Accounting for the Industrial Revolution

This is the most important question in economics: Why did the Industrial Revolution happen when and where it did–and not before or elsewhere? Fail to understand that and you may enact policies that will kill the unprecedented human progress it launched: a multiplication in the average worldwide per-capita income of between 16 and 100 times in the span of just 200 years. Compare that to the preceding thousands of years over which worldwide per-capita income was largely unchanged.

In her brilliant 2011 book Bourgeois Dignity, economist and historian Deirdre McCloskey shot down every leading explanation for this “Great Fact,” and then offered a new one: in the Netherlands and then Britain, entrepreneurship was accorded a widespread liberty and respectability it had never before enjoyed in human history. McCloskey will speak at the Cato Institute on this and related topics on June 20th at noon.

This exquisitely elegant explanation packs enormous punch for students of the history of economics. Among other things, it explains why the ancient Greeks–who invented democracy, the core forms of Western literature, joint-stock corporations, commercial insurance, and even steam-powered toys–never enjoyed an industrial revolution of their own. (The ancient Greek elites abhorred the idea of working for a living.)

As yet, though, there is no “implementation detail” for the Liberty and Dignity theory. Bourgeois Dignity is so successful at shooting down earlier explanations for the Great Fact because it describes the mechanisms by which they are proposed to have driven economic growth and then shows that the magnitude of their impact is simply insufficient. So far, it doesn’t seem that anyone has proposed a specific, quantitatively testable mechanism by which the change in popular rhetoric could have precipitated the 16-to-100-times innovation explosion.

To get the ball rolling, below is one proposal for such a mechanism. (Disclaimer 1: this is not my day job. Disclaimer 2: it wouldn’t be that easy to quantify–sorry.)

Liberty and Dignity for entrepreneurs/tinkerers/merchants raised the number of clever, dedicated innovators beyond a threshold that had never before been reached. Below that threshold, would-be innovators would often have hit stumbling blocks that they could not overcome, e.g., needing some as-yet-uninvented process/material/tool/concept to complete/commercialize their own innovation. Without that missing piece, their innovative efforts would have failed. Above that threshold, cross-pollination among innovators would have drastically reduced the number of insurmountable problems–innovators would increasingly have been able to borrow from their predecessors and contemporaries who were working on related problems. This cross-pollination would have required inexpensive information storage and retrieval (i.e., books), but it also would have required a critical mass of innovators simultaneously working on a vast array of problems, a critical mass that the widespread Liberty and Dignity for entrepreneurs created for the first time.

Call it, “James Burke’s Connections meets Deirdre McCloskey’s Dignity.” Just a thought.