A Culture of Growth: The Origins of the Modern Economy

A Culture of Growth

A Culture of Growth

The Origins of the Modern Economy

The Graz Schumpeter Lectures

Joel Mokyr

Princeton University Press

Princeton and Oxford

Copyright © 2017 by Princeton University Press

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Jacket art: Change Alley, London, 1853. Street scene depicting events surrounding the South Sea Bubble (1711-1720). The scene is taking place in front of Garraway’s Coffee House, with a pawn shop at left. Photo credit: HIP / Art Resource, NY

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Library of Congress Cataloging-in-Publication Data

Names: Mokyr, Joel, author.

Title: A culture of growth : the origins of the modern economy / Joel Mokyr.

Description: Princeton, NJ : Princeton University Press, 2016. | Includes bibliographical references and index.

Identifiers: LCCN 2015045838 | ISBN 9780691168883 (hardback)

Subjects: LCSH: Economic development. | Economic history. | BISAC: BUSINESS & ECONOMICS / Economic History. | BUSINESS & ECONOMICS / Development / Economic Development. | BUSINESS & ECONOMICS / Economic Conditions. | BUSINESS & ECONOMICS / Economics / General. | HISTORY / Europe / General.

Classification: LCC HD75 .M65 2016 | DDC 330-dc23 LC record available at http://lccn.loc.gov/2015045838

British Library Cataloging-in-Publication Data is available

The publisher would like to acknowledge the author of this volume for providing the camera-ready copy from which this book was printed

This book has been composed in Callisto MT by the author

Printed on acid-free paper.

Printed in the United States of America

10 9 8 7 6 5 4 3 2 1

Dedicated to

my three siblings

Rob, Miriam, and Ada

who have stood by me

for all those years

It is more easy to account for the rise and progress of commerce in any kingdom, than for that of learning. … Avarice, or the desire of gain, is an universal passion, which operates at all times, in all places, and upon all persons: But curiosity, or the love of knowledge, has a very limited influence, and requires youth, leisure, education, genius, and example, to make it govern any person … there is no subject, in which we must proceed with more caution, than in tracing the history of the arts and sciences; lest we assign causes which never existed, and reduce what is merely contingent to stable and universal principles. Those who cultivate the sciences in any state, are always few in number: The passion, which governs them, limited: Their taste and judgment delicate and easily perverted: And their application disturbed with the smallest accident. Chance, therefore, or secret and unknown causes, must have a great influence on the rise and progress of all the refined arts.

—David Hume, 1742

Contents

Acknowledgments

This book had its origins in the Joseph Schumpeter lectures I delivered in Graz in November 2010 and I am deeply grateful to my hosts at the Schumpeter Society for their hospitality and penetrating comments at an early stage. Books based on endowed lectures tend to be relatively short. This book, however, took on a life of its own, and chapters kept being added. Having argued in previous works that the emergence of a cultural phenomenon we think of as the Enlightenment was central to the economic and technological miracles that mark European history since the Industrial Revolution, it became clear that we should ask hard questions about the origins of the emergence of intellectual innovation and a creative elite of scholars and engineers who pushed the envelope. Modern economics has accepted the challenge to understand matters that half a century lay firmly outside its realm: culture and institutions. In this book, I take a closer look at the culture and institutions of Europe between Columbus and the publication of Principia and ask how and why it created the conditions for modern economic growth.

Books such as this are never written alone. Many colleagues and friends patiently listened to my often incoherent ravings about various issues in intellectual and cultural history that were remote from their own research. Their questions and doubts made my determination to delve deeper stronger, but I surely did not answer all of them. Among my fellow travelers, who have been thinking along similar lines, I should mention three scholars whose work and friendship have been a source of inspiration even if they have different backgrounds: the sociologist Jack Goldstone, the historian Margaret Jacob, and that incomparable economist, historian, and general-purpose intellectual Deirdre McCloskey.

At Northwestern University, I have had for many years the benefit of two groups of colleagues in two large, vibrant, and utterly different departments, Economics and History. Economists, notwithstanding the stereotype, are often extraordinarily insightful and wide-ranging intellectuals. Many of them are also loyal lifelong friends. Among them, of course, the economic historians are foremost: my friends and fellow economic historians Louis Cain, Joseph Ferrie, Mara Squicciarini, and Regina Grafe (now at the European University). Among the other economists, I should mention especially Larry Christiano, Eddie Dekel, Matthias Doepke, Martin Eichenbaum, Robert J. Gordon, Joel Horowitz, Lynne Kiesling, and Charles Manski. In History, the list of colleagues who have enriched and stimulated this book include Kenneth Alder, Lydia Barnett, Peter Carroll, Sarah Maza, Melissa McCauley, Edward Muir, and Yohanan Petrovsky-Shtern. Much like Rabbi Akiva, however, through my entire career I learned the most from my current and former students: Ran Abramitzky, Gergo Baics, Maristella Botticini, José Espin, Avner Greif, Ralf Meisenzahl, John Nye, Tuan-Hwee Sng, Yannay Spitzer, Rick Szostak, Chris Vickers, Marlous van Waijenburg, Marianne Hinds Wanamaker, Anthony Wray, Ludovico Zaraga, Nicolas Ziebarth, and Ariell Zimran.

Outside Northwestern, perhaps the best scholarly environment any scholar can imagine is the fabulous Institutions, Organizations, and Growth group run by the Canadian Institute for Advanced Research (CIFAR). This group contains the best minds that social science has to offer in this world, and its interest in economic history is unrivaled. The group has allowed me to interact with and learn from scholars of the calibre of Daron Acemoglu, Roland Benabou, Tim Besley, Rob Boyd, Mauricio Drelichman, Avner Greif, Elhanan Helpman, Joseph Henrich, Roger Myerson, Torsten Persson, James Robinson, Ken Shepsle, and Guido Tabellini, and there exists no research project in social science that will not benefit vastly from the comments and suggestions of this remarkable group of intellects. For four decades now, I have benefited from the inexhaustible wisdom, the learning, and the kindness of my Irish friend and coauthor Cormac Ó Gráda. He and our erudite collaborator Morgan Kelly, also at University College Dublin, have many valuable contributions and suggestions to this manuscript. I am also grateful for the encouragement and sage counsel of Professor Alberto Quadrio Curzio, president of the Accademia dei Lincei. In Israel, I have benefited from being a guest in two departments, the Berglas School of Economics at Tel Aviv University and more recently the Interdisciplinary Center in Herzliya under the inspired leadership of Zvi Eckstein. Other Israelis to whom I owe special thanks are my co-authors and dear friends Amira Ofer and Karine van der Beek, my lifelong fellow-traveler, president Jacob Metzer of the Open University, and the ever-thoughtful and wise Manuel Trajtenberg, formerly of Tel Aviv University. Outside those institutions, I owe an enormous intellectual debt to four giants of economic history: Eric L. Jones, the late David S. Landes, the late Douglass C. North, and the late Nathan Rosenberg. More distant in time, but never forgotten, are the memories I have of my late Northwestern colleague Jonathan R. T. Hughes and his wife, Mary Gray.

Beyond those individuals, there are a large number of scholars who have attended seminars and lectures in which I tried out various ideas that eventually became this book. Among those many were seminars in economic history and economics at the following institutions: Bar Ilan University, University of California Berkeley, Ben Gurion University, Cambridge University, Carleton College, Harvard University, the Hebrew University, Interdisciplinary Center Herzliya, MIT Sloan School, the Princeton Center for Advanced Studies, UCLA, University of Peking, the University of Tel Aviv, and Yale University.

My long-standing relationship with Princeton University Press has made the production of this book a special pleasure. Working with Peter Dougherty and Seth Ditchik on this project, as well as many other projects, has been a joy. The manuscript was edited meticulously and patiently by Cyd Westmoreland and Mary Bearden, and produced with supreme competence by Mark Bellis. I am very grateful to all. Financial support from Northwestern University’s Weinberg College of Arts and Sciences, the Center for Economic History at Northwestern University, Valor Equity and especially Antonio Gracias and Chris Murphy, Anthony Melchiorre of Chatham Asset Management, and the International Balzan Foundation is gratefully acknowledged.

Finally, as always, I owe more than I could possibly express to my wife, Margalit Mokyr, whose patience and loyalty are only matched by her smarts, her competence, and her common sense. As is written:

Skokie, IL, March 2016

Preface

Economic history and intellectual history are two dynamic and active disciplines that barely intersect, which is a shame. Except for the crude materialist hypothesis which explains changes in what people believed and knew by arguing for the supremacy of economic structures, not much has been done to show that much of what happened in the economies of the world in the past three centuries was a function of what people believed. Above all, modern economic growth or the Great Enrichment depended on a set of radical changes in beliefs, values, and preferences—a set I will refer to as culture despite the many justified concerns about the over-usage and ambiguity of that term.

But which beliefs, and whose? In earlier work, I have argued that the European Enlightenment (or at least a substantial segment of it) was pivotal in the propulsion of economic growth in the nineteenth century. This seems an innocuously enough proposition, except perhaps for a fringe who wish to denigrate the Enlightenment as something profoundly retrograde and culpable of the disasters of the twentieth century. But the Enlightenment was not a mass-movement. It was an elite phenomenon, largely confined to intellectuals, scholars, a literate and educated minority that included not just physicians and philosophers but also practical people such as engineers, industrialists, and instrument makers, yet still a small sliver of the population. New scientific insights, the invention of new techniques, their successful application to production—all were the result of the actions of a fairly small proportion of the population. I also have maintained that what mattered was not only what people believed about social contracts, political pluralism, religious tolerance, human rights and so on, but also what they believed about the relationship between humans and their physical environment and role of what they called useful knowledge to improve material well-being. The fundamental belief that the human lot can be continuously improved by bettering our understanding of natural phenomena and regularities and the application of this understanding to production has been the cultural breakthrough that made what came after possible.

But how and why did these beliefs emerge? In the two centuries between Columbus and Newton, European elite culture underwent radical intellectual change. In what follows, I analyze this change, using material from intellectual history and the history of science and technology to achieve an explanation of a question posed primarily by economists: how do we explain the modern economy? The methodology used to answer the question comes from the social sciences —primarily economics but also from cultural evolution theory. It is meant to attack the deepest questions regarding intellectual innovation. Why do people come up with new ideas? How do new ideas succeed in supplanting old ones? Why one kind of idea and not another one? By asking these questions, I will show how early modern Europe prepared the ground for the vast changes in the eighteenth century: the Enlightenment, the Industrial Revolution, and the rise of useful knowledge as the main engine of economic history.

Part I

Evolution, Culture, and Economic History

Chapter 1

Culture and Economics

The world today is richer than it has ever been. We know a great deal about the economic transformations that made it this way thanks to a vast literature examining every possible aspect of modern economic growth taking place since ca. 1800. We know what happened, and we know more or less how and where it happened. What remains very much a mystery is why. This book tries to provide an answer.

The basic facts are not in dispute. The British Industrial Revolution of the late eighteenth century unleashed a phenomenon never before even remotely experienced by any society. Of course, innovation has taken place throughout history. Milestone breakthroughs in earlier times—such as water mills, the horse collar, and the printing press—can all be traced more or less, and their economic effects can be assessed. They appeared, often transformed an industry affected, but once incorporated, further progress slowed and sometimes stopped altogether. They did not trigger anything resembling sustained technological progress, and their effects on income were small and in many cases barely enough to offset population increase. As late at 1754 David Hume summarized the economic history of the world until that time by noting that if the general system of things, and human society of course, have any … gradual revolution, they are too slow to be discerned in that short period. … Stature and force of body, length of life, even courage and genius, seem hitherto to have been in all ages pretty much the same (Hume [1754] 1985, p. 378). As a description of the past, Hume’s summary is consistent with much of the consensus in economic history today (leaving aside, perhaps, courage, on which little has been said).

But as a prognostication of what was to come, this turned out to be spectacularly incorrect, and Hume was wise to add the qualification hitherto. The early advances in the cotton industry, iron manufacturing, and steam power of the years after 1760 became in the nineteenth century a self-reinforcing cascade of innovation, one that is still very much with us today and seems to grow ever more pervasive and powerful. If economic growth before the Industrial Revolution, such as it was, was largely driven by trade, more effective markets and improved allocations of resources, growth in the modern era has been increasingly driven by the expansion of what was known in the age of Enlightenment as useful knowledge.

What had started in a few counties in the English midlands and the Scottish lowlands soon spread to the European continent and to America. By the end of the nineteenth century, the Industrial Revolution had transformed the economies of much of Europe and the European offshoots, and it began to spread to Japan and other non-Western economies. Transformative technological change turned from an unusual and remarkable phenomenon to something routine, expected. By 1890, one might not know what kind of and where a wave of technological progress would erupt, but one got accustomed to something happening. The results were inescapable: nearly everywhere on the planet men and women lived longer, ate better, enjoyed more leisure, and had access to resources and delights that previously had been reserved for the very rich and powerful, or more commonly, had been utterly unknown. With these blessings came disruptions, environmental disasters, and at times utter destruction. Technology and economic might provide the human race with more powerful tools, nothing more. Today, although the rate of measured economic growth in the industrialized world has slowed down, such blessings and curses are still piling up. Measured economic growth in the industrializing economies in the nineteenth and twentieth centuries approached a rate of 1.5–2.0 percent a year, perhaps ten times faster than before. Moreover, the resulting prosperity turned out to be persistent. Despite a series of self-inflicted political and economic disasters in the twentieth century, the industrialized West recovered miraculously after 1950 and was able to reach living standards that would have been unthinkable in 1914, let alone in 1800.

There can be no doubt that growth of this kind, while of global consequences, started in the West. What used to be known as the literature on the rise of the west or the European Miracle (following E. L. Jones’s seminal 1981 book)—now more commonly referred to as the Great Divergence or the Great Enrichment—documents and describes the West’s leadership in the emergence of Modern Growth. But a consensus on why this happened seems remote.¹ Some scholars have branded the writings of those who point to the Western origins of modern economic growth as Eurocentric, implying that such explanations suggest some kind of inherent superiority of European culture or institutions. While it is undeniable that some accounts have tried to credit some aspect or other of Western civilization, most scholars have eschewed such simple arguments and tried either to avoid cultural explanations altogether or to come to grips with the question of why certain values and beliefs differed systematically. One can write such histories without sounding triumphalist (Goldstone, 2012). The account below should be seen as part of this tradition.

In this book, I propose a new explanation, largely based on events in Europe. It is one that relies on something I call culture, but unlike most accounts that rely on this vague concept, the notion of culture I deploy will be circumscribed and defined with precision. The great economist Robert Solow once remarked that all attempts to explain differences in economic performance and growth using culture end up in a blaze of amateur sociology (quoted in Krugman, 1991, p. 93, n. 3). Perhaps. But if we are to look for institutions to explain historical development, can culture be far behind?

My approach simultaneously resolves two difficulties in the Great Divergence literature, one historical and one economic. The historical riddle is what might be called the great dilemma of the new institutional economic history: much of the literature in economic history that is trying to explain differences in economic performance and living standards, both by economists and historians, has accepted in one way or another Douglass North’s call for the integration of institutions into our narrative of economic growth (Acemoglu and Robinson, 2012; Sened and Galiani, 2014). An economy that grows as a result of favorable institutions requires a world of well-delineated and respected property rights, enforceable contracts, law and order, a low level of opportunism and rent-seeking, a high degree of inclusion in political decision making and the benefits of growth, and a political organization in which power and wealth are as separate as is humanly possible. Such institutions—whether part of the formal political structure (as embodied for example in a constitution) or based on private-order institutions—are credited with many positive economic developments in the past: the rise of more effective product and factor markets (and thus more efficient allocations), the growth of international and interregional trade, and the accumulation of capital, to name a few. But, as other scholars (Vries, 2013, p. 433; McCloskey, 2016b) have argued, the puzzle is that better markets, more cooperative behavior, and more efficient allocations simply do not in themselves account for modern economic growth. What is far harder to explain is the growth of technological creativity and innovation in Europe and especially the surge following the middle of the eighteenth century. The Industrial Revolution, in the sense of an acceleration of technological progress, at first blush does not seem to have been a response to any obvious institutional stimulus. We actually know remarkably little about the kind of institutions that foster and stimulate technological progress and more widely, intellectual innovation.

The second riddle is closely related but looks at the problem from a different, more economic, point of view. If the generation and continuous improvement of new useful knowledge—both scientific and technological—is at the core of modern economic growth, the riddle is one of motivation or incentives. Knowledge, as has long been understood, is an unusual commodity, subject to rather serious public good properties: it is very hard to exclude others from using it, and the cost to the owner from sharing it is negligible or zero. As a result, economists suspect that knowledge tends to be chronically underproduced, because those who spend resources, time, and effort generating it have difficulty appropriating any returns. As far as technology or prescriptive knowledge is concerned, the existence of a patent system or other ways to reward inventors has provided a (very) partial solution.² But advances in natural philosophy and propositional knowledge could not be patented. This is especially problematic because the growth of technological knowledge by itself, without the constant interaction with some form of formal or informal science, would not have been able to generate growth and development at the rates observed. The issue of the exact role of science in the Industrial Revolution is still debated, but there can be no doubt that as growth accelerated, the input from science increased and became the dominant motive power at some point after 1830.

As this book makes clear, the solutions to the historical and the economic riddles coincide. My focus is on the period from 1500 to 1700, during which the cultural foundations of modern growth were laid. These foundations grew out of a set of political and institutional developments and cultural changes that were not intended to produce these results, and their deeply contingent nature is a recurrent theme in these pages.

A famous distinction made in Jewish law illustrates the difference between the type of phenomena we associate with institutions, on the one hand, and the importance of process and product innovation fed by growing human knowledge of natural forces on the other. The Talmudic tradition distinguishes between affairs that concern relations between the individual and others, and the relations between the individual and makom—a somewhat unusual name for the deity, meaning literally place and practically interpreted as one’s physical environment.³ Commerce, the division of labor, effective markets in labor, credit and land, and similar institutions associated with Smithian growth were all outcomes of games between people. They depended on what values people adhered to and what they believed about others’ values and behavior. What is less discussed is a set of cultural beliefs that pertain to games against nature, in which individuals try to understand natural regularities and exploit them to their advantage. Religious beliefs and metaphysical attitudes condition a society’s willingness to investigate the secrets of nature, alter its physical environment irreversibly, and play God. Technology is at its very core a relation of people with the physical environment and not with other people. For such practical matters as the diffusion and implementation of new techniques, of course, social relations are central to technological progress. But in the end the willingness to challenge nature in some way to reveal one of her secrets is based on metaphysical beliefs held at the individual level.

The drivers of technological progress and eventually economic performance were attitude and aptitude. The former set the willingness and energy with which people try to understand the natural world around them; the latter determines their success in turning such knowledge into higher productivity and living standards.⁴ In this book I will be concerned with attitudes. The proposition I put forward here is that the explosion of technological progress in the West was made possible by cultural changes. Culture affected technology both directly, by changing attitudes toward the natural world, and indirectly, by creating and nurturing institutions that stimulated and supported the accumulation and diffusion of useful knowledge. For quite a few years now, economists have become increasingly open to the idea that long-term economic change cannot be seriously analyzed without some concept of culture and some idea of how it changes and why these changes matter. McCloskey’s massive trilogy (2006, 2010, 2016a) is by far the most significant of these analyses, but many mainstream economists are now committed to the significance of culture in the evolution of modern economies.⁵ The reason this is so has been ob vious for a long time. Individuals are assumed to have preferences and beliefs that determine how they are likely to act both toward others and toward their natural environment. However, these cultural elements can change, and we want to know why they change, and why at times culture changes at a tectonic pace, and at others with startling rapidity (Jones, 2006). But culture is a vague and mushy word, and as such is not a satisfactory term: here we need to be much more specific about whose culture and what specific elements of it mattered. Moreover, we must understand how culture changes and why societies have different cultures. If economists cannot contribute to this literature, they should leave it to other social scientists, but in that case they must concede much of the explanation of modern economic growth to others. An alternative is to see what historians and students of culture (in a certain sense) have had to say and incorporate their insights into the economic narrative (Vries, 2001).

To start with: Culture means various things to different people, and to begin, we need to clarify the concept and our use of it. Given the rather astonishing popularity of the concept of culture in the social sciences and the humanities and the mind-boggling number of definitions employed, it is useful for an economist to start off by defining precisely what is included in and excluded from culture and how it differs from institutions, before we examine its role in the origins of modern economic growth.⁶ The definition I use here (and one very similar to the definition proposed by Boyd and Richerson, 1985, p. 2) is: Culture is 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. In what follows, my approach is similar to and inspired by the literature on cultural evolution proposed by some anthropologists. It will have little in common with cultural studies and the cultural analysis implied by social constructivism.

What does this definition buy us? First, beliefs contain statements of a positive (factual) nature that pertain to the state of the world, including the physical and metaphysical environments and social relations.⁷ Second, values pertain to normative statements about society and social relations (often thought of as ethics and ideology), whereas preferences are normative statements about individual matters such as consumption and personal affairs. Third, culture is decomposable, that is, it consists of separate cultural elements or features. Much like genes, these traits are largely shared by people of the same culture; a single individual cannot have a cultural trait that is not shared by others, but each individual is unique in that it is highly unlikely that two people share precisely the same combination of cultural elements. There is no puzzle here: by analogy, all individuals have somewhat different genotypes (identical twins excluded) yet they share the vast bulk of their genes with other people and even with other mammals that have quite different phenotypes. Furthermore, this definition stresses that culture involves social learning, so that one’s beliefs, values, and knowledge are not built-up from scratch for each individual but are acquired from others. The key concepts of attitude and aptitude are contained in the larger category of culture, and they will remain at the center of the discussion.

One could argue whether behavior itself (that is, actions) should be included in the concept of culture, but it seems useful to separate actions (which may be driven by a combination of cultural and other causes) from culture that guides and constrains it, although a great deal of culture, much like junk DNA that does not code for any known proteins, just is there in our minds and conditions no actions. The use of these evolutionary terms suggests an analogy that treats culture as genotypical and actions as phenotypical. Although tempting (and the subject of a large literature), such analogies should be carried out cautiously, as facile projections from one subject area to another are fraught with pitfalls. The argument that social phenomena or historical developments can be analyzed as analogous to biological processes is more misleading than helpful. Rather, my approach here is derived directly from the approach outlined in Aldrich et al. (2008), in which we argued that Darwinism in a historical framework is more of a general tool of analysis. The basic argument is not a facile shoe-horning of complex social phenomena into a framework derived from biology but rather a generalized Darwinism that relies on the claim of common abstract features in both the social and the biological world; it is essentially a contention of a degree of ontological communality, at a high level of abstraction and not at the level of detail (Aldrich et al., p. 579).⁸

Before proceeding, it is important to distinguish between such terms as culture and institutions. For my purposes it seems best to regard culture as something entirely of the mind, which can differ from individual to individual and is, to an extent, a matter of individual choice. Institutions are socially determined conditional incentives and consequences to actions. These incentives are parametrically given to every individual and are beyond their control. In that way institutions produce the incentive structure in a society. Institutions as rules can be seen as a special case: the rules specify certain behaviors to be proper and legal, but they also specify the penalties for breaking them and the rewards for meeting them.⁹ Beliefs and preferences are the scaffolds, to use Douglass North’s (2005) term, of institutions. In a sense culture forms the foundation of institutions, in that it provides them with legitimacy.¹⁰ In a different context, Leighton and López (2013, pp. 11, 112–22) create a similar framework, in which incentives determine behavior, institutions frame incentives, ideas influence institutions (provided circumstances are favorable), and entrepreneurs make change happen. That is not to say, of course, that every institution is necessarily supported by a majority of the population; many institutions serve a small minority that uses its power to extract resources from others (Acemoglu and Robinson, 2012). Regarding beliefs as the foundation of institutions is oversimplified. Greif, in his attempt to define institutions with care, points out a problem with the institutions-as-rules idea, namely that without a meta-rule (or ethic) that rules should be respected and followed, rules and laws may well be empty and unenforced suggestions.¹¹ For him, institutions should be seen as a set of factors that generate regularities in behavior. By this definition, institutions however, inevitably contain in some measure beliefs as well, and thus would violate my attempt to keep them apart. To be sure, institutions in turn affect cultural beliefs in many ways and through many mechanisms (Alesina and Giuliano, 2016, pp. 6–7). Perhaps the best way of thinking of the relationship between the two concepts is to realize that they coevolve, much like a species and its environment. Recent research by economists and other social scientists has examined the details of this coevolution process in detail and concluded that it can easily lead to multiple equilibria outcomes, in which good institutions (defined as those that lead to better economic performance and growth) interact with a culture that enforces them, whereas bad institutions may reinforce a culture that perpetuates them.

Other scholars have used related if somewhat different definitions. Thus Roland (2004) suggests that culture as defined be included as a slow-moving institution that affects political and legal arrangements that can be changed faster; he prefers to limit the word culture to beliefs about the interaction of individuals, driven by social norms. Either way, however, there is a consensus that the incentive structure of society rests on a foundation of ideas, some of them about nature, some about human interactions, and still others of a moral nature. In other words, institutions rest on a bedrock of what people believe and know (or, to be more precise, think they know). If the culture and the institutions are misaligned, the foundations become unstable. If there is a clash between culture and institutions, in the sense that the underlying belief or legitimacy for certain institutions has eroded, a political disequilibrium has emerged. Unfortunately, there is no good theory to predict what happens then; in some cases the institutions are overthrown, but in others through political and military means, those who benefit from the institutional status quo can hold on to power and the resources that come with it for a long time.

If institutions have indeed become one of the main explanations of why some nations are economically successful—as the modern consensus increasingly seems to suggest—how do institutions relate to cultural beliefs?¹² At first glance the connection between culture and institutions seems tenuous. The institutional variation on our planet suggests that societies with similar cultural and environmental characteristics can have quite different institutional set-ups. The almost hackneyed example is of course Korea, where an arbitrary line dividing a single nation in two created two dramatically different societies. The different development in the past decade between Venezuela and Colombia could be cited as another example. Through sheer bad luck some countries ended up with predatory rulers or aggressive neighbors who created bad institutions that thwarted economic growth and caused a great deal of human misery. While such institutions have low legitimacy, they can survive by using a high level of coercion—which itself is a costly and inefficient way of maintaining bad institutions, thus compounding poverty and backwardness.

Culture, then, helps determine what kind of institutions emerge, but it does not guarantee outcomes. Indeed, one of the first and most influential papers in the analysis of the role of institutions in economic history (Greif, 1994) used the term cultural beliefs to identify the forces that underpin changes in institutions and thus to understand how they supported markets and exchange. Greif’s point was that if the economic game is to have a cooperative equilibrium, what people actually believe about how others behave helps determine how they themselves will act in a variety of situations of interest to the economic historian. In short, if economists admit that economic history cannot do without institutions, it cannot do without a better understanding of culture. They like things, however, clear-cut, precise, and if possible formally modeled and testable. This is a daunting task.

Moreover, as already noted, causality does not run purely from culture to institutions. Institutions create the environment in which cultural evolution occurs. Much of what is to follow describes cultural changes as a result of the incentives and stimuli provided by an institutional environment. Institutional outcomes, moreover, have a large aleatory component. They are the result of battles, dynastic arrangements, power struggles, the arbitrary preferences of unusually influential or powerful individuals, political compromises, and maps drawn by generals or politicians. There was nothing inevitable in the survival of relatively tolerant institutions in the Low Countries and Britain in the seventeenth century, any more than in the emergence of very different institutional outcomes in Korea or Germany after World War II. Such differences often seem to be the outcome of historical flukes rather than of deep cultural processes. Furthermore, institutions, once in place, can display considerable durability and persistence even if they do not conform with the cultural beliefs of most people. As long as the interests of a few powerful groups are served, they can maintain a set of institutions for a very long time (Acemoglu and Robinson, 2006). It is hard to deny that importing such institutions as free-entry markets, fair and general-franchise elections, and freedom of speech and association into a society in which the Enlightenment culture that underpins them is not widely shared is at best an uphill struggle. Yet, perplexingly, it is not impossible.

As already noted, culture is shared, yet individuals will normally differ in some ways from one another in what they precisely believe, just as they differ in genotype. This analogy should also not be pushed too far; above all, cultural beliefs are not like genes in that the latter are immutable for life. Above all, they are a matter of choice.¹³ Individuals can make explicit choices to either accept the default cultural characteristics they were born with or to reject them and replace them with something else that they select from their cultural menu. Of course, we do not always know how and even when some preferences and beliefs are acquired, and shedding them may be difficult. However, it is not quite correct to compare preferences to accents (Bowles, 2004, p. 372), because accents for most people become fixed as teenagers, whereas a taste for certain forms of art or food can continue to evolve over a lifetime, even if the likelihood of change declines with age.

Some pathbreaking research on the economics of culture and how beliefs can affect economic performance has recently been carried out by theorists and empirical economists alike.¹⁴ One mechanism through which culture is believed to have affected economic performance is through the idea that higher trust and cooperation reduce transaction costs and thus facilitate exchange and emergence of well-functioning markets. Another is civic-mindedness. A spirit of public consciousness and willingness to abstain from free-riding behavior in collective actions supports a higher supply of public goods and investment in infrastructure than is otherwise possible. The beliefs that makes such behavior possible depend crucially on the beliefs regarding the behavior of others; this is a classic example of frequency-dependence in the choice of beliefs, a topic I return to below in chapter 5.¹⁵ The importance of these elements was already pointed out by John Stuart Mill ([1848], 1929, pp. 111–12) and different levels of trust have been shown to explain income differences between nations (Zak and Knack, 2001).

As noted, both theorists and applied economists have shown a growing interest in the economics of culture. Among the theoretical works by economists on the origins of culture are the pathbreaking papers by Bisin and Verdier (1998, 2011), which for the first time brought to economics the important work on cultural evolution done by scholars of cultural anthropology and population dynamics. The empirical work on the economics of culture depends heavily on data from the World Values Survey, Gallup World Poll, and similar data (Guiso, Sapienza, and Zingales, 2006; Tabellini, 2008, 2010; Deaton, 2011). This work has successfully addressed a whole set of issues of supreme importance to economists such as household behavior and female labor force participation, corruption, and migration (Fernández, 2011). It also draws heavily on experimental data, which suggest that culture modifies behavior in many ways that qualify and nuance the standard economic assumptions of individual utility maximization in such obvious set-ups as simple ultimatum games (Bowles, 2004, pp. 110–19). A recent essay by Rodrik (2014, p. 189) complains that ideas are strangely absent from modern models of political econom—but the same might be said about models of economic growth and innovation, though recent work has made a beginning at coming to grips with the cultural roots of these phenomena (Spolaore and Wacziarg, 2013).

Most research by economists on culture as they see it focuses primarily on social attitudes, beliefs, and preferences supporting informal and formal institutions that increase cooperation, reciprocity, trust, and the efficient operation of the economy (Guiso, Sapienza, and Zingales, 2008; Bowles and Gintis, 2011). More recently, economists have become interested in attitudes toward discipline, education, work, time, self-control, and similar areas. Cultural beliefs also help determine, for instance, whether preferences might be other-regarding (that is, whether the consumption of others affects one’s well-being) and whether they might be process-regarding (that is, whether the utility one derives from being in a particular state of the world depends on the way that state was reached rather than on the intrinsic quality of the state itself). Both of those types of preferences are not normally part of the analysis of economic preferences, but there is no inherent reason they should not be.¹⁶ A good example of process-regarding preferences is when an individual cares whether he or she earns income by creating wealth through entrepreneurial activity or by redistributing it from others through rent-seeking or corruption. Does one regard a dollar in the same way no matter how it was earned, or does one care whether it was made while providing a socially useful activity? Is a dollar earned the same as a dollar stolen? Such preferences could make a difference in the institutions that are critical to the emergence of a civil economy and economic growth (Bowles, 2004, pp. 109–11; Bowles and Gintis, 2011, pp. 10–11, 32–35).

In what follows, I concentrate primarily on the one element in cultural beliefs that economists have so far neglected almost entirely, namely the attitude toward Nature and the willingness and ability to harness it to human material needs. Ultimately the relations with makom, or the physical world around us in the end determine the growth of useful knowledge and eventually that of technology-driven growth.¹⁷ Technology is above all a consequence of human willingness to investigate, manipulate, and exploit natural phenomena and regularities, and given such willingness, the growth of the stock of knowledge that underpins and conditions the exploitation of knowledge. The willingness and ability to acquire, disseminate, and harness such knowledge are themselves part of culture and thus determine the intensity of the search for knowledge of nature, the agenda of the research, the institutions that govern the community doing the research, the methods of acquiring and vetting it, the conventions by which such knowledge is accepted as valid, and its dissemination to others who might make use of it. It is in this general area that the roots of modern economic growth should be sought—specifically in events and phenomena that precede the eighteenth-century Enlightenment and Industrial Revolution in the centuries that are known, for better or for worse, as early modern Europe, roughly speaking between the first voyage to America by Columbus and the publication of the Principia Mathematica by Newton. It is the basic argument of this book that European culture and institutions were shaped in those centuries to become more conducive to the kind of activities that eventually led to the economic sea changes that created the modern economies.

¹ In a recent tour d’horizon, Peer Vries (2013) has surveyed many explanations offered over the years for the origins of the Great Divergence and the escape from poverty. In the end, however, he finds the bulk of them unpersuasive, and even the ones he favors seem to lack precision and are hard to test.

² For an assessment of the patent system in the early stages of economic growth in Europe, see Mokyr (2009b).

³ This distinction has also found its way into the writings of Freud, who notes that civilization describes the sum of achievements that serve two types of purposes: to protect men against nature, and to adjust their mutual relations (Freud, [1930] 1961, p. 36).

⁴ Differences in aptitude explain, for instance, why the Industrial Revolution started in Britain and not elsewhere in Europe (Mokyr, 2009a; Kelly, Mokyr, and Ó Gráda, 2014).

⁵ Two particularly interesting examples are Doepke and Zilibotti (2008) and Clark (2007). Both stress the growth of certain cultural features associated with entrepreneurial behavior such as hard work and willingness to postpone gratification, and explicitly stress how these features are passed on from generation to generation. For a recent survey, see Alesina and Giulano (2016).

⁶ In a famous essay, Kroeber and Kluckhohn (1952) assembled no fewer than 156 different definitions of the term culture. It goes without saying that since then the term has been used and abused in different contexts by social scientists and historians, so that the number of different definitions would be larger today.

⁷ As such, beliefs should be interpreted as containing knowledge, both codifiable and tacit, as well as human skills and capabilities. The most important component of these beliefs for my purpose is useful knowledge.

⁸ Many scholars have argued for more precise isomorphisms between natural and economic history. For instance, Vermeij (2004, p. 247) has argued that human history recapitulates the much more protracted history of life as a whole.

⁹ This is a variation on Bowles (2004, pp. 47–48) who defines institutions as laws, informal rules, and conventions that give a durable structure to social interactions … and make conformity a best response to virtually all members of the relevant groups.

¹⁰ The mapping from one to the other is far from monotonic, however. The political process that converts beliefs into institutions is noisy and depends not only on beliefs but also on the ability of those who hold the beliefs to persuade or coerce others to accede to the institutions. As Szostak (2009, p. 234) notes, many institutions are little more than the codification of beliefs. Thus, an aversion of violence in a society may lead to formal legislation against it, and the conviction that wearing seatbelts in cars (a cultural belief) reduces accident fatalities leads to legislation making them mandatory (an institution). A cultural belief that the use of narcotics is bad may lead to an institution that mandates prison terms for drug use.

¹¹ As Greif (2006, p. 7) put it, rules are nothing more than instructions that can be ignored. If prescriptive rules of behavior are to have an impact, individuals must be motivated to follow them. … By ‘motivation’ I mean here incentives broadly defined to include expectations, beliefs, and internalized norms.

¹² Acemoglu and Robinson (2012, pp. 56–63) dismiss the role of culture as an independent factor, and stress the importance of institutions without fully recognizing the possible effect of the dominant beliefs and values on the kind of institutions that emerge.

¹³ To be sure, even in biology, modern research has blurred some of these sharp distinctions. While the inherited DNA sequence is immutable over a lifetime, cells can acquire and pass on to their progeny information acquired over their lives through epigenetic inheritance using methylated bases in the DNA. These do not alter the proteins but affect the chances of their being transcribed. See Jablonka and Lamb (2005, pp. 113–46).

¹⁴ Much of this work is surveyed in Bisin and Verdier (2011) and Alesina and Giuliano (2016). It is striking that there seems to be very little work so far done on the cultural factors behind scientific and technological progress.

¹⁵ In Greif’s (1994, p. 915) terms, cultural beliefs are the expectations that individuals have about the actions that others will take. To that we should add the further belief that individuals hold regarding the morality of a particular action.

¹⁶ Many modern economists have, of course, seen the obvious connections here. Thus one has summarized that what people believe what it takes to become prosperous has much to do with how they behave (M. Porter, 2000).

¹⁷ In her excellent and exhaustive surveys of the literature on culture and economics, Raquel Fernández (2008, 2011) does not deal much science or technology or indeed the accumulation of knowledge in any form, although she stresses that The relationship between technology and culture also needs to be investigated (2008, p. 10).

Chapter 2

Nature and Technology

I have already noted that there is an obvious limitation to the approach focusing on institutions to explain long-term economic growth. Such phenomena as trust, honesty, cooperativeness, thriftiness, public-spiritedness, and law-and-order can explain a great deal of economic performance: the emergence and growth of trade at arm’s length, the evolution of nonpersonal credit networks, better land and labor markets, and thus more efficient resource allocations. But in the end, they cannot explain the miraculous explosion of science and technology in the past two and a half centuries that engendered modern economic growth.

At a high level of abstraction, the difference between Smithian and Schumpeterian growth is that for the former, exchange and cooperation based on trust or respect for the law are treated as a game between individuals whereas the essence of Schumpeterian growth is based on the manipulation of natural regularities and phenomena and thus au fond should be seen as a game against nature. However, only in the extreme limit is innovation a game against nature alone. There can be technological change in a Robinson Crusoe economy, but in any society, coming up with a technical solution to a problem is only the beginning of success. In practice, innovation requires a great deal of social interaction with creditors, workers, suppliers, customers, and the authorities, and all these relations involve elements that are part of a civil economy. Society can set up institutions that reward innovators in a variety of ways—through patents, prizes, or patronage—or it can try to discourage them by, for instance, accusing them of black magic. One particular aspect of culture that has been much discussed in recent years as a key to economic development is public sector corruption and the institutional environment in which innovation must operate. Vested interests of incumbents protecting the rents generated by status quo techniques and fear of the unknown and novel create strong incentives to resist innovation. If groups committed to these beliefs control the formal apparatus of the state, they can thwart innovative efforts. Moreover, certain culturally determined preferences will have a positive spillover effect on technology, even if that was not their intention: investment in the human capital of children and a low rate of time preference and risk aversion come to mind.

Culture can thus affect technological creativity through institutions. But growth through innovation is in large part dependent on a direct link between culture and technology, through attitudes toward nature and the beliefs regarding relations between humans and their physical environment. The most direct link from culture and beliefs to technology runs through religion. If metaphysical beliefs are such that manipulating and controlling nature invoke a sense of fear or guilt, technological creativity will inevitably be limited in scope and extent. The legends of the ill-fated innovators Prometheus and Daedalus illustrate the deeply ambiguous relationship between the ancient Greeks’ religious beliefs and their attitudes toward technology. If the culture is heavily infused with respect and worship of ancient wisdom so that any intellectual innovation is considered deviant and blasphemous, technological creativity will be similarly constrained. Irreverence is a key to progress. But so, as Lynn White (1978) has pointed out, is anthropocentrism. In his classic work, White stressed the importance of a belief in a creator who has designed a universe for the use of humans, who in exploiting nature would illustrate His wisdom and power.

As White and many authors have stressed, social attitudes toward production and work (and leisure) are another major factor in determining the likelihood of innovation. Technologically progressive societies were often relatively egalitarian ones. In societies dominated by a small, wealthy, but unproductive and exploitative elite, the low social prestige of productive activity meant that creativity and innovation would be directed toward an agenda of interest to the elite. The educated and sophisticated elite focused on efforts supporting its power such as military prowess and administration, or on such topics of leisure as literature, games, the arts, and philosophy, and not so much on the mundane problems of the farmer in his field, the sailor on his ship, or the artisan in his workshop. The agenda of the leisurely elite was of great importance to the lovers of music in the eighteenth-century Habsburg lands, but was not of much interest to their farmers and manufacturers. The Austrian Empire created Haydn and Mozart, but no Industrial Revolution. As McCloskey (2006) has stressed, the bourgeois societies of the Netherlands and Britain of the seventeenth century, in contrast, were prime candidates for technological advances. Technological progress might take place in areas that interfaced with the military or with civil administration, such as the advances that the Romans scored in hydraulic and construction engineering, but agriculture and manufacturing made little progress during the heyday of the Roman Empire.

A somewhat different link between potential technological creativity and underlying cultural values has to do with individualist vs. collectivist cultural norm (Gorodnichenko and Roland, 2011; see also Triandis, 1995). Gorodnichenko and Roland define a variable they dub individualism which measures the degree that societies reward such personal accomplishments as innovations. Placing low values on individualism means that collective actions are easier to achieve, but it flattens the reward structures and thus discourages individuals from standing out. Hence individualism stimulates innovation by not penalizing heterodox intellectuals who come up with unconventional and possibly heretical ideas and think outside the box (Triandis, 1995). The cultural beliefs underpinning the institutions that set these incentives are a good example of how such cultural beliefs can influence innovation, but they concern how society should operate, not the relation between individuals and their environment. Societies and nations differ in their valuations of such cultural norms, and it seems plausible that more individualist cultural norms will be more consistent with technological progress—if indeed the institutions they undergird encourage technological creativity and not more destructive forms of individualism such as military prowess. Gorodnichenko and Roland argue plausibly that in fairly poor societies collectivist values may lead to more productivity growth but that for truly original innovations, individualist values are more important. While their data are for a cross-section of modern countries and show an unambiguous relation between their measure of individualism and economic outcomes, there is not much evidence to indicate that historically individualism played a similar role.¹

A related and important literature focuses on the distinction between general and specialized (or limited) morality (Tabellini, 2008, 2010). In a specialized morality society, individuals care primarily about themselves and members of their immediate environment (say, close relatives and friends) and much less about the larger society in which they live, so that they tend to be more opportunistic when they deal with unknown persons. A general morality means one also cares about people one does not know. Innovation, because its benefits affect a larger community (and possibly humanity at large), is at least in part more likely to occur in a society that has opted for a more general morality, in which innovators are motivated by a desire to do something for a large number of people, or at least acquire the respect of others who care about such things. Especially because in the production of useful knowledge nearly all the economic surplus thus created accrues to consumers (that is, anonymous people), general morality encourages more research that has no direct and immediate payoffs to the creator than specialized or local morality.

That said, culture can affect technological progress in many ways other than metaphysical beliefs and individualism, and they will be at the center of this book. Cultures can be backward- or forward-looking in the sense that some may hold the knowledge and learning of previous generations in such high esteem that novel ideas run a serious risk of being viewed as apostasy. At the other extreme, cultures can regard everything new as an improvement, so that only the newest beliefs and gadgets are held in high regard. Religions, with some notable exceptions, have tended toward conservatism in this regard. For most of its post-temple history, Judaism was, on the whole, committed