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How did the modern dynamist economy of wealth and opportunity come about? Author and Head of Education at the Institute of Economic Affairs Stephen Davies joins Chelsea Follett to discuss his book "The Wealth Explosion: The Nature and Origins of Modernity."

Stephen Davies: The Human Progress Podcast Ep. 34 Transcript

By Chelsea Follett @Chellivia

By Stephen Davies

Chelsea Follett: Joining me today is Dr. Stephen Davies. Steve is the Head of Education at the Institute of Economic Affairs in London, the UK’s original free market think tank. Previously, he was a program officer at the Institute for Humane Studies and the senior lecturer in the Department of History and Economic History at Manchester Metropolitan University. And he’s the author of several books including Empiricism and History and he was co-editor of the Dictionary of Conservative and Libertarian Thought. But he joins the podcast today to discuss his book The Wealth Explosion: The Nature and Origins of Modernity. How are you Steve?

Stephen Davies: I’m very good. And thanks for having me on this podcast.

Chelsea Follett: So what inspired you to write this book?

Stephen Davies: Well, it actually grew out of a process of intellectual rethinking, if you will, because for many years, I’d been giving talks and lectures to various student organizations and bodies, notably, the Institute for Economic Studies Europe’s regular annual seminars at Gimsbach in Germany, on the topic of how and why the West became rich, to quote the title of the well-known book by Rosenberg and Berzel, which came out quite a few years ago. And what I came to think was that the story I was telling in those lectures was actually mistaken. Because there is a kind of view of this question, which is very popular amongst what you might call the free market side of politics, which is that there’s something peculiar and distinctive about Europe, which you can trace back for a very long time, as far back as many say the 12th century meant some would even go further and say as far back as the 7th or 8th century. And it was this distinctiveness about Europe, which made the modern world first appear in that part of the world. And I came to the conclusion, having read a whole lot of other more recent historical research, that this was actually mistaken, that there was actually something else going on.

Stephen Davies: And so I was interested in the big question of exactly how and why the modern world and the things that make our world, the modern world, different and distinct from all previous human history, how and why those things first came to begin in Northwestern Europe rather than another part of the world.

Chelsea Follett: So what does define modernity? Could you go through some of the ways that the modern world differentiates itself from that of our ancestors? 

Stephen Davies: Well, that’s a huge question, of course. And the kind of skeptical historians argue that there is no such kind of concrete thing as modernity. It’s just a label we stick on the recent past. But I would argue, and I think actually most historians, sociologists, political scientists would agree that that’s not true, that there is something which we can call modernity, and that it’s very distinct from what came before. So modernity essentially is a state of affairs, which begins to appear in Northwest Europe in roughly the 2nd half of the 18th century, maybe a bit before then, but not much, and which has gradually spread out or appeared, rather, in other parts of the world. So that now, in fact, pretty much the whole world is modern. Now, what does it mean to say that? Well, to say that a part of the world is modern is to say that it has certain things. The most important and central one is sustained intensive growth. Now, that is worth unpacking. Historically, there are two kinds of economic growth. One kind, which is called extensive, is where you do more with more. You have more output by increasing the inputs.

Stephen Davies: So if you have a larger workforce because of population growth, or the existing population works longer hours, both of which have happened historically, then you get more output. Similarly, you can get more output if you have more capital or if you expand on to previously uninhabited or unused land. But in all of these cases, extensive growth, there’s no increase really in what the economists call total factor productivity, the productivity of the basic resources that human beings have at their disposal, natural resources, land in the language of economists, capital, saved up production, and human labor. So you don’t get a rise in living standards, you just get more output from more inputs, there’s no increase, therefore, in the efficiency of the productive process. And so living standards do not increase. And for the great majority of human history, most economic growth, although not all, is an important point is of that kind. And what that means is you do not get a rise in living standards. Now, by contrast, modern growth is mainly intensive growth. And intensive growth is where you get an increase in total factor productivity, you get more output for the same or even less input.

Stephen Davies: So even though there may indeed be more capital, there may be more natural resources being used, where even when you allow for that, you find that you’re getting a more productive use of those resources, those inputs, the process itself has become more productive, and intensive growth, if it’s sustained for long enough, leads to a rise in living standards and a rise in incomes, which in turn means a radical transformation of the everyday conditions of human life. And so that’s the 1st really big feature of modernity. It’s a state of affairs in which you normally experience sustained intensive growth over a very long periods of time, over 200 years by now. And this in turn brings about a complete transformation of the material conditions of human existence so that people, for example, no longer die in very large numbers in the 1st year of their life. Normally, historically, about one 1st child in four would die in the first year of life, one in three, if you lived in a town or a city. The great wealth that the modern world has created means that that is no longer the case.

Stephen Davies: Similarly, in the past, there were only a limited range of opportunities or options for most people. The great majority of people became peasant farmers, because that’s simply what most people had to do in order to feed the small minority who were not engaged in agriculture. Today in the modern world, because of intensive growth, there’s an enormous array of different kinds of careers, jobs, lives, lifestyles that are open to people. So that’s the first big difference. The second big difference, which is related to that, is urbanization. The modern world is a world where the majority of people live in cities. The 1st society in the world to have this situation was Britain, where in 1851, according to the census of that year, the majority of the population lived in large towns or cities. According to the United Nations, this now became the global situation about 10 to 12 years ago. And that is something historically completely unprecedented, because historically, 90% of the population would live in the rural areas or small towns. There are very, very few parts of the world where more than 10% of the population live in large towns or cities. Cities with a population of more than 100,000 people are historically very rare, whereas now there are several thousand of them.

Stephen Davies: And so that’s the 2nd feature. We’ve moved from a world where the normal experience of human beings is to live in low density, rural environments to one where the normal experience or the experience of the majority anyway, ’cause there’s still quite a lot living in the rural areas, is to live in large towns and cities. And that’s a fundamental change in the not just the physical environment within which human beings live, but also the social experience that they have, because there are profound differences between the life of the city and the life of the country, as people have been pointing out, you know, from the ancient Greeks onwards.

Stephen Davies: That’s the second big difference. The third big feature is more vague, but undoubtedly real. And that is the cultural difference between the modern world and the pre-modern world. A number of social scientists, historians have written about this. The modern world has certain distinctive cultural features; rationalism, individualism, a focus upon the autonomous or self defined individual as opposed to having your identity determined by things over which you have no control such as the location of your birth, who your parents were, what your ethnicity or races, things of that sort, a move away from that to a much more self defined individualism.

Stephen Davies: But also, as I said, rationalism, a focus upon reason, and the experimental and scientific method as a way of finding out about the world, as opposed to relying upon tradition, and also authoritative, religious or secular beliefs that are enforced by an authority. So that’s another major difference between the modern world and the pre-modern world. And it’s important in this context to realize that modern does not mean, in this sense, a specific historical period, it does mean that but that’s not the primary meaning. What it means rather is a way of living and a form of social existence which has the qualities I’ve just described. And that mode of many parts of the world have only just become modern in the last 20-50 years, other parts of the world have been modern for longer. But the point, therefore, is that we’re not talking about something which happens suddenly all over the world around 1750 or 1800. We’re talking about the process… A process actually that began in about 1750, but which is only verity within my own lifetime, and probably just your own lifetime, reached the encompass the entire planet.

Chelsea Follett: So we’ll move to why it started… Where it did in a moment, why do you think it started and did this dramatic change? 

Stephen Davies: That’s the core question that the book is concerned with. To step back a bit, I said a moment ago that in the pre-modern world or the non-modern world, the normal pattern of economic life is to be marked by either no growth at all, or where you do find growth, extensive growth rather than intensive. However, you do need to qualify that statement because periodically in certain times and places, you get what the historian Jack Goldstone calls ‘efflorescences’, episodes or outbursts of intensive growth and economic dynamism. These… Some of these are very well known, such as the lands around the Mediterranean, the Roman Empire during the second century… The second half of the first century, most of the second century, the Middle East under the Abbasid Caliphs in the eighth century, Gupta India in the fourth and fifth centuries, and most notably China in the 12th and 13th centuries. And during these periods, and in these specific locations, you do find many other features of modernity, you find intensive growth, you find a move towards greater urbanization, you find a move towards more rationalism, a more skeptical scientific approach to the study of the physical world and of human existence.

Stephen Davies: But the point is, they do not last. They are typically short lived and the end in a kind of crisis. Now, one of the things I would say, by the way, is that if you think about history in this way, you move away from the stadial model of history in which you have a succession of stages of social and economic development. The famous one is the one we find in Marx with where you have primitive communism, slave based society, feudalism, and then capitalism, which he thinks is going to lead on to another stage, socialism. He actually got that from Adam Smith, who had exactly the same model, except he had an extra stage, pastoralism, between primitive hunter gathering society and feudalism. And he also, of course, thought that commercial societies, he called it, was going to be the final stage of human development, not succeeded by socialism. But that stadial model of history is found right across the ideological and intellectual spectrum today. And, in fact, I think it’s false. You could say that capitalism is not a stage of human history or historical development, nor is feudalism. You find both feudalism and capitalism as commonly understood, recurring over and over again in different parts of the world.

Stephen Davies: And so these episodes of economic dynamism and innovation that I’ve mentioned, the efflorescences of Jack Goldstone’s account, are actually previous historical episodes of capitalism. If you look at the Roman economy of the second century AD, you think, “Wow, this looks an awful lot like an early form of a capitalist economy.” It’s got large firms, it’s got a complex finance and banking system, an elaborate and sophisticated monetary system. It’s got an elaborate division of labor. It has factories, a gas July as the Romans call them. It’s got large firms and business organizations, a credit market. The same is true with knobs on you might say about Song China, China in the 12th and 13th centuries. And so what you get in other words is episodes of capitalism historically, which are marked by the same features that we get in its modern form, the things I spoke about a moment ago, intensive economic growth and the like, but they don’t last. They end in a crisis and then basically they’re replaced by something else and you get a reversion back to the historical norm of economic stagnation and lack of economic innovation and dynamism. And the usual successor state, not always, but usually is actually feudalism.

Stephen Davies: Contrary to the kind of notion that capitalism grows out of feudalism and then its going to lead on something else, what you actually find is that historically feudalism of one kind or other tends to grow out of these capitalist episodes as well as preceding them. So you find that, therefore, you have blips or episodes of development, if you will, but they don’t last. Now the key question, therefore, in a way is why is it that the episode of this kind that occurred in Northwestern Europe in the 18th century did not suffer the same fate as its predecessors? Why did it last rather than coming to end in a crisis? And again, this brings us to another key point, which is, well, what is the central feature that underlies both the economic growth, the urbanization, the individualism and all the cultural phenomena I’ve described? What is it that drives all of these things that is, if you like, the motor of modernity to go back to what we talked about earlier? And I agree with Deirdre McCloskey that the key factor is sustained innovation. This is the Joseph Schumpeter explanation for where economic growth comes from. The key factor of modernity, the key element, if you like, the magic ingredient is sustained innovation.

Stephen Davies: Now that goes with a whole lot of other things. In particular, it goes with things like free discussion and intellectual and social and cultural liberty, because if you don’t have those things, you’re not going to have innovation because innovators by definition are people who create something new, which means very often that it’s something that contradicts or runs against the conventional rules and norms and very often the explicit rules and norms of the established society. And, therefore, typically innovators have a very hard time. They’re very liable to be burnt at the stake or driven out of the village or generally treated very harshly because they’re doing something which is blasphemous. They’re asking questions that shouldn’t be asked. They’re doing things that have not been done before, which are liable to bring down the wrath of the gods, as many people would think. And so, therefore, the key question is why does innovation persist in the case that we’re now living in the last stages of the one that began in Northwest Europe in the 18th century? Why was it cut short in previous episodes, such as most notably Song China? And in the book, I look at Song China as the kind of case study in how these earlier episodes of capitalism, dynamism, innovation, intensive growth were cut short and did not last.

Stephen Davies: Because most historians who’ve looked at this would agree that it’s Song China, 12th and 13th century China in particular, that is the closest to a previous episode of modernity. And had that persisted, we would be incredibly rich, no doubt and we would be talking about the Industrial Revolution of the 14th century in China rather than as we now are the Industrial Revolution of the 18th century, 19th century in England and Britain. So that’s the key. That’s what I mean. So the question therefore you’re asking is, well, why does this all happen in Northwest Europe? Why does it sustain itself? Now, there’s a number of explanations. And this brings me back to the point I started off with about why I first became interested in this question. A lot of people tend to think well, there are two different questions really, which produce four different positions. One question is, is there something peculiar about Europe? Is Europe somehow different or distinctive? And the second question is whether or not capitalism, this phenomenon of economic dynamism and innovation that I’m talking about, is a good thing or a bad thing? And does it have good origins or not as well? 

Stephen Davies: And that produces four kind of positions, if you will. So on the one hand, you have people who think that Europe is somehow distinctive and capitalism is good. And that’s the kind of position that is dominant amongst what you might call the free market side of politics. On the other hand, you have people who think that, yes, Europe is distinctive, but capitalism is bad, or at least regrettable. And this is the view of Marx, although his view is more nuanced than that. But also of a whole range of modern scholars who think that basically, yes, there is something distinctive about Europe, but what is distinctive about it is bad. It’s that Europe is uniquely exploitative or aggressive or imperialist and that’s what gives rise to modern capitalism. And then on the other hand, you have people who say, well, nothing special about Europe. The only thing that really makes the modern world start in Europe is something, some stroke of luck, basically. Particularly, the thing that’s commonly drawn attention to is the discovery of the New World and the subsequent transatlantic slave trade and slavery. And so the argument is that basically, capitalism appears in the modern world, the modern world appears in Northwest Europe, because of a pure stroke of luck.

Stephen Davies: And both that stroke of luck and the subsequent outcome of it is bad. And then finally, you’ve got my view, which is that there’s nothing distinctive about Europe, but markets and capitalism are good. Now, that’s different from the first few I described. A common notion is the idea that at some point in the Middle Ages, Europe became different from other parts of the world. European civilization in the aftermath of the collapse of the Roman Empire, according to these kind of scholars, people like David Landis, Rosenberg and Birdsall, Nathan Rosenberg and Leo Birdsall and others, Douglas North, developed a unique set of institutions, or it also developed a unique culture. And Christianity is often given the credit for this, particularly through the church’s transformation of the family system of medieval Europe, something that undoubtedly did happen. And the argument is that this made Europe more dynamic, more innovative, more inventive than other civilizations. And as a result, it became the place where sustained innovation took root. There are two big problems, however, with that model. The first is, if Europe is already different from the rest of the world by the 12th century, why does it then take 700 years or 600 years for it to actually have an effect? 

Stephen Davies: Why is it so slow in working out? And that makes the whole question much more difficult. It means that the distinctiveness of Europe is not enough by itself to have created sustained modernity. Something else must have come along in addition that did that. And that other thing must be the thing that actually triggers it and explains why it first occurs and then sustains itself in Northwest Europe. And then the second problem with that is that when you start to look at the things that people say are peculiar and distinctively European, you discover that no, they’re not, you find them in many, many other parts of the world. So a lot of the things that people say are distinctively European, like institutions like the company, private property rights, which are strictly enforced, which is Douglas North’s explanation, explanations of the kind that emphasize, say, individualism or skeptical materialism. You find these in all the other parts of the world that I mentioned, you find them in Gupta, India, you find them in Song China, you find them in even second century Rome, you find them in other parts of the world, I haven’t mentioned Tokugawa, Japan, for example.

Stephen Davies: And so you find that the more you look into the past, the more you realize that this supposed distinctiveness of Europe is simply not correct. So that still leaves us with a puzzle. If what you have in Europe in the 18th century is not something that happens because of anything distinctive in Europe, it’s this long run distinctive in Europe, I should say. The question still then is, well, why does this episode sustain itself? So the key question you need to answer really is, why do these previous episodes come to an end? And that was really the kind of question I wanted to explore in the book, which I’m going to return to, I think, in years to come. And the conclusion I arrived at was that there are two reasons why historically, innovation tends to not sustain itself. The first reason is this. Our ancestors, up until who are not living in the modern world, or who are not living in a world shaped by the processes we call modernity, they lived in a Malthusian world, they lived in a world of very stringent and rigid limits on what human beings could do. Limits of resources and the ability and capacity of human beings to exploit those resources, which meant that there was a limit, as Malthus said, the number of people that you could find in any part of the world, but also a limit to the ways in which they could live.

Stephen Davies: There were certain things you simply couldn’t do. You simply could not have more than 10% of your population living in towns and cities, because otherwise, you wouldn’t be able to produce enough food and everyone would starve. Apart from a few very special parts of the world, which were fortunate in some way. So the world of Malthusian limits led our ancestors to evolve and create a whole series of social institutions and norms, which were designed to enable our ancestors to cope with the problems and difficulties of living in a world of limits. Now, these institutions and practices are what some scholars call the moral economy. They’re a series of rules of governing behavior, which ensure that basically, most people are protected to some degree against the exigencies and accidents of life such as famines or natural disasters. The basic principle behind them is either everyone starves or nobody starves. Now, what that means, however, is that they are hostile to innovation. There are very powerful social practices, norms, institutions, which inhibit innovation. And the reason makes perfect sense, because in a Malthusian world, innovation is very, very risky, because most innovations fail. And so if you use up scarce resources on a new innovative way of doing things, those resources are probably going to be wasted in most cases.

Stephen Davies: And that might be the difference between making it through the winter and starving to death. So you can see why people are very skeptical of and hostile towards innovation, because it’s very, very dangerous. But the paradox is that it’s only innovation and sustained innovation that will enable you to escape from that Malthusian trap. And so in order for an episode of innovation to be sustained in the long run, as the modern one has been, you have to find a way of breaking down or getting round those social constraints, those social structures, norms and rules that inhibit innovation. But the other part of this is an active… The other part of the story is an active role played by people with power, religious and political elites, basically, kings and priests, if you will. And elites have a complicated relationship to innovation and economic growth. If you’re a king, on the one hand, you want innovation, because it means that your subjects are richer, which means you can tax them more, which means you can build a bigger palace, fight more wars, usually the second, because that’s what kings spend most of the time doing. And so you want it.

Stephen Davies: But on the other hand, you don’t want too much of it. Because to the extent that your subjects become wealthier, they start to escape your control. And also innovation necessarily involves asking questions, questioning why things are the way they are, why you keep doing things the way they’ve always been done. And so to the extent that you have a process driven by that kind of questioning outlook, it’s going to lead people to question why you should do what the king says, why should the social structure be the way it is. So it becomes a threat to your position, if you’re in the elite. And, of course, the fact that your subjects are now richer means that they’re also therefore better able, more physically empowered to act against you. And so elites typically only want a little bit of innovation. And if it starts to become too great, they will tend to crush it and stop it sometimes quite consciously and deliberately. And the result of that is that it gets choked off. So my explanation was that historically, these episodes tend to be brought to a close by, first of all, a social crisis in which the process of innovation starts to run up against the inherited social structures, which are designed to enable human beings to cope with a world of limits.

Stephen Davies: But also they tend to face opposition from elites. And you get a kind of unholy alliance between elites, including, by the way, commercial elites who do not want innovation because that’s going to produce upstart competitors who will destroy their position. And also a large part of the population who just don’t like change, who are temperamentally hostile to change and innovation. And this tends to block it off. The other problem, finally, is that very often you do hit Malthusian limits. What you find is that as the economy grows, as you get intensive growth, you do finally, ultimately run up against hard Malthusian limits, natural resource limits. Now, what innovation enables you to do is to break through those limits because you find new ways of doing it. So to take the classic example, Europe in the late by the middle of the 17th century has pretty much run out of wood, which is a major source of fuel, obviously. They then, however, get round this by turning to other sources of energy, which initially is coal. Then by the late 19th century, there’s a real panic that they’re going to run out of coal. And then what happens is you find a new source of energy, which is oil, basically, and oil products.

Stephen Davies: And so that’s just one example of the way in which innovation enables you if you sustain it to break through those barriers. Now, finally, sorry for the length of this answer. The question then is, well, what is it that enables Western Europe, therefore, to the episode of modernity that we see in Western Europe, to break through those two barriers, social structures, and the attitude of ruling elites? And the answer I have in the book is that it’s something purely accidental. Which is this. In the 14th century, right around the world, you have a phenomenon which historians call the military revolution, which is the transformation in warfare that’s brought about by gunpowder and the defensive response to gunpowder. And what this leads to everywhere is a sudden huge increase in the destructiveness of war. And in the scale of war, you go from having armies that are relatively small and also mostly not permanent, to having large, permanent military establishments, which are kept in place for year after year, and which are very large, you’re talking about armies of tens of thousands of men in permanent existence. And this leads to warfare becoming vastly more destructive. And this leads to a huge ramping up of intra elite competition in every part of the world.

Stephen Davies: Now, in most parts of the world, what this leads to is the emergence of what are called by historians, gunpowder empires, places like the Russian Empire, the Mughal Empire in India, Ming, and then later, Qing China, the Ottoman Empire, the Uzbek Sultanate, the Safavid, Iran, and so on. And these gunpowder empires control large parts of the planet’s surface. And they are so powerful that they cannot be typically overthrown by any geopolitical competitor, they’re just too large, too resource, too resource-rich to be overthrown. Now, initially, these gunpowder empires are good for trade, commerce, business, economic activity, because they create peace and stable government in a large part of the planet’s surface. But what that means in the medium term, however, is that they double down, they intensify the process I described earlier of social factors and the policy of elites constraining innovation and economic dynamism. However, in Europe, for I think purely contingent reasons, pure historical accident, this doesn’t happen. If you were an observer from the Galactic Federation in 1500, or 1520, you would have said, it was pretty certain that Europe was going to go the same way as India, China, Russia, and end up with a single dominant hegemonic power become a single imperial regime.

Stephen Davies: Because one particular country or state Habsburg Spain, or the Habsburg Empire, the Empire of Charles V, had an enormously strong hand, but for contingent reasons, and above all the failure of his son to suppress the rebellion of the Dutch, this did not happen. Instead, what happens is that by 1648, Europe is divided into about a dozen large, powerful, but competing states. And what that means is that the elites in those states, the ruling classes in those states, face a different kind of incentive to the one facing most elites in most periods of history. They could no longer afford to suppress innovation, or to support the social movements and institutions that, like guilds, for example, that tended to restrict innovation. Because if they did that, they would lose out to their competitor monarchs or states, who had been a bit more innovative than them. And as the case of Poland tells us, this could be terminal, like Poland, one of the largest, most powerful states in Europe in the late medieval period, by the end of the 18th century, no longer exists, it’s been dismembered by its neighbors in the three partitions. And so, from about the late 17th century onwards, European states, the Dutch, the British, the French, the various German states, the Spanish, they have to innovate at almost any cost, because if they don’t, they’re going to be overcome by their more innovative neighbors.

Stephen Davies: And so this means that the elites increasingly actually encourage innovation. Now, the elite which is most pro-innovation is the British. And the reason for that is that the British elite from 1688 onwards, is engaged in a life and death struggle with its extremely powerful neighbor, France. And in this competition, France has all the advantages, it has twice the territory of the British state, it has a slightly larger population, it’s much richer. And so the British elite really has to do whatever it can to equal the playing field against the French. And what they turn to do, as Joel Mokyr, historian from Northwest University has clearly shown, I think, is to quite deliberately encourage innovation. They deliberately use the power of the state, the British elite, to sweep away social norms, traditional laws, and other institutions that inhibit innovation. And this pattern of elites then encouraging innovation has then gone on, it’s become a distinctive feature of the world since about 1720, 1750. Because we are still living, as we can see today, with the competition between the United States and China, or to be more precise, between the American elites and the Chinese elite, we are still living in a world where the elite that does not encourage or sustain innovation is going to lose out in geopolitical competition.

Stephen Davies: And so we’re living in a world where one of the crucial checks on innovation, that historically had always led to the termination of episodes of innovation has been removed. But you can trace that back, I argue in the book, to a very specific historical conjuncture, to use a French term, which occurred in the second half of the 16th century, the failure of Spain to defeat the Dutch, basically.

Chelsea Follett: So, given… Now that’s a great summary of the argument. But given that… If those are the causes of modernity, how fragile do you think that should lead us to believe that modernity is? What are the threats to modernity that we now face? 

Stephen Davies: Well, it does mean that yes, it is fragile, because the episode of the case of China that I alluded to does indicate why there is an element of fragility. In China, what happened was, in the first war, they were conquered by the Mongols. Now, that was a disaster in various ways, and for various reasons. But it didn’t… The Mongols although they were very destructive, they didn’t destroy the institutions and practices that had led to the amazing dynamism of the Song era. But when the Mongols were overthrown in 1368 by a man called Zhu Zhuang Chang, who goes on then to become the Hongwu Emperor and found the Ming Dynasty, the Hongwu Emperor and the Mandarin class, the Chinese ruling class, they basically blamed the catastrophe of the Mongol conquest on the policies that the Song had followed. And so they quite consciously and deliberately sought to get rid of the innovative dynamic economy and society of Song China. And they quite deliberately create a kind of counter innovative state, and they create a kind of way of living and an economic structure that is actually extremely stable and very resilient. And the result is, it survives right into the 20th century.

Stephen Davies: And the result is that, therefore, China loses the quality of dynamism and innovativeness that it had had up until then. You have to realize that until the 15th century, China had always been the most innovative society on the planet. Virtually all of the major inventions made up until then, were first made in China. There were a few exceptions, but very few. China is clearly the most dynamic and innovative civilization. And after the late 14th century and early 15th century, although it remained an extremely sophisticated culture and civilization, it lost that quality of dynamism and innovation. But this was by deliberate design. The Ming emperors and their senior civil servants, if you will, literal Mandarins, they were very smart people, and they knew exactly what they were doing. And they were trying to create a society that would be stable and which would be self-regulating and non-innovative. And they succeeded. It became a byword. Europeans in the 18th and 19th centuries, although they admired China in many ways, they also commented on what they called the stationary nature of Chinese society. And that remained the case until the late 19th century when China begins to rediscover its innovativeness.

Stephen Davies: So one great risk is that we do something like this. One of the great risks is that we create something like that system of rules that the Hongwu Emperor created in China. Something which, probably with the same goal in mind, or some other goal, like for example, combating global warming, prevents or chokes off innovation. If that happens, then this episode of modernity that we’ve had will come to an end. There are obviously other possible risks, things which could happen. If we had a nuclear war, for example, that would obviously be the end of the modern world. It would be the end of human civilization forever, I imagine. I don’t think the human species would recover from that. There could well be certain kinds of natural disaster that would end it. And we would need… We do need to be aware of what these might be.

Stephen Davies: Another possible risk to think about is that we might actually have, and this is the dark side of innovation, we might actually have an innovation that proves to be terminal for us as a species or as a civilization. So many people are extremely worried about the prospects of artificial intelligence, for example, producing a form of AI which is both super intelligent, and in the jargon of the nerds, unaligned. Which means that it’s not going to do what we tell it to, and it has interests of its own, which are not compatible with human interests. So you know, you might have a super intelligent AI which decides that human beings are a nuisance, and the world would be better off without them. We might have the Skynet scenario, you could say. And a lot of people are seriously worried about this. So it could well be that we actually create an innovation that brings modernity to an end or which destroys us as a species.

Stephen Davies: So again, we have to be very much on our guard against that and to think about how to deal with it. And the final sort of risk, fragility, there are two. One of them is natural. And that is a problem we’ve faced a number of times before in the last 200 years, in the 1820s, and also in the 1890s, and also I think right now. And that is running up against natural resource limits. At the moment, we are facing a pretty serious challenge of accessibility of energy, because energy is becoming increasingly constrained in terms of its supply. Now, what I am optimistic and confident in is that we will find a technological solution to this. But if we don’t, then I think the whole episode of modernity would indeed come to an end, because we would no longer… We would have hit a natural limit and not been able to get through it.

Stephen Davies: As I said, we’ve done this two or three times in the last 200 years. And each time, because the innovative process has been sustained, we’ve been able to find an innovation that would enable us to get around the resource barriers. But that’s always a constant threat. There is always a threat that we may hit a barrier we can’t get around. But the final problem is this. What I’ve argued just now is what keeps the innovative process going and stops ruling elites from doing what comes naturally to them, which is to choke off innovation, is the fact that they’re in a world of competition with other elites. So we do not have a global power elite or a global power monopoly. Now, I think one of the real risks at the moment is the tendency of the modern worlds to produce a single system of governance or rule. Since 1945, the United States in particular, and the Western powers more generally, have sought to make the world more orderly, more law governed.

Stephen Davies: And they’ve done this by creating a succession of regulatory institutions, beginning with GATT, then going on to a number of others. The IMF, the World Bank, the World Trade Organization, and a whole succession of trade treaties and agreements. We call them trade treaties, but that’s actually rather misleading. What they actually are is regulatory harmonization agreements. And what they do is to take away a great deal of discretion from national governments. So that instead of having national governments competing to see which kind of regulatory system is best, or what kind of approach to running your economy is best, the idea is to have a kind of uniformity of practice. And the quite explicit end of this or goal of this is to reduce intra elite competition. To reduce competition between sovereign states, for good reasons. Because the problem is that one of the forms that competition takes, of course, is wars, and you don’t want that.

Stephen Davies: So, the idea is that you end up with a kind of uniform system of rules and governance. The problem is, that what that does is to weaken the competitiveness between the elites, which is what produces and sustains the… Or rather sustains, the innovative process. So that’s a big risk. Now, I actually think that risk is much less acute than it was a few years ago, because it’s very clear right now, that what we are seeing is the breakdown of that order, and the reversion to a state of geopolitical competition. The war in Ukraine, the clear breakdown in relations or progressing breakdown in relations between the China and the United States and the West more generally, are clear signs that we’re reverting to a situation of geopolitical competition, in which someone like Bismarck would have been very familiar with.

Stephen Davies: Now, that has a dark side obviously. The dark side is very much that, if we’re not careful, we get wars like the one we’re seeing at the moment in Ukraine, and that is obviously not a good thing. And it’s also bad for the process of peaceful innovation and economic growth. But, on the other hand, elite competition I think is a good thing. What you do not want is a single global elite, if that… Or a single elite regime, if you will, a regime of rules. If that happens, you will have a state of stasis, if you will. Inevitably, I think, whoever controls the elite that is formed by such a process, will seek to stop innovation, because they will see innovation as threatening something that is good, i.e. Global peace or whatever else it is they want. And so that’s something to be avoided, and that’s the major thing to worry about, I think.

Stephen Davies: So, in some ways, although there are obviously very big downsides to this breakdown of the global order that was created after World War Two and the return of geopolitical competition and armed geopolitical competition in some places, it does have actually, and strangely, an upside. So the big challenge really for statesmen and stateswomen at the moment is to walk a kind of narrow path between keeping geopolitical competition going, but at the same time, not straying over into the territory of actual armed conflict between great powers, because that obviously will be a disaster of course. I mentioned a moment ago, the threat of nuclear war, because the problem is that we now live in a world with nuclear weapons, and great power conflict has the great risk of resulting in a nuclear war, which really would be the end of everything.

Chelsea Follett: What would you say have been the strongest objections or criticisms you’ve received to this theory on what causes modernity? And how would you answer them? 

Stephen Davies: Well, there are several objections, but they… You see, the objections come from different places. And therefore, they’re very, very different. One objection I get repeatedly is to the… Is people who push back against my argument that Europe is not particularly distinctive. I do get a lot of pushback from people who in other ways are sympathetic to my cause, who want to argue that there is something peculiar about Western Christian civilization. And that, therefore, it’s the distinctive features, cultural or religious or social of Western civilization, so called, which we need to conserve or which are responsible for the good things we like about modernity. And my argument is that that’s a fundamentally mistaken view of history. I don’t regard that as a particular… Although that’s the commonest objection I get, I don’t regard it as particularly persuasive, simply because I think the facts are overwhelmingly on my side. You simply cannot sustain, in my view, the argument that the things that people point to as reasons for Western civilizations being the first place to sustain an episode of intensive growth, are peculiar to it.

Stephen Davies: You find them all over the place. It’s just that they happen to have had the opportunity to work in the way they did for, as I say, contingent reasons. So I just don’t find that plausible. Another… A more sort of strong argument is the argument which is, in a way, I have to say for this one, well, there’s no way of telling whether it’s correct or not. Which is the effect that well, I haven’t actually explained why something permanent has happened. My argument actually could lead, I’ve been told, to the conclusion that we’re just living in the latest episode, like the ones that went before, and that we’re going to end the same… Have the same kind of fate as late Roman Empire, Ming China, post-Gupta India, and all the rest of them. We’re going to go back to the long run historical norm of a non-dynamic… Well, non-growing civilization, if you will, or a non-innovative civilization.

Stephen Davies: In other words, that limits will reassert themselves. Now, as I’ve said myself, actually, I concede the point, that may well be true. We have to hope and trust that we can find the innovations that we need to overcome difficulties which I think we are actually experiencing right now. I do think we can, because I think a lot of these difficulties are self-inflicted in various ways. Quite apart from the fact that I’m confident in the nature of the innovative process, so long as we can avoid the pit traps, and the pitfalls that might stop us doing that. So that’s one objection. And then another objection which I… You face, as I’ve have had made to me, is that well, this is actually not really a satisfactory explanation because the roots of modernity in the modern world are in the kind of things that other historians pointed to. Things like simply the growth in… Simply the growth in world population by itself, without any need for anything else. That’s a common notion.

Stephen Davies: Or that it’s due to a kind of selective breeding effect in Western civilization, which meant that for various reasons, there was a higher proportion of people with higher intellectual capacity, but also a greater propensity to behave less violently towards other human beings than in other parts of the world. So, I think that second one, by the way, is completely false. And I think that the empirical evidence again, does not support it. As to the argument this is due to exploitation, which is the common rejoinder to me, the argument that what I’m doing is glossing over a brutal reality, which is that the wealth of the modern world originates from an exploitative process. I think that this simply misunderstands. My response would be to say, not so much that this is wrong historically, because undoubtedly, there is a great deal of exploitation of quite brutal kind in the historical record.

Stephen Davies: It’s that that is not the source of wealth. You do not actually ultimately create growing wealth through the use of exploitative economic systems such as rent extraction from dependent conquered territories, imperialism in other words, or slavery or things of that sort. What that does actually is to enrich small minorities, but it doesn’t lead to a general increase in social wealth, social well being, social benefit. That’s the great argument, one of the great arguments against things like slavery as a key economic institution. It works really nicely for a small class of slave owners, but it doesn’t work well for creating wealth for society as a whole. So if the explanandum, the thing you’re trying to explain, is why we are on average 30 times richer than our ancestors were 200 years ago, an argument that this is ultimately driven by an exploitative power based relationship doesn’t stack up. Because when you look at the actual economics of it, what those kind of relationships lead to is a process of the great majority actually being the very best or better off and actually usually in most cases, significantly worse off and a small minority being the better off. And that’s not what we perceive, because what we perceive is that actually over the last 250 years, everyone has been… Become better off.

Stephen Davies: And although at the moment we’ve got a slight widening in income, some income gaps, in fact, globally, the great bulk of the gains have gone to the mass of the global population and not to an elite. It’s a misconception to think that the elite are small, the 1% as we commonly call them, are the ones who are reaping all the benefits. That’s to project what is currently going on in places like the United States onto the planet as a whole. And if you look at the world as a whole, that’s simply not true. So I think that that kind of rejoinder is simply mistaken in terms of its understanding of how economic growth happens or how social transformation happens. And it misunderstands the degree to which real social transformation and social amelioration, social improvement, not just economic, but more general, depends upon voluntary action and innovation driven by voluntary exchange and individual exploration and discovery rather than the use of power and exploitation. So there’s a fundamental era of sociology and economics going on there.

Chelsea Follett: Thank you, Steve. This has been fascinating. And the book again is The Wealth Explosion: The Nature and Origins of Modernity. Be sure to check it out.

Stephen Davies: Thank you very much.

Chelsea Follett: Thank you.

Chelsea Follett is the managing editor of HumanProgress.org and a policy analyst in the Cato Institute’s Center for Global Liberty and Prosperity.

Dr Steve Davies is a historian and the Head of Education at the IEA.


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