5 questions 1 Global Capitalism Master Class 1 1 2 The puzzle of the new institutional economic history: The puzzle is this: In recent years, fo

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The puzzle of the new institutional economic history:
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 third-party 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.
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However:
The European Industrial Revolution that started modern growth was above all about technological progress, not just more efficient markets. Institutional change in the “narrow” sense of better markets (gains from trade and specialization), improved allocations, and better government cannot explain the full extent of modern growth.
If growth before 1750 was based primarily on “Smithian Growth,” and afterwards increasingly on innovation or “useful knowledge,” whence the different dynamic?
One way of approaching the issue is this: what kind of institution was instrumental in bringing about the rise in intellectual innovations that eventually led to the Industrial Revolution?

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A different way to phrase the question is this: if we agree that the Enlightenment was a critical component of the Industrial Revolution and the subsequent onset of economic growth in Europe, can we come up with a good explanation of why Enlightenment ideas caught on in Europe and not elsewhere?

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Is it because the basic ideas that constituted the Enlightenment never occurred to anyone elsewhere [but might have been successful if they had], or is it because circumstances were just not suitable for their growth?
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To solve this question I need to deal with “culture”
What part of culture? Primarily beliefs about the physical environment and humans’ relations with it (unlike Greif etc.).

Whose culture? When we are talking about “culture” I have in mind the small minority (UTHC), the intellectual and technological elite, not popular culture. Although enlightenment ideas penetrated deeper than the best educated, it clearly was generated there.

[Is this “elitist”? Need to keep in mind that then as now, the envelope of science and technology is pushed by UTHC: a very small number of people, a small minority even within the class of intellectuals (Voigtländer and Squicciarini, 2016)].

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The Concept of a “Market for Ideas”
The basic model is built upon the concept of a “market for ideas” and its evolution in this period.
The “market for ideas” — is this a useful metaphor?
Basically, in 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.”
Although this is not quite a real “market,” it is a useful metaphor. We can ask questions such as how competitive was this market, what were the barriers to entry, how high and prohibitive transactions costs, how many taboos does it observe, and how efficient is it? No prices, but incentives matter.

Much like any market, which institutions are supporting it and make it work?

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A Culture of Growth:
My argument is that 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. They came up with a better solution to these difficulties than other societies (especially China).
This is not to argue that the European solution was in any sense “optimal” or even “good” — just that it worked sufficiently well to produce in the end an elite culture, which we can call “Enlightened” and that was far more friendly to the growth of useful knowledge than any other society.
What happened is that both the positive and the negative incentives in 1700 were much improved relative to 1500.

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To see why, I want to take a step back and sketch out a very rough framework on how intellectuals persuade one another, which is what happens in a market for ideas.
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Choice-based cultural evolution
Every person forms a unique cultural phenotype, but how is this formed?
This is essentially a Lamarckian evolutionary process, because individuals have as their default the cultural beliefs they are socialized with.
But in addition they can acquire cultural characteristics along their lifetime and pass these on to others. They “choose” their cultural elements.

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Global Capitalism, February 2016
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Choice-based cultural evolution depends on
the “market” for ideas.
When new items appear on the menu, people can choose among new alternative and competing variants, which is what makes this choice-based cultural evolution

Within every society ideas are competing for acceptance. Some ideas become “fixed” in the populations, some are abandoned and go extinct. Some co-exist with their competitors.

They are “selected for” by individuals making these choices. In that sense we can see this as a market for ideas.

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How do people make these choices?
Boyd &Richerson’s concept of “biases”
They happen when people change their minds about things they knew. Why and how they do is a long story. Most important mechanism:

Content-based bias (“persuasion”)
Direct bias (authority)
Model-based bias (imitation)
Frequency-dependent bias (conformism)
Rhetorical bias (framing)
Low risk of penalty for heterodoxy.

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Among the new “cultural variants” that established themselves between 1500 and 1700 were Protestantism, heliocentrism, 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 age produced a cluster of ideas we associate with “the Enlightenment.”

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The winners in the market for ideas in this era:
As noted, the three main ones associated with the Enlightenment were:
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), which set a new agenda for scientific research and is instrumental in bringing about progress (the “industrial enlightenment”).
A belief in the superiority of the “moderns” over the “ancients” and the loss of blind respect for the classical canon.

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The market for ideas produced many other important new “equilibrium meta-ideas” that affected how content bias changed.
The value of “experimental philosophy” in scientific research (Bacon etc.) and 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), and the (eventual) separation of science from metaphysics.

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These cultural changes prepared Europe for carrying out the Baconian program that led to the Industrial Revolution.

This new culture was firmly in place by the early eighteenth century in Britain and the Western European Continent.

It was a necessary (if perhaps insufficient) condition for the Industrial Revolution and the “Great Enrichment” that came after it.

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Between c1500 and c1700
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]

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How do markets succeed?
North-Greif view of markets: to work effectively, they need an institutional foundation that specifies the incentives that drive participants and enforces the rules by which this market operates.

In the case of the market for ideas, the institution was especially challenging because it had to overcome the public good properties of knowledge and find a solution to the “commons” problem. The institution created unprecedented incentives for innovators to engage in proposing new ideas to the market.

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The “Republic of Letters”:
an early “virtual community”
Within Europe, the “intellectual commons resource” was organized after c. 1500 through a transnational community of scholars, which referred to itself as the Respublica Literaria.
This group included the European educated elite, the intellectual crème de la crème: scientists, physicians, philosophers, mathematicians (as well as theologians, astrologers, and mystical and occultist writers). They were relatively homogeneous: they were also educated, literate, polyglot, religious-but-open-minded, and they subscribed to a common ideology or culture.

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It was most certainly not a construct
of historians or “an imagined past.”
Pierre Bayle, the French Huguenot philosopher who lived in exile in Rotterdam and who began publishing in 1684 his newsletter named Nouvelles de la République des Lettres, wrote that
“The Common-wealth of learning [= the Republic of Letters] is a State extremely free… the Empire of Truth and Reason is only acknowledged in it… everybody is both sovereign and under everybody’s jurisdiction… the laws of of the society have done no Prejudice to the Independency of the State of Nature as [much as to] Error and Ignorance”
(Bayle, [1694], 1734, Vol. II, p. 389, essay on Catius).

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The judgment of contemporaries on the Republic of Letters
“The Republic of Letters. . . embraces the whole world and is composed of all nationalities, all social classes, all ages and both sexes . . . All languages, ancient as well as modern, are spoken. The arts are joined to letters, and artisans also have their place in it . . . Praise and honor are awarded by popular acclaim.”
Noel Bonaventure d’Argonne (1634-1704)
Mélanges d’Histoire et de Littérature, 1699

“During the Age of Louis XIV, a Republic of Letters was established, almost unnoticed, despite the wars and despite the difference in religions…all the sciences and arts received mutual assistance this way…True scholars in each field drew closers the bonds of this great society of minds, spread everywhere and everywhere independent… this institution is still with us, and is one of the great consolations for the evils that ambition and politics have spread through the earth”
Voltaire, Age of Louis XIV, (1751)

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What was the Republic of Letters ?
The Republic of Letters was above all a community (sometimes known as an “invisible college)” that shared, distributed, and evaluated knowledge mostly through personal correspondence, local meetings, and publications.

As such it provided the kind of “community” needed to resolve the common resource problem.

It was a classic “weak ties” network (Granovetter, 1983): its members did not know each other very well. Levels of trust were relatively low, so that ideas had to be backed up (e.g., Shapin and Schaffer, 1989). But the information tended to be less redundant than in strong-ties communities.

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Intellectual Historians have long been impressed by the
Republic of Letters
Including such heavy-hitters as Marc Fumaroli and Anthony Grafton.

Grafton puts it well: “within an ocean of darkness, small bands of intellectuals navigated in fragile crafts, little communities of scholars with their own values and rules.”
What should be added, however, is that these small bands were not insulated: their strength came from the close ties they maintained with one another and the astonishingly effective network that emerged as a result—not by design, not by intention, but all the same capable of effecting a historic sea change.
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But why should the Republic of Letters matter
to economic history?
Some have argued that the Scientific Revolution was at the center of the 18th Century Industrial Revolution (will return to that issue).

But that aside, the Republic of Letters mattered because it self-consciously made an effort to be relevant to production (in part a self-serving effort to justify its patronage).
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Knowledge was produced by a continuous range of people, from “mindful hands” to handy minds, struggling with a large set of issues, described by some of the scholars working in this “new style” of the history of knowledge (e.g., Roberts, Schaffer and Dear, 2007).
In recent years these scholars have correctly pointed to a great deal of knowledge that was accumulated by what we may call practitioners: painters, architects, clockmakers, pharmacists, botanical collectors, even pyrotechnicians created useful knowledge (Smith and Schmidt, 2007).
Scientists learned a great deal from craftsmen and practitioners and clearly realized it, as Hooke’s proposed catalogue of all artisanal practices illustrates.
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The notion that theory and practice or “pure science” and “application” were somehow separate would have seemed strange indeed to scholars and practitioners of the time alike. Indeed many scholars were in some ways practitioners, not least some of the superstars such as Hooke and Huygens.
At the same time, it has become abundantly clear that scientists learned a great deal from craftsmen and practitioners and clearly realized it, as Hooke’s proposed catalogue of all artisanal practices illustrates.
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Yet as prescriptive and propositional knowledge grew closer together, they remained separate in one important dimension
The rewards (and thus incentives) for invention were still mostly direct: either by keeping the knowledge secret and collecting monopoly rents that way, or by securing a patent. Either way, they collected what economists call an exclusion rent.

Prescriptive knowledge never became a totally open-source form of knowledge even if some parts of it willingly shared their skills and tricks.

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While propositional knowledge moved toward an “open science” model, prescriptive knowledge followed a different set of rules.

The latter meant that much (not all) of technology followed somewhat different rules than science. It also meant that Hooke’s plan failed because many top artisans were reluctant to share the secrets of their trade.

The savants followed a model of open science, but understandably the fabricants did not follow suit.

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Yet, as theory and practice remained separate in that way, the belief that a lot could be gained by building better communications between them, strongly expressed by writers in the Baconian tradition, became more and more widespread.

The Industrial Enlightenment consists to a considerable extent of people we could call “Baconian Scientists” — natural philosophers with a strong practical bend. Examples: Desaguliers and Cullen in Britain, Réaumur in France, Leibniz in Germany, Euler in Switzerland and so on.

At the same time, the best of the fabricants realized they needed help and advice from science. The Industrial Revolution provides plenty of evidence to that effect (Mokyr, 2009).

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The Republic of Letters set the rules for the “knowledge commons” in the age of Enlightenment.

What were the rules?

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The rules of the Republic of Letters:
It was a socially open community: anyone (within reason) could enter.
It was in principle egalitarian and non-hierarchical (although Newton became a bit of an idol, and birth and wealth may have counted for more than they liked to admit).
Open Science: 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. Many priority fights.

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The rules of the RofL (cont’d)

All knowledge, both new and old, was contestable (“in nullius verba”). No sacred cows.
All new propositions were to be reproduced, checked, tested and evaluated (making the new knowledge more reliable to outsiders).
It was a transnational community: “The sciences are never at war”.

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The Republic of Letters and the Market for Ideas
The concept of a competitive market combines in a special way the coexistence of competition and cooperation. Participants on both the supply and the demand side competed fiercely, and the intellectual world was riven with conflicts, jealousy, and personal animosities and grudges. At the same time, because the game was repeated, people followed the rules and norms.
All markets combine these aspects of conflict and harmony.

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What explains its success?
The Republic of Letters could thrive because it was to a considerable extent independent of other institutions such as political or religious one. This was true even for France, where the state meddled more than elsewhere.

It could do so because its “citizens” took full advantage of the political fragmentation of Europe by limiting rulers and organized religion from intervening or controlling knowledge creation, and when needed, by its members moving from one nation to another and playing one power against another.

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Other critical components:
Supply side:
Printing Press
Growth of Postal services and declining transportation costs.
Growth of “intelligencers”
The heritage of a 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
Great voyages and 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.
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Competitive patronage:
As other scholars (Westfall, 1985; David, 2008) have pointed out, the market for ideas became a game in which the payoff for leading intellectuals was a reputation among their peers through their scholarly writings. Reputation was the main incentive mechanism that spurred creative people to make advances in knowledge.

Reputation was correlated with patronage (though many wanted reputation for its own sake). Patronage provided intellectuals with economic security (Westfall, 1985) and legitimization (Biagioli, 1991). Patronage was nothing new, but an internationally competitive market in it was only possible in Europe’s “states system.”

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Patronage was a competitive market:
Not only that the sellers (i.e., people with ideas and knowledge) competed in the market for patronage, but so did the buyers, that is, the courts, universities, and academies who extended patronage to the top scientists and competed among themselves to attract the best and the brightest.
On the demand side: attracting smart people was partially a matter of prestige and ostentation for local rulers and notables and partially a matter of getting useful advice, cutting-edge medical care, tutoring, and information and advice from the smartest and best-informed people in Europe).

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The importance of international competition and mobility was that European rulers and other patrons were limited in their ability to force their clients to accept their views (and most of them knew it).
This limited the ability of reactionary elements to pursue or silence “heretics.” In the end it meant that unlike China, European rulers were unable to suppress the ideas that led to the Enlightenment.

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“Open science” emerged as a transnational
intellectual commons management device
Because the payoff was largely in reputational terms and intellectual property rights consisted of getting credit, people established and sometimes fought over priority.

The significance of open science to the economic development of the modern world is vast (David and Dasgupta, 1992). Open science meant that new knowledge would be placed in the public realm and thus be accessible to anyone who wanted to test and check its validity or build on it or use it for technological purposes. Even the great Newton had to be confronted with continuous validation and verification (Dollond affair).

By 1700 the basic outlines of “open science” were fully in place and observed throughout the RofL.

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The Republic of Letters as it emerged gave Europe an enormous advantage
It created a unified, pan-European institution that allowed intellectuals to enjoy a much larger constituency than they would have in their often small home-countries.

In that sense Europe had the best of all possible worlds between political fragmentation and intellectual unification. It was diverse and pluralistic and could not be dominated by any single ruler, yet it was intellectually “integrated” in that there was a more or less unified market for ideas and what seemed to be demonstrably superior ideas were eventually adopted widely.

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Summary
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.

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So what?
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)? For a long time the Baconian dream of a production sphere enlightened by best-practice science was little more than an Enlightenment chimera. With a few notable exceptions, there was not all that much that seventeenth- and eighteenth-century artisans could learn from best-practice science to improve their productivity.

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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 physics was needed to build a spinning jenny.”

Science plays an ever-growing role in the subsequent history of industrialization in Europe (Mokyr, 2009). The mutual interaction between science and technology was the reason why the Industrial Revolution was the beginning of the Great Enrichment.
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Could there have been 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, and have become 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.

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Thank you.
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