Despite the dominant role that institutions and institutional analysis have played in economics and economic history since the time of Adam Smith, institutions play at best a minor direct role in the story of the Industrial Revolution told here, and in the account of economic performance since then. By 1200 societies such as England already had all the institutional prerequisites for economic growth emphasized today by the World Bank and the International Monetary Fund. These were indeed societies more highly incentivized than modern high-income economies: medieval citizens had more to gain from work and investment than their modern counterparts. Approached from the Smithian perspective, the puzzle is not why medieval England had no growth, but why today’s northern European countries, with their high tax rates and heavy social spending, do not suffer economic collapse. The institutions necessary for growth existed long before growth itself began.
These institutions did create the conditions for growth, but only slowly and indirectly over centuries and perhaps even millennia. Here the book argues that the Neolithic Revolution, which established a settled agrarian society with massive stocks of capital, changed the nature of the selective pressures operating on human culture and genes. Ancient Babylonia in 2000 BC superficially possessed an economy remarkably similar to that of England in 1800. But the intervening years had profoundly shaped the culture, and maybe even the genes, of the members of agrarian societies. It was these changes that created the possibility of an Industrial Revolution only in AD 1800, not in 2000 BC.
- Greg Clark, A Farewell to Alms: A Brief Economic History of the World
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