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December 8, 2016

The Culture of Capitalism

Explaining Modern Growth

Peer Vries

 

PEER VRIES is an Honorary Fellow at the International Institute of Social History in Amsterdam and author of State, Economy, and the Great Divergence.

 

For most of human history, poverty and stagnation were the norm. In 1800, according to an estimate by the economist Deirdre McCloskey, the real income of the average person was roughly equal to the per capita income of present-day Afghanistan. Sustained economic growth and technological dynamism, meanwhile, were quite unusual. Yet beginning with Great Britain in the late eighteenth century, parts of the world—primarily but not exclusively in the West [1]—came to see growth as the default condition. Today, the world as a whole is some ten times, and the United States some 50 times, as rich as it was in 1800. How such growth emerged [2], and why it emerged when and where it did, is one of the core questions of economic history. In his new book, A Culture of Growth: The Origins of the Modern Economy, the eminent economic historian Joel Mokyr sets out to answer it.

MODERN TIMES

Modern growth, as it is normally defined by economists, involves a substantial increase of real income per capita sustained over a long period of time—that is, average people’s incomes not only get better but also continue to do so. (In preindustrial times, periodic increases tended to be wiped out in the long run by population increases, famines, plagues, or war.) Most scholars agree that growth of this sort was unknown before the Industrial Revolution in Great Britain around 1800, which led to a virtuous cycle of increasingly more and better products, services, and technologies. Internationally, this led to what historians have called “the Great Divergence,” in which the West economically and technologically pulled away from the rest of the world during the nineteenth and much of the twentieth century.

Why the Great Divergence happened is one of the great questions of world history. Some scholars, such as Jared Diamond in his bestseller Guns, Germs, and Steel [3], have attributed different developmental paths to various geographic endowments. But although geography may be helpful in explaining static differences between regions, it cannot account for the emergence of long-term regional disparities in growth. In the end, as Mokyr claims, modern economic growth can be sustained only by permanent innovation, and so any theory that does not deal with innovation misses the point.

The most popular explanations for innovation have to do with institutions. Scholars such as Douglass North, Daron Acemoglu, and James Robinson have argued that good institutions—the legal protection of property rights, functioning markets, and what they have called “inclusive institutions,” in which many people are involved in the governing process—provide the necessary preconditions for innovation and thus sustained growth. This approach tends to focus on the incentives that certain institutions create for economic actors; if property rights are insecure, for instance, entrepreneurs will be less inclined to invest in improving their property. 

Mokyr certainly does not deny the fundamental importance of institutional arrangements for growth. But his thesis centers on the idea that growth and innovation of the magnitude and permanence witnessed since the Industrial Revolution cannot be explained by economic or institutional factors alone. Explaining innovation, and therefore growth, requires looking beyond institutions—to knowledge and so to culture [4].

THE SMART SET

Although the Industrial Revolution is often dated by historians to around 1800, A Culture of Growth concentrates on developments in Europe from roughly 1500 to 1750 [5], in order to get at the cultural roots of the dynamism of that later period. Mokyr defines“culture” early on in the book as “a set of beliefs, values, and preferences, capable of affecting behavior, that are socially (not genetically) transmitted and that are shared by some subset of society.” The subset he is most interested in is the relatively small group of people (aristocrats, gentlemen, merchants, educated professionals) who drove advancements in science and technology during that time. In eighteenth-century Great Britain, for example, probably no more than ten or 15 percent of the population was at all influenced by Enlightenment thinking.Mokyr is especially concerned with their ideas about the physical environment, and how those ideas were transformed intowhat he calls “useful knowledge”—knowledge that can be directly applied to solve practical problems. 

Mokyr is inquiring, therefore, about the cultural origins of modern scientific thinking. Indeed, science has become so important in the modern world that it is easy to forget how strange it is. When Albert Einstein claimed that “the whole of science is nothing more than a refinement of everyday thinking,” he was wrong. Modern scientific thought did not arise out of common sense. It is, as Dengjian Jin has argued in The Great Knowledge Transcendence, profoundly unnatural. People are not by nature systematically skeptical or prone to experimentation; they do not naturally express themselves in numbers or assume the existence of laws of nature that can be rendered mathematically. Nor do people spontaneously assume that the world functions as a causal machine. These are all peculiar hallmarks of Enlightenment thinking. Authority, tradition, and common senseare far more typical than science as socially accepted sources of knowledge. Traditional societies featured a close alliance among ideology, knowledge, and political power; that such thinking was ever superseded in the West by the radical skepticism of science is in itself something of a miracle. Science has become so important in the modern world that it is easy to forget how strange it is.

Why did modern science emerge in the West and nowhere else? Although Mokyr studies the early modern period, the cultural roots of scientific thought may in fact lay further in the past. The Western tradition—with its Christian, Jewish, and Greco-Roman elements—was inherently fractured and unstable to begin with. The cultural synthesis of the High Middle Ages, which combined Christian religious beliefs with rationalistic Aristotelian philosophy, was an uneasy melding of dogma, reason, and appeals to authority. Then, in the early modern period, a number of sweeping developments (the Renaissance, the Reformation, the discovery of the Americas, and the invention of modern scientific instruments) shattered the convictions behind Europeans’ existing conceptual system, leading to widespread doubt and controversy.

Yet in the long run, fundamental skepticism is not a practical worldview. Doubt led to a crisis of the early modern European mind, which helps explain why the pioneers of early modern science, such as Francis Bacon and Isaac Newton, made such a sustained effort to establish the scientific method as a new foundation for knowledge—one based on empirical observation, experimentation, and reason. In a world, moreover, that was often ravaged by violent conflict, these men put an emphasis on developing peaceful and reasonable ways of settling disagreements, such as by subjecting arguments to public debate and experimental confirmation or disconfirmation.

Mokyr repeatedly stresses that there was nothing inevitable about the emergence of modern science: cultural traditionalists were certainly not doomed to lose. This is where the enlightened elite was so critical; although Enlightenment thinking was always a minority viewpoint, in early modern Europe, it was one held by a culturally influential elite. This elite became convinced that general progress through increased knowledge was both possible and desirable and that their new knowledge, obtained through the methods of science, should be spread in order to enlighten the people. “Cultural entrepreneurs,” as Mokyr calls them—people such as Bacon and Newton—were especially successful in promoting their scientific views, a rather surprising success considering that science, in its early years, not only was counterintuitive but also often failed to produce any practical results.

For Mokyr, then, the key development in early modern Europe was what he calls “the market for ideas,” [6] in which intellectual suppression was difficult and better rewards for intellectual innovation were developed. Protectiveinstitutions in which ideas could be discussed, and through which they were ultimately spread, flourished. One of the most important institutions for this market [7] was “the Republic of Letters.” This republic, which developed in the late seventeenth and eighteenth centuries, was a nonhierarchical, transnational community of scholars who corresponded with one another about new developments in the arts and sciences. The republic created a social arena in which reputations were built on the development and dissemination of new knowledge, knowledge that other people could test, contest, and use. It had an organizational infrastructure of universities,learned societies, and salons, and it profited enormously from the development of a pan-European network of publishers, booksellers, and postal services following the introduction of the printing press in the fifteenth century.

The market for ideas that Mokyr describes was pluralistic and politically fractured yet at the same time intellectually integrated. It was therefore difficult tosuppress offending ideas, since scholars could always offer such ideas to the highest bidder, ranging from the rulers of states to local entities such as towns, universities, guilds, or estates. The Republic of Letters, as Mokyr emphasizes, was a uniquely European phenomenon. Mokyr compares developments in Europe with those in China. Although China was highly advanced in many regards, no comparable culture of growth ever developed there, in part because it lacked a true market for ideas. That was a result of China’s political structure: China was a bureaucratically centralized empire that was much more effective than Europe’s competing states in enforcing ideological orthodoxy. 

BLINDED BY SCIENCE

Yet even for those historians who would be willing to accept Mokyr’s thesis that early modern Europe alone developed a competitive market for ideas, there remains the question of how such a market led to the concrete innovations that ultimately made modern growth possible. It is not easy to pinpoint when exactly modern growth first occurred, but most agree that it emerged long after the Enlightenment and the scientific revolution. The Enlightenment, moreover, was a broad European phenomenon that involved places such as Italy and central Europe, which did not see serious growth until the second half of the nineteenth century. Finally, much of the new science discussed in the Republic of Letters was abstract and complex, whereas the innovations that powered the Industrial Revolution were tangible improvements made on the shop floor by practical craftsmen. 

It is thus not surprising that scholars such as McCloskey have attempted to qualify [8] the role of science, claiming that it did not matter for most of the economy until the twentieth century. Science did, of course, play a role in the Industrial Revolution through the development of technologies such as the steam engine and gas lighting. But the broader point, stressed by Mokyr, is that science’s greatest influence may have been cultural. By 1800, when industrialization was truly taking off in Great Britain, there had already been a widespread diffusion within British society of a Baconian scientific mentality that prized tinkering, experimentation, and rational argumentation. More important, without some theoretical underpinnings, even the most skilled craftsmen would have quickly hit a ceiling in terms of innovation. And indeed, the Second Industrial Revolution, which began in the second half of the nineteenth century with the spread of the railroads, would have been unthinkable without science. Although Enlightenment thinking was always a minority viewpoint, in early modern Europe, it was one held by a culturally influential elite.

But Mokyr is not simply a champion of the learned gentlemen: he rightly stresses that without the practical knowledge of the craftsmen, science would have been a dead end economically. Someone had to transform the abstract principles of science into functioning machines that could be used profitably, and someone had to be able to maintain, repair, and adapt those machines. Skilled craftsmen were the ones who turned the abstract Enlightenment into an “Industrial Enlightenment,” to use a phrase from one of Mokyr’s previous books. It was in this respect that Great Britain, the world’s first industrial nation, was particularly advanced. It had more and better-skilled craftsmen and mechanics than any other European nation, and also an industrial culture in which, for reasons that are still not entirely clear, there was more interaction among scientists, tinkerers, artisans, and entrepreneurs than anywhere else.

WHITHER GROWTH?

A book such as Mokyr’s, which explores the origins of modern growth, inevitably raises the question, Where do we go from here? According to scholars such as Larry Summers, Tyler Cowen, and Robert Gordon, the future of economic growth looks rather bleak, especially in the West, and talk about “secular stagnation” [9] or “the rise and fall of growth” [10] is commonplace. Much of the pessimism rests on a belief that growth-promoting innovations are becoming increasingly scarce. Mokyr, however, is not a stagnationist when it comes to technological innovation. “I take a very optimistic view,” he stated in a recent interview [11]. “I think if you want to summarize the future of technology, the short summary is, you ain’t seen nothing yet.”

Yet there are reasons to be less optimistic when it comes to the future of growth [12]. Science, of course, will continue to progress—scientific research has become too large and competitive an enterprise for one to expect otherwise—and there is no reason to believe that technological progress as such will disappear or even slow down. But that does not mean that economic growth will keep pace or that technology’s effects on income and wealth inequality will not hamper growth. It is easy to imagine a future in which innovation destroys more jobs than it creates. In the West, the great majority of the population works in services, where the economic effects of innovation have always been less impressive than in industry or agriculture.

There are further doubts about the future of the core idea of the Enlightenment: progress. Historically, the idea of progress was based on the assumption that consensus was possible about what counts as knowledge and how to acquire it. But in the postmodern West, this ability to reach consensus may well have disappeared, as has the idea of progress more generally. Expertise, which was so prominent in the Enlightenment culture of growth, is now suspect, and the conviction has been raised that most theoretical knowledge—once considered a good in itself—is in economic terms actually quite useless. The spread of education, too, played a central role in Enlightenment thinking about social improvement, but as the number of uneducated people has decreased, the West may be approaching a point of diminishing returns. Mokyr also points out the fundamentally constructive role played by mass media in disseminating knowledge in early modern Europe. Although the modern mass media, including online and social media, circulate unprecedented amounts of information, it is unclear how much this contributes to the spread of knowledge in the Enlightenment sense. Finally, Mokyr emphasizes the importance of an institutional setting that guarantees equality and freedom. But today in the West, inequality has reached dangerous levels and anti-Enlightenment authoritarianism is on the rise.

Near the end of A Culture of Growth, Mokyr writes, “The question that will inevitably be raised is whether the Enlightenment in Europe was a necessary or sufficient condition for the great breakthroughs that led to economic growth and the modern economy.” He considers it highly unlikely that modern economic growth could have come into existence without the Enlightenment and its cultural preconditions. In that sense, it was a necessary condition. But the question of whether it was a sufficient condition—a much harder case to make—is left unaddressed.

There can be no doubt, however, about the huge importance of culture in explaining the emergence and spread of modern economic growth. And yet culture has been ignored far too often in recent scholarly debates about the Great Divergence and the origins of the modern world. Someone needed to write a book like this, and there could have been no better author to do so than Mokyr.