A change in how people honored markets and innovation caused the Industrial Revolution, and then the modern world. The old conventional wisdom, by contrast, has no place for attitudes about trade and innovation, and no place for liberal thought. The old materialist story says that the Industrial Revolution came from material causes, from investment or theft, from higher saving rates or from imperialism. You've heard it: "Europe is rich because of its empires"; "The United States was built on the backs of slaves"; "China is getting rich because of trade."
But what if the Industrial Revolution was sparked instead by changes in the way people thought, and especially by how they thought about each other? Suppose steam engines and computers came from a new honor for innovators—not from piling brick on brick, or dead African on dead African?
Economists and historians are starting to realize that it took much, much more than theft or capital accumulation to ignite the Industrial Revolution—it took a big shift in how Westerners thought about commerce and innovation. People had to start liking "creative destruction," the new idea that replaces the old. It's like music. A new band gets a new idea in rock music, and replaces the old if enough people freely adopt the new. If the old music is thought to be worse, it is "destroyed" by the creativity. In the same way, electric lights "destroyed" kerosene lamps, and computers "destroyed" typewriters. To our good.
The correct history goes like this: Until the Dutch around 1600 or the English around 1700 changed their thinking, you got honor in only two ways, by being a soldier or being a priest, in the castle or in the church. People who merely bought and sold things for a living, or innovated, were scorned as sinful cheaters. A jailer in the 1200s rejected a rich man's pleas for mercy: "Come, Master Arnaud Teisseire, you have wallowed in such opulence! How could you be without sin?"
In 1800 the average income per person per day all over the planet was, in present-day money, anything from $1 to $5. Call it an average of $3 a day. Imagine living in present-day Rio or Athens or Johannesburg on $3 a day. (Some people do even now.) That's three-fourths of a cappuccino at Starbucks. It was and is appalling.
Then something changed, in Holland and then in England. The revolutions and reformations of Europe, 1517 to 1789, gave voice to ordinary people outside the bishops and aristocrats. Europeans and then others came to admire entrepreneurs like Ben Franklin and Andrew Carnegie and Bill Gates. The middle class started to be viewed as good, and started to be allowed to do good, and to do well. People signed on to a Middle-Class Deal that has characterized now-wealthy places such as Britain or Sweden or Hong Kong ever since: "Let me innovate and make piles and piles of money in the short run out of innovation, and in the long run I'll make you rich."
And that's what happened. Starting in the 1700s with Franklin's lightning rod and Watt's steam engine, and going nuts in the 1800s, and nuttier still in the 2000s, the West, which for centuries had lagged behind China and Islam, became astoundingly innovative. Give the middle class dignity and liberty for the first time in human history and here's what you get: the steam engine, the automatic textile loom, the assembly line, the symphony orchestra, the railway, the corporation, abolitionism, the steam printing press, cheap paper, wide literacy, cheap steel, cheap plate glass, the modern university, the modern newspaper, clean water, reinforced concrete, the women's movement, the electric light, the elevator, the automobile, petroleum, vacations in Yellowstone, plastics, half a million new English-language books a year, hybrid corn, penicillin, the airplane, clean urban air, civil rights, open-heart surgery, and the computer. The result was that uniquely in history the ordinary people, and especially the very poor, were made much, much better off—remember the Middle-Class Deal. The poorest five percent of Americans are now about as well off in air-conditioning and automobiles as the richest five percent of Indians.
Now we're seeing the same shift play out in China and India, 40 percent of the world's population. The big economic story of our times is not the Great Recession of 2007–09—unpleasant though it was. The big story is that the Chinese in 1978 and then the Indians in 1991 adopted liberal ideas in their economies, and welcomed creative destruction. Now their goods and services per person are quadrupling in every generation. By now, in the numerous places that have adopted middleclass liberty and dignity, the average person makes and consumes over $100 a day. Remember: two centuries ago it was $3 a day, in the same prices. And that doesn't take account of the great improvement in the quality of many things, from electric lights to antibiotics to theories of economics. Young people in Japan and Norway and Italy are even in conservatively measured terms around thirty times better off in material circumstances than their great-great-great-great-great grandparents. All the other leaps into the modern world—more democracy, the liberation of women, improved life expectancy, greater education, spiritual growth, artistic explosion—are firmly attached to the Great Fact of modern history, the increase by 2,900 percent in food and education and travel.
It is so big, so unprecedented, the Great Fact, that it's impossible to see it as coming out of routine causes such as trade or exploitation or investment or imperialism. That's what economists are good at explaining: routine. Yet all the routines had occurred on a big scale in China and the Ottoman Empire, in Rome and South Asia. Slavery was common in the Middle East, trade was large in India, investment in Chinese canals and Roman roads was immense. Yet no Great Fact happened.
Something must be deeply wrong with explanations of the usual economic sort. In other words, depending exclusively on economic materialism to explain the modern world, whether left-wing historical materialism or right-wing economics, is mistaken. Ideas of human dignity and liberty did the trick. As the economic historian Joel Mokyr puts it, "economic change in all periods depends, more than most economists think, on what people believe." The gigantic material changes were the outcome, not the cause. It was ideas, or "rhetoric," that caused our enrichment, and with it our modern liberties.