The "Institutional" Puzzle
- Following the work of North, Rodrik, Greif, Acemoglu and many others, a consensus has emerged that “institutions” are central in explaining economic performance:
- Law and order,
- good property rights,
- effective third-party or private-order contract enforcement,
- low rent-seeking,
- openness and inclusiveness, and
- efficient governance and provision of public goods.
- [But] the European Industrial Revolution that started modern growth was above all about technological progress, not just better allocations and more efficient markets:
- Growth before 1750 was primarily on “Smithian Growth”.
- Growth after 1750 was increasingly based on innovation or “useful knowledge”.
- Whence the different dynamic?
- What kind of institution was instrumental in bringing about the rise in intellectual innovations that eventually led to the Industrial Revolution?
The Culture of Growth
- What culture?
- Beliefs about the physical environment and humans’ relations with it
- Whose culture?
- That of the small minority intellectual elite
* The “Market for Ideas”*
- Intellectual innovators try to persuade “buyers” to accept their novel ideas and findings:
- When they do so they “gain a reputation.”
- Questions about this market:
- How competitive was this market?
- What were the barriers to entry?
- How high and prohibitive were transactions costs?
- How many taboos does it observe?
- How efficient is it?
- No “prices,” but incentives matter.
- Which institutions support it and make it work?
Market Failure in the "Market for Ideas"
- Systematic underproduction of new knowledge because of its well-understood public good properties.
- New ideas degrade the value of the human capital of the existing orthodoxy.
- In Europe between 1500-1700 the educated elite developed a culture and a set of institutions that was more suitable for intellectual innovation and the accumulation of useful knowledge than before.
- The European solution just worked sufficiently well to produce in the end an elite culture:
- We can call it “Enlightened”.
- It was far more friendly to the growth of useful knowledge than any other.
Choice-Based Cultural Evolution
- A Lamarckian evolutionary process.
- Individuals have as their default the cultural beliefs they are socialized with.
- But in addition they can acquire cultural characteristics.
- They “choose” their cultural elements.
The "Market" for Ideas
- When new items appear on the menu, people can choose/
- Within every society ideas are competing for acceptance.
- Some become “fixed” in the populations.
- Some are abandoned and go extinct.
- Some co-exist with their competitors.
How Do people Make These Choices?
- Content-based bias (“persuasion”).
- Direct bias (authority).
- Model-based bias (imitation).
- Frequency-dependent bias (conformism).
- Rhetorical bias (framing).
- Low risk of penalty for heterodoxy.
New “Cultural Variants” 1500-1700
- Iatrochemical medicine.
- Vesalian anatomy.
- Cartesian dualism.
- Blood circulation.
- Galilean mechanics.
- Infinitesimal mathematics.
- The presence of an atmosphere.
- The possibility of vacuum.
- Newtonian celestial mechanics.
- And much more.
Most Important: The Enlightenment
- Belief in the possibility and desirability of human progress, a fundamental element of the Enlightenment.
- A (Baconian) belief that “useful knowledge” is actually supposed to be used (that is, applied to production):
- Thus a new agenda for scientific research.
- Instrumental in bringing about progress (the “industrial enlightenment”).
- A belief in the superiority of the “moderns” over the “ancients”.
- The value of “experimental philosophy” in scientific research (Bacon etc.)
- The persuasiveness of experimental results.
- The importance of mathematics and quantification as tools of investigation (Galileo, Newton).
- The importance of collecting facts and data, and classifying and organizing them in accessible forms looking for “empirical regularities.”
- The religious virtuousness of research into natural philosophy (Merton, 1938).
- The (eventual) separation of science from metaphysics.
This New Culture Firmly in Place by 1700
- In Britain and the Western European Continent.
- A necessary (if perhaps insufficient) condition for the Industrial Revolution and the “Great Enrichment” that came after it.
The European Market for Ideas Changed Dramatically
- Became more competitive.
- Created more and better incentives to produce intellectual innovation.
- Enjoyed lower entry barriers.
- Lowered transactions costs.
- Had fewer topics that were “taboo”.
- The research agenda shifted to subject matters that were potentially more promising for solving technological needs and might support economic growth. [Note the subjunctive and conditional clauses in the last bullet].
**How Do Markets Succeed?
- Need an institutional foundation that specifies the incentives.
- Enforces the rules by which this market operates..
- Here developing the institution was especially challenging:
- Had to overcome the public good properties of knowledge.
- Find a solution to the “commons” problem.
- Success created unprecedented incentives for innovators to engage in proposing new ideas.
- Increase positive incentives by finding ways in which intellectual innovators could be rewarded despite obvious appropriability problems..
- Reduce negative incentives by weakening the forces that would suppress innovation.
- Against all odds, between 1500 and 1700 Europe produced an institution that did all that.
The European Market for Ideas a Unique Institution
- Europe was not the first and only place to have a market for ideas.
- Europe the first and only one to stumble upon an institutional solution that:
- Actively encouraged intellectual innovation.
- Led to an exponential growth in useful knowledge.
- Solved the problem in a novel way. In so doing.
The “Republic of Letters”
- A transnational community of scholars.
- The European educated elite, the intellectual crème de la crème: scientists, physicians, philosophers, mathematicians (as well as theologians, astrologers, and mystical and occultist writers).
- Homogeneous, educated, literate, polyglot, religious-but-open-minded, with a common ideology or culture.
- After 1500, Erasmus and his friend Juan Luis Vives.
- Reached scale in the 1700s Age of Enlightenment.
- Ex post "efficient":
- Not designed to be that way.
- Its efficiency does not explain its longevity.
- A classic emergent property.
- Uniquely European.
- Not a construct of historians or “an imagined past”.
* What Was the Republic of Letters?*
- A community--an “Invisible College)”.
- Shared, distributed, and evaluated knowledge.
- A classic “weak ties” network (Granovetter, 1983).
- Set the rules for the “knowledge commons” in the Age of Enlightenment.
*The Rules of the RofL
- An open community: anyone (within reason) could enter.
- In principle egalitarian and non-hierarchical.
- Knowledge and data should be open and shared. (When someone refused, e.g., John Flamsteed, this could create a scandal.)
- Priority conveyed property rights in the sense of “credit” and reputation--but not exclusionary rights.
- All knowledge, both new and old, was contestable.
- All new propositions were to be reproduced, checked, tested and evaluated (making the new knowledge more reliable to outsiders).
- A transnational community
**What Explains Its Success?
- The Republic of Letters could thrive because it was to a considerable extent independent of other institutions--even in France, where the state meddled more than elsewhere.
- Its “citizens” took advantage of the political fragmentation of Europe:
- Limiting rulers and organized religion from intervening or controlling knowledge creation.
- Moving from one nation to another.
- Playing one power against another.
Supply Side Critical Components
- Printing presses.
- Postal services and declining transportation costs.
- Lingua franca and a set of traditions--real or imagined--of intellectual unity harking back to the classical world and the medieval Church.
Demand Side Critical Components
- Growth of a commercial and urban class (“demand for knowledge”).
- Competitive patronage:
- Growing demand by great and small rulers for high quality courtiers and advisers.
- The market for ideas became a game in which the payoff for leading intellectuals was a reputation.
- Reputation the main incentive mechanism.
- Reputation correlated with patronage (though many wanted reputation for its own sake).
- Patronage provided intellectuals with economic security (Westfall, 1985) and legitimization (Biagioli, 1991).
- A competitive market in it was only possible in Europe’s “states system.”
- The importance of competition and mobility was that European rulers and patrons were limited in their ability to force their clients to accept their views (and knew it).
- This severely limited the ability of reactionary elements to pursue strategies of censorship.
- Because the payoff was largely in reputational terms, people established and sometimes fought over priority (David, 2008).
- The significance of open science to the economic development of the modern world is huge (David and Dasgupta, 1992).
- New knowledge would be placed in the public realm and thus be accessible to anyone who wanted to build on it, or use it for technological purposes.
- A unified, pan-European institution that allowed intellectuals to enjoy a much larger constituency than they would have in their often small home-countries.
- Europe had the best of all possible worlds between political fragmentation and intellectual unification.
- The most important institutional change that explains the Industrial Revolution and the subsequent “take-off” is not better property rights or a decline in transactions costs or the Glorious Revolution.
- Instead, it was the institutions that governed the accumulation and diffusion of “useful knowledge” and the solution to the knowledge commons problem that the “Republic of Letters” in Europe provided. The most important outcome was a set of ideas we call the Enlightenment.
- It focuses on Europe (mostly Western) and argues that this part of the world is most critical. It does not explain why it all started in Great Britain.
- It is not at all clear that the growth of science in the period 1500-1700 (“the scientific revolution”) led directly to eighteenth-century technological change. Maybe all that science did not matter to the Industrial Revolution (Landes, 1969; McCloskey, 2010)?
- But this takes a very narrow view of what the Industrial Revolution was about.
- The mechanisms by which the Republic of Letters affected technological progress are deeper and more complex than “how much science was needed to build a spinning jenny.”
- Science plays an ever-growing role in the subsequent history of industrialization in Europe (Mokyr, 2009).
An Industrial Revolution without a Culture of Growth?
- There might have been an industrial revolution in Europe without the Republic of Letters and the changing agenda of science,
- but it would have been short-lived and fizzled out after 1815 or so,
- another technological “efflorescence”.
- Waves of invention and technological progress had occurred before in Europe, and before in the Islamic world and China.
- But this time it was different.
From the Publisher:
The Industrial Revolution sprang from cultural habits of inquisitiveness and hardheadedness in early modern Europe... strands in Western European culture from 1500 to 1700 that predisposed it to intellectual advances that underpinned the Enlightenment and economic revolutions:
- the celebration of practical labor as a sacred calling,
- the impact of voyages of discovery on discrediting ancient worldviews,
- the Reformation’s weakening of the Catholic Church as a cultural hegemon, and
- political fragmentation that helped dissidents evade state persecution.
The result... was an elite culture oriented toward economic progress through increased knowledge and new thinking.... The book’s most trenchant contribution is the author’s investigation of the “competitive market for ideas” that sustained scientific “cultural entrepreneurs.” Such figures as Francis Bacon and Isaac Newton won fame and patronage within a republic of letters by making scientific and technological breakthroughs. Mokyr offers a useful corrective to excessively deterministic and materialistic treatments of economic history, emphasizing ideas—the West, he argues, had a uniquely positive view about subjugating nature to human control—and individual agency in shaping broad socioeconomic shifts.