perhaps 10,000 well-educated Europeans thought of themselves as participants in the search for useful knowledge. Knowledge flowed between them and the tens of thousands of “trained engineers, capable mechanics, and dextrous craftsmen”, the (rather few) industrialist-inventors such as Josiah Wedgwood, and the (rather more) entrepreneurs who had little abstract interest in science or innovation, but found that in a competitive market economy, the dynamic few drag along the inertial many.
DeLong says that he prefers the view of Robert Allen. who
places the origins of the Industrial Revolution in the British Midlands in the eighteenth and early nineteenth centuries. In Allen’s view, the only route to modern economic growth required an array of elements never seen together before in Britain. Among them were high, imperialism-driven wages; cheap coal next to an ample canal network; and an open trading network allowing for a vast expansion of textile exports.
Here, you can see the contrast between a materialist view (Allen’s) and an idea/culture view (Mokyr’s). I think that this is a very important division in economics, and I am strongly on the idea/culture side.
I have been thinking about this in the context of my latest book Specialization and Trade. I ask myself, what would make someone unable to grasp its insights? I think that the bias toward materialist explanations of social phenomena is a major factor. What seems obvious to me, coming from a culture/idea perspective, is just downright baffling to people who instinctively think the other way. (Note that Brad has thought about these issues–he is not just coming at them from instinct.)
In favor of the culture/idea argument: the American System of Manufacturing appears to have been a key driver of growth in America in the world in the 19th century.
In favor of the materialist argument: New York’s construction of the Erie Canal appears to have been what pushed it past Philadelphia to become the largest city in America.
I think that this is a very important division in economics, and I am strongly on the idea/culture side.
I find it ironic that a libertarian economics feels idea/cutlure, esepcially local governoment and church institutions, is so important to economic growth. Because I don’t see how a society with constant economic creative destruction can have constant society stability. And look at the economic solutions for these struggling working class towns Trump is running on. I hear from Kevin Williamson the solution is bus tickets to Texas!! That signals conservatives really don’t care about local instutitions and have no problem that these struggling towns are diminishing. Again, I don’t how the libertarians two polar opposites of John Galt and Laura Wilder can long term co-exist. John Galts of the world are always throwing the Laura Wilder’s off their farm. (Which is closer to reality.)
If libertarian economics has all economics as a function of price then that is how society will long term function.
Alternatively, how do you view post-war Japan economy and society? I remember in the 1970s – 1980s the Japan Inc. being the ultimate economic machine and now today they look like a society of Grandpa Simpsons? The Japanese culture did not suddenly turn completely 180 degree different on January 1, 1990. (Yes I know I am simplifying a lot here!)
One possible answer is that Japanese culture and institutions put too much trust in government — e.g., MITI — but they happened to be fortunate to tack at the right time into a couple markets that saw explosive growth.
“Libertarian economics” — actually just “economics” — would tell you that that is not sustainable. Lo and behold, Japan proves the point. After not finding success through industrial policy in the next wave of emerging markets, they doubled down on government “investment” to the point of fiscal insanity — building infrastructure that no one wants — and have been paying the price ever since.
Another possible answer is that most of what we hear about Japan is filtered through a cultural lens so extreme that it simply cannot understand a different economy operating in a different culture. Because for a country that is, supposedly, doing everything wrong and has been since 1990, they actually look pretty damn fine by human development and quality of life indicators…
Veil of ignorance ala Rawls — would you prefer to have been born in Japan 25 yrs ago or the US 25 yrs ago?
I honestly can’t tell if this is more or less deliberate, that those creating a certain idea of Japanese failure, have a specific racial/cultural or economic or political agenda, or if it’s just an ignorance that cannot see past a very thing veneer of numbers into any sort of social reality.
Or the concrete vs abstruse. In this, specifics give rise to the abstractions which reinforce and promulgate them. Either alone seem deficient.
The problem arises when he says “he only route to modern economic growth required an array of elements never seen together before in Britain.”
Deirdre McCloskey’s argument is no, you have to look for the array of elements never seen together before ANYWHERE IN THE WORLD. Arguments like Allen’s fall apart when you ask, for example, “OK, then why not China or the Indian Ocean trade area, and hundreds of years ago?”
Coal mining was pretty slow in India until the mid 1800s. Don’t remember them having a lot of canals.
Like nowhere in Britain somehow excludes nowhere in the world.
From an idea/culture perspective why it wasn’t a consequence of the Renaissance seems just as valid.
There are plenty of countries that have many kinds of abundant natural resources and useful waterways that failed to achieve wealth in the 19th and 20th centuries. Hong Kong had no advantages other than a harbor, free markets, and an unobtrusive government…yet they achieved a high degree of wealth. Too many economists see the mechanical/materialist side and ignore the same in countries that are failures.
I see the same problem in the US. The great stagnation, as the term has been coined, is never explained as the result of the unstoppable growth of intrusive government, the explosion of regulations, the growth in the fraction of the economy that the various governments have taken (fed, city, state, county), plus the irresponsible rise in debt and intrusion by institutions like the Fed. No, it is some deep dark mystery that our average growth rate has gradually slowed while the size of the public sector has grown.
Brad writes on growth: “very few see it coming to a rapid end … but resource exhaustion followed by crash, as described in Jay Forrester’s 1971 World Dynamics (Wright-Allen Press), is likely only in systems in which scarce resources are not rationed by high prices.”
<< What about Venezuela?
I'd say many economists, probably including Brad DeLong, were fairly positive about most of the anti-market changes made by the Venezuelan gov't — until the "bad in the long term" problems manifested themselves.
It was limited gov't, along with ideas, and the materialistic success of putting in good ideas, especially those towards a larger and freer (less gov't burdened) market.
@George is right about the Stagnation due to " unstoppable growth of intrusive government, the explosion of regulations …"
Gov't is like a parasite on the host of the non-gov't productive folk. The tech & culture based growth of market oriented USA has survived despite gov't parasitic taxes & regulations, but as the parasite grows, the host weakens.
The importance of Christianity is also underplayed by most economists, few of whom seem to be Christian or even believers; but too many Christians also have a desire for "kind, generous" gov't to help others, so in democracies, like Venezuela, they too often support the politicians who promise the most gov't "good works".
It was limited gov’t which was the key idea that lead to economic growth.
I don’t understand the ideas/culture argument at all. Aren’t ideas/culture a function of material facts.
Athens had wide suffrage because Athens needed propertyless thete oarsmen for its Navy. The middle ages had aristocracy because castles and heavy cavalry were expensive but dominant weapons. Were the people in these eras capable of accepting different ideas, or is it simply the case that ideas and culture adapt to the physical incentives people face. If you have to have a king because of material realities, all of a sudden priests discover divine right of kings.
This seems similar for England and the industrial revolution. Over the 1000s AD the people of NW Europe were gradually morphing into the kind of people capable to an industrial revolution. Their IQ, behavioral habits, etc were moving in that direction because of differential fertility per Gregory Clark. This material change allowed them to develop capitalism. If you try to take capitalistic ideas and give them to unprepared peoples then it doesn’t work (see Africa). Ideas can’t help people with bad genes, and peoples genetics have a big effect on the ideas they have.
East Asia had many good elements but due to material factors (disease, agricultural methods) they had higher pop density and lower wages, meaning labor saving devices were not as incentivized. Other factors (lack of political competition, etc) are also proposed, but again these have material causes.
I don’t understand the culture/ideas people at all. This seems to lead to disastrous conclusions that if only people have the right attitude/ideas the material reality doesn’t matter at all, or that the nature of the people themselves isn’t relevant to their ideas. Baffling. No wonder they want to import billions of 80 IQs, they all just have to read Ayn Rand and it will all be OK. Ideas are all that matter.
“Aren’t ideas/culture a function of material facts.”
That’s Marx. Look into North’s New Institutionalism or sociology that studies economics. The process goes like this: religion determines culture, culture determines institutions, institutions determine economics and development.
It’s not just Marx. It’s literally noted by thinkers throughout the ages. It’s painfully obvious.
When Charlamenge was decapitating every Saxon boy taller then a wagon wheel, was his Christian faith determining the economics and development of his genocidal war effort. Or did the church write that God loved him because he kept the church safe and his chosen Pope in power.
DeLong is just biased by his mainstream, socialist economics. Mainstream econ are obsessed with randomness. The explanation for everything has to be randomness. In this case the technology just appeared and changed everything.
Hayek used to say that bad economists knew only economics. Good economists had to know a lot of fields, especially history and sociology. McCloskey, North and others bring to bear a lot of other disciplines. DeLong knows just one and a very emaciated form of economics.
As McCloskey emphasizes, any explanation of the rise of capitalism has to be unique to NW Europe in the 16th century, otherwise you have to explain why similar circumstances elsewhere did not produce capitalism. And capitalism was absolutely unique to NW Europe in the 16th century and for centuries, except for the Anglo countries.
The best history of capitalism shows that it developed first in the Dutch Republic in the late 16th century. Adam Smith agreed. The Dutch implemented the economic thought of the theologians of the University of Salamanca, Spain. Religion determined the culture; culture determined the institutions; capitalist institutions created economic development. Those institutions quickly spread to the US, Canada and Australia.