A culture of growth: Origins of the modern economy

A Culture of Growth: Origins of the Modern Economy There is a puzzle in trying to apply insights from the new institutional economic history to explain the rise of the modern economy. The puzzle is this: in recent years, 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 thirdparty or private-order contract enforcement, low rent-seeking, open-ness and inclusiveness, and efficient governance and provision of public goods, are among the mechanisms cited. However, the European Industrial Revolution that started modern growth was above all about technological progress, not just better markets, gains from trade and more efficient allocations. If growth before 1750 was based primarily on “Smithian Growth,” and afterwards increasingly on innovation or the growth of “useful knowledge,” whence the different dynamic? In other words: can we point to an institution that was instrumental in bringing about the rise in intellectual innovations that eventually led to the Industrial Revolution? Some of the institutions often cited, such as the patent system or the rise of the “modern state,” do not withstand scrutiny. I will propose a different institution that provides a more persuasive answer, an institution that emerged at some time between 1500 and 1700 and was well in place at the start of the Industrial Revolution. As such, it provides a more convincing explanation of the origins of the modern economy.