Interesting and well written! I would note that what you correctly identify as a “capital advantage” in Scotland was in fact inseparable from their lower case "d" democratic governance structures which were embedded law, finance, and civic institutions, and which dictated not just the availability of capital but also, super-importantly, decision making regarding its allocation and deployment pathways. Its the system's brain!
Every society at all time periods has eccentric geniuses. In one era we had Bohr, Tesla, Turing, Neumann etc. They built modern civilization. Every society ever has their equivalents, the question is how much are they allowed to enact change and how much are they systematically dismantled by the larger society? Those guys didn't exactly have a great fate and they were the lucky ones.
Scotland didn't just have a capital advantage. It had a culture that was uniquely benevolent to the eccentric genius, the ambitious industrialist. That's the real variable. There are always freaks to build civilizations at every point. What changes is whether the society lets them work or destroys them.
England is widely known for being the land of eccentric, and its economic success is widely ascribed to that. Dr Howes builds a solid case for the foundational factor in the success of the eccentric, and his case may just extend to England although he doesn't say do here.
I agree. I also think that if you just take a look more of a look at the timeline here, its almost certainly the case that England was 'crystalizing' away from what made it successful at the same time Scotland was peaking. Scotland itself is also unique in this way, with the clan system and such being built into the law.
I view most of the last 1000 years of English flourishing to essentially be multi stages of different groups all adopting this framework, flourishing, then institutions are captured and made unfriendly to those who originally built them.
Just like how Rome had shifts in terms of the economic and cultural concentrations in the eastern empire, North Africa and others as Rome degraded. So to did England have Scotland, The Common wealth as a whole and even the American empire as their Byzantine Equivalent.
Thanks very much - corrected! And on England, yes I think there are similar mechanisms though of a different kind - but still working out some of the details.
Although Mike Magoon has booted me off his substack for inappropriate use of irreverent humor, he has a very wide collection of articles on the economic history of growth and prosperity there.
Scotland had the same institutions that had benefited great trading centers previously, such as Venice and Amsterdam. It had strong commercial law and well-developed banking. Anton Howes shies away from the use of the word, but it was capitalism red in tooth and claw.
That still doesn't explain the unusually high number of engineering geniuses that Scotland produced. Here in South Africa we used to have a joke that you could walk into any engineering works and yell, "Jock!" Someone would always answer, "Aye?"
I do shy away from the term capitalism, it’s true (though funnily enough one of my old blogs was called Capitalism’s Cradle). I just find it a very fuzzy word that doesn’t aid in comprehension - I always like to discuss the nuts and bolts, as so often the things that many people think as being uniquely capitalistic have been around far longer than they’d suppose!
Perhaps an influence of Scottish universities inventing “disciplines” that required demonstrated competence vs English that made espousal of Anglican doctrine a criteria for hiring and advancement. Led to new disciplines like political economy & Adam Smith.
First, since I'm more interested in the history of ideas than economic and social history, I come to this with certain biases.
Very interesting to read Deirdre McCloskey on the nature of the industrial revolution today, emphasising that it was much more than an revolution in economic behaviour. It required a change in society so that it would support the continuous generation of economically useful knowledge and its diffusion through society. This is Joel Mokyr's distinction between propositional and prescriptive knowledge. I agree that the parochial school system was not especially important for this, but the development of the education, especially the modernisation of the university curriculum (looking to the Netherlands, then the richest place in the world), gave Scots a platform for the exploration of physical and medical sciences.
Beyond this, in the 1740s, there was the political disaster of the Jacobite rebellion - in response to which leading Scots quickly embraced the European Enlightenment project. Perhaps the Scots' genius was to embrace political liberalism and freedom of thought while actively debating what short of public institutions would support the country's social and economic development.
That provides some context for the development of banking systems. I think that there's one important point. Credit markets work best in conditions of high trust. Read Adam Smith (both "Theory of Moral Sentiments" and "The Wealth of Nations") and it is very clear that he thought of commercial activity very much in ethical terms. His theory of progress in "The Wealth of Nations" places capital accumulation at its heart. Much of the language seems loose to a modern economist, but he is very clear that capital accumulation enables increased labour productivity, higher wages, and greater spending - bringing larger returns to the owners of capital.
For these reasons, I think that Scotland was very well placed to develop a banking system which was effective in channeling capital to productive purposes.
I note someone else in the comments mentioned capitalism. Anachronistic, I think. Smith never used the term, writing instead about commercial society - which he knew well from his time as a professor in rapidly growing Glasgow.
Thanks for the detailed comment. Funnily enough McCloskey was my PhD examiner! On high-trust societies, I agree that this is important, but in this case I think it was the laws around credit that helped to create such a society. With creditors given so much more protection by the law, they were always going to advance more credit. I’m very big on ideas as a big driver of the major changes, but it’s very often a virtuous cycle - less risk for creditors making credit more abundant, and making creditors generally more trusting, which in turn gave them the confidence to extend more credit, and so on and so forth.
The economic model practiced in Sumeria six thousand years ago was capitalism. Private property, free markets, competition, and profit. Unfortunately the priestly caste soon took over, redirecting the consumer surplus to their own wealthy lifestyles and the building of ziggurats.
Fascinating article. So few of my fellow Scots are aware never mind inspired by their commercial history (or any for that matter).
Decentralisation, trust and a truly focused and hussling banking system appear key. It all reminds me of the research by economist Richard Werner where he describes how the Japanese created a flourishing system where banks worked intimately with small and medium companies with the aim of wealth for all. A system Werner claims was then copied by the Chinese communists. Unfortunately the Japanese central bank destroyed the system. The Chinese still have and prize them. We are continuing to centralise with ever larger banks, and losing mittlestat banks in Germany and throughout Europe.
Decentralisation coupled eith minimal state intervention (beyond that required to ensure legal certainty) and freedom of trade (and speech) are as much the answer today as they were then.
As a young American investment banker, I frequently visited the Scottish trusts on Charlotte Square in Edinburgh when marketing IPOs. I was always struck not so much by the capital and buying power, as by the perscipacity and quality of analysis. And there was always a delightful quirkiness to the Charlotte Square way of doing business - the owl ties at Ivory and Sime and, in contrast with London, brown shoes with a gray suit.
I think that the way of thinking brought about the Scottish enlightenment had much to do with the quality of the Edinburgh investment houses.
And where is Scotland now? Most of the thinkers are now more concerned with socialism. And I think that the Scottich scholars of the Enlightenment would be shocked by the hate speech act of 2024 and what it means for free speech.
Neat post! One thing I wonder about is, how does this history interact with the Highland Clearances exactly? You briefly allude to the but I wonder how much we can say about any causal stories; did the evictions help economic growth (more productive use of land), hindered it (fewer people), or didn’t have much of an effect at all? And I guess a potentially spicy question would be, if it did help, was the suffering of the evicted tenants “necessary”?
Thanks Anton, Very interesting but it appears that all this prosperity was not (as it never is) distributed equally enough to prevent my ancestors (and thousands of others) from emigrating and in many cases ironically becoming footsoldiers in England's colonial enterprise by the mid C19.
Interesting and well written! I would note that what you correctly identify as a “capital advantage” in Scotland was in fact inseparable from their lower case "d" democratic governance structures which were embedded law, finance, and civic institutions, and which dictated not just the availability of capital but also, super-importantly, decision making regarding its allocation and deployment pathways. Its the system's brain!
I should look more into how the advantage emerged, yes. But for another time!
This is a really fascinating article.
Thank you!
Great Article but the wrong question
Every society at all time periods has eccentric geniuses. In one era we had Bohr, Tesla, Turing, Neumann etc. They built modern civilization. Every society ever has their equivalents, the question is how much are they allowed to enact change and how much are they systematically dismantled by the larger society? Those guys didn't exactly have a great fate and they were the lucky ones.
Scotland didn't just have a capital advantage. It had a culture that was uniquely benevolent to the eccentric genius, the ambitious industrialist. That's the real variable. There are always freaks to build civilizations at every point. What changes is whether the society lets them work or destroys them.
England is widely known for being the land of eccentric, and its economic success is widely ascribed to that. Dr Howes builds a solid case for the foundational factor in the success of the eccentric, and his case may just extend to England although he doesn't say do here.
I agree. I also think that if you just take a look more of a look at the timeline here, its almost certainly the case that England was 'crystalizing' away from what made it successful at the same time Scotland was peaking. Scotland itself is also unique in this way, with the clan system and such being built into the law.
I view most of the last 1000 years of English flourishing to essentially be multi stages of different groups all adopting this framework, flourishing, then institutions are captured and made unfriendly to those who originally built them.
Just like how Rome had shifts in terms of the economic and cultural concentrations in the eastern empire, North Africa and others as Rome degraded. So to did England have Scotland, The Common wealth as a whole and even the American empire as their Byzantine Equivalent.
Super interesting and strongly argued. I wonder if you think this mechanism undergirds England's industrial revolution breakout.
As a minor quibble, Canada's first prime minister was a john and not a james (unless I'm about to learn something new).
Thanks very much - corrected! And on England, yes I think there are similar mechanisms though of a different kind - but still working out some of the details.
Although Mike Magoon has booted me off his substack for inappropriate use of irreverent humor, he has a very wide collection of articles on the economic history of growth and prosperity there.
Scotland had the same institutions that had benefited great trading centers previously, such as Venice and Amsterdam. It had strong commercial law and well-developed banking. Anton Howes shies away from the use of the word, but it was capitalism red in tooth and claw.
That still doesn't explain the unusually high number of engineering geniuses that Scotland produced. Here in South Africa we used to have a joke that you could walk into any engineering works and yell, "Jock!" Someone would always answer, "Aye?"
I do shy away from the term capitalism, it’s true (though funnily enough one of my old blogs was called Capitalism’s Cradle). I just find it a very fuzzy word that doesn’t aid in comprehension - I always like to discuss the nuts and bolts, as so often the things that many people think as being uniquely capitalistic have been around far longer than they’d suppose!
Perhaps an influence of Scottish universities inventing “disciplines” that required demonstrated competence vs English that made espousal of Anglican doctrine a criteria for hiring and advancement. Led to new disciplines like political economy & Adam Smith.
First, since I'm more interested in the history of ideas than economic and social history, I come to this with certain biases.
Very interesting to read Deirdre McCloskey on the nature of the industrial revolution today, emphasising that it was much more than an revolution in economic behaviour. It required a change in society so that it would support the continuous generation of economically useful knowledge and its diffusion through society. This is Joel Mokyr's distinction between propositional and prescriptive knowledge. I agree that the parochial school system was not especially important for this, but the development of the education, especially the modernisation of the university curriculum (looking to the Netherlands, then the richest place in the world), gave Scots a platform for the exploration of physical and medical sciences.
Beyond this, in the 1740s, there was the political disaster of the Jacobite rebellion - in response to which leading Scots quickly embraced the European Enlightenment project. Perhaps the Scots' genius was to embrace political liberalism and freedom of thought while actively debating what short of public institutions would support the country's social and economic development.
That provides some context for the development of banking systems. I think that there's one important point. Credit markets work best in conditions of high trust. Read Adam Smith (both "Theory of Moral Sentiments" and "The Wealth of Nations") and it is very clear that he thought of commercial activity very much in ethical terms. His theory of progress in "The Wealth of Nations" places capital accumulation at its heart. Much of the language seems loose to a modern economist, but he is very clear that capital accumulation enables increased labour productivity, higher wages, and greater spending - bringing larger returns to the owners of capital.
For these reasons, I think that Scotland was very well placed to develop a banking system which was effective in channeling capital to productive purposes.
I note someone else in the comments mentioned capitalism. Anachronistic, I think. Smith never used the term, writing instead about commercial society - which he knew well from his time as a professor in rapidly growing Glasgow.
Thanks for the detailed comment. Funnily enough McCloskey was my PhD examiner! On high-trust societies, I agree that this is important, but in this case I think it was the laws around credit that helped to create such a society. With creditors given so much more protection by the law, they were always going to advance more credit. I’m very big on ideas as a big driver of the major changes, but it’s very often a virtuous cycle - less risk for creditors making credit more abundant, and making creditors generally more trusting, which in turn gave them the confidence to extend more credit, and so on and so forth.
The economic model practiced in Sumeria six thousand years ago was capitalism. Private property, free markets, competition, and profit. Unfortunately the priestly caste soon took over, redirecting the consumer surplus to their own wealthy lifestyles and the building of ziggurats.
Capital is key. Education comes later. Capitalism = Labor + Savings + Investment
Sir John A MacDonald was 1st PM of Canada, not James, unless he changed his name...
Thank you - you’re second to flag the mistake, but haven’t yet had a chance to edit it! Will do so today!
How sad to look at Scotland now.
Today is a different stage of capitalism - also in Scotland. The second part of this essay should address why Scotland do not flourish today!
Fascinating article. So few of my fellow Scots are aware never mind inspired by their commercial history (or any for that matter).
Decentralisation, trust and a truly focused and hussling banking system appear key. It all reminds me of the research by economist Richard Werner where he describes how the Japanese created a flourishing system where banks worked intimately with small and medium companies with the aim of wealth for all. A system Werner claims was then copied by the Chinese communists. Unfortunately the Japanese central bank destroyed the system. The Chinese still have and prize them. We are continuing to centralise with ever larger banks, and losing mittlestat banks in Germany and throughout Europe.
Decentralisation coupled eith minimal state intervention (beyond that required to ensure legal certainty) and freedom of trade (and speech) are as much the answer today as they were then.
As a young American investment banker, I frequently visited the Scottish trusts on Charlotte Square in Edinburgh when marketing IPOs. I was always struck not so much by the capital and buying power, as by the perscipacity and quality of analysis. And there was always a delightful quirkiness to the Charlotte Square way of doing business - the owl ties at Ivory and Sime and, in contrast with London, brown shoes with a gray suit.
I think that the way of thinking brought about the Scottish enlightenment had much to do with the quality of the Edinburgh investment houses.
And where is Scotland now? Most of the thinkers are now more concerned with socialism. And I think that the Scottich scholars of the Enlightenment would be shocked by the hate speech act of 2024 and what it means for free speech.
Neat post! One thing I wonder about is, how does this history interact with the Highland Clearances exactly? You briefly allude to the but I wonder how much we can say about any causal stories; did the evictions help economic growth (more productive use of land), hindered it (fewer people), or didn’t have much of an effect at all? And I guess a potentially spicy question would be, if it did help, was the suffering of the evicted tenants “necessary”?
Thanks Anton, Very interesting but it appears that all this prosperity was not (as it never is) distributed equally enough to prevent my ancestors (and thousands of others) from emigrating and in many cases ironically becoming footsoldiers in England's colonial enterprise by the mid C19.