Economic historians have a great debate going about what caused the massive explosion of economic growth and rising living standards associated with the Industrial Revolution. Institutionalists like Douglas North focus on the institutional changes that increased liberty, decreased the role of rent-seekers, and ultimately allowed growth to explode upwards in a hockey stick shape around 1800. Joel Mokyr nicely describes the problem these rent-seekers posed to our ancestors (while denigrating the Malthusians):
For much of recorded history, the arch-enemy of economic growth was not population pressure so much as predators, pirates, and parasites, often euphemistically by economists as “rent-seekers,” who found it easier to pillage and plunder the work of others than to engage in economically productive activities themselves.
To the institutionalists, institutional change helped clear out some of the plundering, thus decreasing transaction costs and setting the stage for growth.
However, other historians – while not denying the importance of institutional change – have stressed the critical independent role of a new set of ideas in propelling the change in economic outcomes. In particular, scholars such as Gregory Clark*, Dierdre McCloskey, Joyce Appleby, and Mokyr have argued that new ideas about – even faith in – the free market (especially among elites), bourgeois virtues and values, and the dignity of the bourgeois itself helped create an innovative world that took off economically. You can almost see Max Weber smiling from the grave.
Whether the institutionalists or culturalists/”idea”ists are correct, we should be worried. The market is under siege (and has been for some time), rent-seekers proliferate, and bourgeois virtues and values come in for scorn in popular culture (the deification of Steve Jobs excepted). If McCloskey’s notion that rhetoric creates the world is even partly true, we are in sore need of a revision of the dominant social discourse. So let’s hear more stories about hardworking individuals, scientists, entrepreneurs, and the creative class and fewer sob stories about unemployed puppeteers, those allegedly helped out by or in need of the welfare state, and the pessimism of life in an age of “austerity.”