, individual liberty,
35:51
individual property rights were just being accorded much
35:55
less importance than the priorities of a state obsessed
36:00
with, with safety.
36:01
And safety is,
36:04
- Well I, you know, it's fascinating to you,
36:06
I think about some of these shows, like, you know,
36:07
man in the Hightower, you know, talks about sort
36:10
of the counterfactual of, you know,
36:13
what would've happened if the allies had lost the second
36:15
World War and, and it imagines in the show, you know,
36:18
what America would look like if it had been taken over by,
36:20
you know, the Nazi German empire and the,
36:22
and the, you know, the, the, the Imperial Japanese as well.
36:26
So it's, it is, it's a very, very interesting sort of,
36:31
I, I feel like a very Ferguson
36:34
type drama.
36:37
I wonder necessarily just, I guess drilling down on,
36:39
on Colossus and, and Civilization
36:41
and Hegemons, I'm, you know, where it,
36:44
it's about 250 years since deciding
36:46
of the Declaration in Independence.
36:48
I mean, what do you think America's at today,
36:50
250 years later?
36:51
We ta you talked a little bit about the
36:52
trajectory of government debt.
36:55
I feel like in the past, you know, 10, 15 years, there's,
36:57
you know, been a lot of discussion about
36:59
America's role in the world from a foreign
37:01
policy perspective.
37:03
You know, there, yeah, there's questions about growing
37:05
government debt, but I'm curious where,
37:07
where do you fall in terms of like, one,
37:09
does the world need a global hement?
37:11
Is it good? You know, is is America a force
37:14
for good in the world sort of playing this, you know,
37:16
something of a role of a, of a, a policeman?
37:18
I mean pr preventing a country like Iran from developing
37:21
nuclear weapons sounds like a, a,
37:23
a good good reason for, for me.
37:25
But obviously there's a lot of critics as well.
37:27
Where do, where do you fall on all this?
37:28
I, I think in the foreign policy sort of debates,
37:31
there's always the, the institutionalists
37:33
that believe in sort of middle powers that they can sort
37:36
of be okay on their own sort of articulated
37:38
by Mark Carney's Davos speech a little bit.
37:40
But then I think there's obviously the other side, the sort
37:42
of more, more pro heman side
37:44
and is the Sam Huntington sort of view,
37:47
I'm not a a foreign policy expert,
37:50
but I'm curious where you, where you fall in all of this.
37:54
- Well, I think about these things historically and,
37:56
and it's quite hard to find a period
37:59
of history in which there's no empire
38:04
and in which they're just lots
38:05
of middle powers getting along the Davos
38:09
or its equivalent Fascinatingly history is mostly the
38:13
history of empires.
38:15
And of course there's really just one,
38:20
there are usually at least two
38:21
and sometimes there are half a dozen.
38:24
But, but history is mostly the history of empires.
38:27
You can't wish it away just
38:28
because you are upset by imperialism
38:31
because you read too much.
38:32
Edward Saeed in the,
38:36
the key thing about the term middle power is
38:39
that it is an oxymoron.
38:42
They are in the middle and they don't have power
38:45
because in today's world there are really only
38:48
two superpowers.
38:50
As was true in the first Cold War.
38:52
In the second Cold War, there is the United States
38:55
and a Marxist superpower.
38:57
Now it's China. It used to be the Soviet Union.
39:00
And the reality of the world then, as now, is
39:05
that those who are not superpowers
39:10
are either aligned with one or other superpower,
39:13
or they're caught in the middle pretending
39:16
to be non-aligned,
39:18
but in reality being aligned one way or the other.
39:22
So I'm, I'm much as I like Mark Carney person,
39:27
I've known him for many years, I didn't agree with that,
39:32
that speech, or at least I, I didn't interpret it in the way
39:36
that most of his fans did
39:39
because I think it was a much more pessimistic speech than
39:42
they realized.
39:44
And he quoted the million dialogue from fides,
39:47
if I remember rightly.
39:49
And my point at, at Davos back in, in January this year was,
39:53
yeah, it really is a million world again.
39:57
And the strong do what they will
39:58
and the weak do what they must, that that is the reality.
40:02
Now, if the United States fails to maintain its primacy,
40:07
the primacy that it fought hard for in the 1980s,
40:12
that it nearly lost in the 1960s, if it, if it fails
40:16
to retain its primacy
40:17
and the world becomes a world in which the people's Republic
40:20
of China is the preeminent superpower, it will not be fun
40:25
to be a so-called middle power.
40:27
And it will not be fun to be a free individual who like you
40:31
and like me, enjoys to speak their mind
40:36
because the Chinese empire will be an unfree empire in which
40:41
we shall all be to some extent slaves.
40:43
That's the thing I'm against.
40:45
I'm, I'm very, very convinced
40:48
that liberty is the central point of human life.
40:52
And and if you take it away, life is
40:56
radically worse.
40:58
The United States is not perfect,
41:01
but it's fundamental operating system was designed
41:04
with the ideas of the 18th century enlightenment and,
41:08
and the concept
41:09
that you could create an institutional structure
41:12
that would uphold individual liberty.
41:15
What makes the founding father so impressive
41:18
and why we should raise a glass, several glasses,
41:21
hold bottles to them this year is the beginning.
41:27
250 years ago, they had a vision of
41:31
a federal republic in which institutionally
41:36
liberty would be protected
41:39
and upheld in ways
41:41
that it couldn't be under the British crown.
41:44
And as it evolved, as they debated
41:47
and finally produced their constitution,
41:49
the founders came up with the best operating system yet
41:53
to preserve individual liberty and indeed to promote it.
41:57
That's the great promise of America.
42:01
The rest of the anglosphere doesn't really make liberty
42:05
individual liberty so central as the United States does.
42:09
Now, when people are ringing their hands about whether it's
42:12
middle powers or the liberal international order,
42:15
or just the future of the republic,
42:17
and there's much hand wring in the age of Trump, I say
42:22
to them, sure, you may not like the president
42:26
and you may even be right about his darker impulses,
42:31
but the founders designed the constitution
42:35
for the eventuality that somebody would become president
42:40
who wasn't terribly committed
42:42
to the fundamental principle of liberty.
42:44
And it would be okay because that was how it was designed.
42:47
The presence, power circumscribed, there are checks
42:50
and balances, they're real, they work.
42:54
And so the founders wouldn't have been surprised
42:57
by our predicament today.
42:59
They would've said, well, as how Hamilton says in one of
43:03
of the Federalist papers,
43:04
there will be somebody like this at some point who,
43:08
who will be motivated perhaps by the,
43:12
the popular tide.
43:14
But we've set it up so that
43:16
that person can't become Napoleon or Caesar.
43:19
The great thing about the founding fathers,
43:21
especially Hamilton
43:22
and Madison, is they were applied historians.
43:24
All the arguments they make for separation of powers
43:27
and the way that the thing is gonna be constructed are based
43:29
on historical precedent.
43:31
They say to one another,
43:32
how can we avoid being like all the other republics,
43:36
including the British one
43:37
that was set up the previous century
43:40
and had lasted a very short pace space of time
43:43
before it became Oliver Cromwell's
43:45
dictatorship, the protectorate.
43:47
So I, I'm excited by this, this great celebration
43:51
of 250 years
43:54
because we have a chance
43:55
to remind ourselves what's really distinctive
43:59
and what's distinctive about the American Republic is
44:01
that it's based on those ideas that we began
44:04
by talking about, it's partly Adam Smith.
44:08
It's partly David Hume.
44:10
They're not name checked in the constitution,
44:13
but they're clearly very influential in the minds
44:16
of the founders who were more steeped in the Scottish
44:20
Enlightenment than they were in the French Enlightenment.
44:23
And that's an important point for me.
44:26
- Absolutely. And, and,
44:27
and you know, extremely well read, you know,
44:30
and many of the founders knew several languages.
44:32
I mean, they, they, they knew they were
44:34
contemporaries of Smith.
44:35
You know, Smith was writing, he wrote The Wealth
44:37
of Nations in 1776.
44:39
They were familiar with it.
44:41
They had sort of different views.
44:42
Hamilton was, I think somewhat more interventionist than
44:44
say, you know, Jefferson or, or Madison.
44:48
But, but you know, it's, it's funny or interesting
44:52
because, you know, Smith, he wasn't an
44:54
anarchical libertarian either.
44:55
He certainly believed in liberty
44:56
and was writing against mercantilism, you know, pernicious
45:00
or are extremely high tariffs and,
45:03
and hoarding gold and all this.
45:04
But he still made some exceptions for tariffs,
45:06
like in part four, the Wealth of Nations.
45:08
He believed in having a tax system in part
45:10
five of the Wealth of Nations.
45:11
So it's, I think it, it's, it's good that people go back
45:14
to reading these things, these founding sort of documents
45:18
and, and pieces of literature this year.
45:21
I wanna talk just a little bit about economic growth.
45:24
I think one interesting trend that's come up since the
45:26
global financial crisis is that, you know,
45:28
western European nations seem to, including in addition
45:33
to Canada and, and Japan, other,
45:35
other western nations have seen their g per capita
45:39
essentially flatlined since the global financial crisis.
45:42
The US is sort of this exception to this.
45:44
And you know, it keeps growing.
45:46
There's these big tech companies here that are,
45:49
are very unique to the United States.
45:52
You know, Canada might have Shopify
45:54
and Sweden might have spot Spotify or something like that,
45:57
but at the end of the day there's,
46:00
there's very a few exceptions to where the,
46:03
the global tech hub in the world is,
46:05
which is in the us So in, in, in something history and,
46:08
and I'm just curious what you think about the role
46:10
economic freedom plays.
46:11
Is it fair to say that liberal economic institutions cause
46:14
growth, say rather than like inclusive economic institutions
46:17
in the way that maybe Drone Alu
46:19
and James Robinson would, would put it?
46:22
And by liberal economic institutions, I mean sort
46:24
of property rights and rule of law and so forth.
46:26
Is that a better framing in your mind?
46:27
I know we're, we're sort of getting into abstraction here
46:30
rather than sort of concrete history,
46:31
but I'm just curious what, what your sort of take is on, on
46:35
what causes economic growth
46:36
and the role that economic freedom plays.
46:39
- I'm sure I'm, I'm radically opposed to all
46:44
that say Robinson
46:47
and Aslu argue in, in why nations fail.
46:51
It's actually quite close
46:52
and in some ways to the arguments in civilization
46:56
and the great degeneration that,
46:58
that institutions really matter.
47:00
But I think there's a, a kind
47:02
of difference in the historical framing there,
47:05
particularly in the account of, of the glorious revolution,
47:09
for example, or in the social history that seems
47:13
to underpin some of their arguments
47:17
because there's always a, a tendency, I think
47:20
to create a slightly caricatured account of, of, of, of,
47:25
of British history
47:28
and to anti date democratization.
47:32
The industrial revolution does not happen in a democracy.
47:35
It happens in a place where the, the property rights
47:41
of entrepreneurs
47:42
and other property owners are very well protected.
47:47
And that that's I think the, the critical point.
47:50
It's the rule of law based on private property rights
47:54
is really the, the,
47:56
the vital ingredient without which it's very hard
47:59
to have an industrial revolution.
48:01
And I think one can see that by looking at places
48:04
where the industrial revolution doesn't happen, for example,
48:07
in the Ottoman Empire, which is not far from the ideas
48:11
that make possible the industrial revolution, but
48:14
but doesn't actually apply them.
48:16
And it's partly because they just have a completely
48:19
different legal orders to McCarran has, has shown.
48:24
I think the most
48:27
important point about the industrial revolution
48:30
and its dissemination is that, that some of
48:35
what makes the success happen is,
48:39
is not particularly sexy and,
48:43
and telling a story about inclusion
48:47
and presumably also diversity
48:49
and equity is just a new version
48:51
of the wig interpretation of history.
48:54
It sort of modernizes a story which is actually much more
48:58
contingent.
48:59
David Hume is one of my heroes sitting on my desk
49:03
as we talk, is his history of England,
49:06
which is also published as a history
49:07
of Great Britain in Scotland.
49:10
And, and Hume's historical dynamics are,
49:14
I think, preferable to the, just so stories
49:17
of the new wig historiography, a lot of
49:20
what produces the breakthrough
49:22
to industrial revolution in the British Isles is sort
49:26
of accidental.
49:27
It's weird that it works in both the civil law system
49:30
of Scotland and the common law system of England.
49:33
It's weird that it sort
49:34
of happens at a time when the penal code is unbelievably
49:37
draconian and you get sent to Australia
49:40
for stealing a chicken, which is like being sent
49:43
to Mars in our time.
49:46
So I think that the key
49:48
to understanding the historical process is not
49:50
to create some perfect narrative of uplift
49:55
that you can then regale your classes
49:57
with at elite Colleges is better to tell people
50:01
that there's a lot of, of
50:02
of accidental contingent forces at work.
50:06
That war played a part.
50:08
The do you think the industrial revolution would've happened
50:10
if there hadn't been a British state
50:13
with an insatiable appetite for cannons?
50:16
Not to mention warships, come on.
50:18
Where does public debt come from?
50:20
Is it because people think it would be good
50:22
to have a risk-free asset?
50:23
No, it comes about because
50:24
of war finance history's not just so story.
50:28
A lot of it's nasty and a lot of it's highly contingent.
50:32
That's kind of the way I think about these things.
50:36
And if you come to the United States today, you can look
50:39
around and you can see that the success
50:42
of the Californian tech companies is,
50:45
despite the Californian state, the Californian system
50:49
of government seems calculated to asphyxiate capitalism.
50:53
It's extraordinary how well co corporations based here do.
50:59
The great thing about the federal system is it's like 50
51:02
experiments being run simultaneously
51:04
and you can see pretty easily which one's working
51:08
that will be Texas and which one isn't.
51:11
Well step forward Illinois,
51:12
but California's sort of vying
51:14
to be Illinois 20 years from now.
51:17
That's the way I approach these problems
51:19
and it it probably is less morally satisfying,
51:23
but it is, I think historically much more accurate.
51:28
- Ab absolutely, and I I love that this idea
51:31
that the history is, you know, somewhat contingent.
51:34
I wanna talk, I think this is a great segue into the
51:37
21st century rise of socialism that we're seeing sort
51:39
of in the West and, and all this discussion about inequality
51:43
as, as being, you know, one of the great social ills of,
51:45
of today, which they argue,
51:49
I was actually born on November 11th, 1989
51:51
as the Berlin Wall was falling and,
51:53
and essentially no one born since has really any direct
51:56
memory of Soviet communism and,
51:58
and that socialist system that they had which failed.
52:01
I'm just curious if you have any thoughts on the sort sort
52:03
of resurgence and the rise of sort
52:06
of socialist economic thinking.
52:08
Obviously there's, you sort of mentioned, you know,
52:10
there's challenges in California
52:11
that proposed California wealth tax, 10% income tax.
52:15
I can Washington state
52:16
and Washington state
52:17
that's scaring away wealthy individuals.
52:19
I'm just curious, like I feel like in the past 10 years
52:21
we've seen a, a change that, that is subtle,
52:24
but I think important, which is this sort
52:26
of just blanket discussion of inequality as being the chief
52:31
social and economic ill of our times.
52:33
And I think there's a challenge with using that
52:36
as a framework compared to, say, promoting economic growth
52:39
and fighting poverty, which I think are very important are
52:41
the kind of most important economic goals.
52:44
And I think this gets back to, you know,
52:46
Margaret Thatcher's famous saying in a 1990 parliamentary
52:49
exchange where she, she was talking to,
52:51
I believe a labor MP saying that, you know,
52:53
the honorable member suggests, you know, preferring the poor
52:56
to be poor, the rich were less rich.
52:58
And you know, the idea is that, you know,
53:01
by using the metrics of Tom's Pickety and
53:04
and his co-authors, that making you know, the the poor,
53:07
making the poor poor is,
53:10
is actually acceptable if it's making the rich
53:12
comparatively more poor.
53:14
And, and at some level, I think this is, that that's what
53:17
that kind of thinking, the, the path that it can take one on
53:21
and, and perhaps we're seeing that play out in California.
53:23
I'm curious what you think about this, this whole trend
53:25
of sort of the new socialism
53:27
and the this, all this discussion about inequality,
53:31
- We should care about poverty.
53:33
I think we should care about inequality too.
53:36
The, the situation of people in the bottom quintile
53:39
of the income distribution in the
53:41
United States is quite miserable.
53:43
And the statistics and life expectancy
53:45
to give just one example are dreadful.
53:48
So these are problems, but the fatal mistake is to think
53:52
that socialism is the solution.
53:55
And it's extraordinary to me
53:56
that anybody could possibly think that
53:58
after all the experiments that have been run in the last 100
54:03
and nearly 110 years, all
54:06
of which have failed without exception.
54:09
I mean the definition of insanity is doing the same thing a
54:13
hundred times and expecting a different outcome.
54:15
We've had at least a hundred experiments with socialism
54:19
and they all end the same way.
54:22
So people can only believe that this is the solution
54:24
to the problem of poverty
54:25
and inequality if they have had their memories wiped clean
54:30
of any historical experience.
54:32
It's amazing to me that we're having a discussion about
54:34
socialism in America in 2026.
54:37
What an indictment
54:38
of our educational system that this should be.
54:40
So if we taught properly the history
54:44
of say the Russian Revolution
54:46
and its horrendous consequences or the history of Vietnam
54:50
and the fate of South Vietnam
54:52
after it was taken over by communism, I could go on
54:55
and on if we just distributed the Black book of communism
54:58
and gave people a chance in high school to reflect on just
55:03
how many millions of people fell victim to the ideas
55:06
of Marxism and Leninism.
55:10
If we looked at Maoism through the eyes
55:12
of our colleague Frank Deter in high school,
55:16
then I think this kind
55:18
of delusion might be less recurrence.
55:22
But there is a complete amnesia at work here.
55:26
As I said, there are problems,
55:28
they're real life at the bottom
55:31
of the social heap in America.
55:33
Mostly sucks, but that is not
55:37
because billionaires exist.
55:40
If the billionaires were the sons grandsons, great grandsons
55:45
of billionaires, if the American elite
55:47
of wealth was a hereditary elite,
55:50
that would concern me would be a bad sign.
55:53
But actually there's more turnover in the American top,
55:57
not 0.1% than in any European equivalent.
56:01
There's high social mobility in the United States.
56:04
The problem is that most of them start out middle class
56:08
and they get to be rich mostly through their own endeavors.
56:12
The problem is very few
56:13
of them start in the bottom quintile.
56:15
What's the reason for that?
56:16
The education that we give the people in the bottom
56:18
quintile is terrible.
56:19
Why is it terrible? It's a public monopoly
56:22
and it's dominated by the teacher's unions
56:24
who have absolutely no incentive in
56:27
to give kids a good education.
56:29
This is fixable, but it has to be fixable
56:31
through educational reform, not punitive taxation of those
56:35
who in the middle class have been successful
56:37
and made it to the top.
56:39
It's simple really.
56:40
I don't know why this is complicated,
56:42
but I think bad education is itself an
56:44
explanation for the confusion.
56:47
- I fully agree with you on, on,
56:48
on the important role of education.
56:50
You know, I really wanna thank you for coming on.
56:52
It's a real honor to speak with you on such a
56:53
broad range of topics.
56:54
I really do think that you are one of the great historians,
56:58
the one of the greatest living historians today,
57:00
so it's a real honor to speak with you.
57:02
- Thank you very much indeed for those kind words. John.
57:04
It's been a a fun conversation and I've enjoyed it.
57:08
- This is the Capital of Freedom in the 21st Century
57:10
podcast, an official podcast of the Hoover Institution
57:12
and Economic Policy Working group
57:14
where we talk about economics, markets, and public policy.
57:16
I'm John Hartley, your host. Thanks so much for joining us.