A big change in the common opinion about markets and innovation, I claim, caused the Industrial Revolution, and then the modern world. The change occurred during the seventeenth and eighteenth centuries in northwestern Europe. More or less suddenly the Dutch and British and then the Americans and the French began talking about the middle class, high or low — the “bourgeoisie” — as though it were dignified and free. The result was modern economic growth.
That is the opening paragraph of an online essay by economic historian Deirdre McCloskey. For the essay see here. To order the book on which the essay is based, see here. Other historians have attributed the emergence of industrial society to institutional factors, environmental forces, or the Scientific Revolution. McCloskey says that all of these explanations are wrong. I’m not entirely convinced by her thesis, but she certainly makes an interesting argument.
Also check out the reaction essays to her piece, especially the one by Greg Clark.
I fully agree with McCloskey about the surprisingly poor ability of incentives alone to account for growth. In order to hold on to the central idea that the …delay in the Industrial Revolution … was created by a lack of incentives, economists have to maintain the collective fiction that all societies before 1800 were run along the lines of Kim Jong-Il’s North Korea. Yet, in case after case, we find, deep in the 10,000 years of economic stagnation, fully incentivized market societies.
Go to any village in Suffolk in England in the years of the Poll Tax, 1377-81 and you will find in the tax lists an abundance of traders, craftsmen, and merchants… Medieval cities were hives of enterprise and industry, taxed lightly by kings fearing to kill the golden goose… The market and incentives predate modern growth by perhaps 10,000 years.
Similarly when we see U.S. cities such as Detroit collapse internally, and revert to wasteland, it is not because the inhabitants of these benighted places were offered any worse incentives than their suburban neighbors. It is because the inhabitants responded differently to these same incentives, and in a way that was destructive to economic activity.