The idea that institutions play a central role in determining economic outcomes and performance, long reviled by economists, has been revived in the past decades and become something of a mantra among economists interested in long-term development. The literature has not quite agreed what is precisely meant by “institutions,” but clearly the definition includes the rules by which the economic game is played, and how they are enforced and obeyed. It has been realized that a central issue in economic performance is what protected property and enforced contracts, and that any agent who was placed in charge of justice and law enforcement needed to be constrained in critical ways to avoid a situation in which the state would be taken over by rent-seekers. Another insight of this literature is that some apparently inefficient past institutions that limited entry or protected privileges in one form or another, and which would have been detrimental in a world of well-functioning markets and perfect competition, may actually have been well suited to the highly imperfect world of pre-modern economies, where first-best arrangements were simply impossible. The interest in institutions has kindled a great deal of research into political power and arrangements, and how they affected the way resources were allocated and income was distributed. Especially the age-old matter of “who shall guard us from the guardians”—referred to as constraints on the executive—has captured the interest of economists. In addition, however, there has been a recognition that informal institutions, which have the nature of conventions, traditions, and habits and thus are as much in the realm of “culture” as in that of institutions, were of considerable significance in enabling economic exchange and making markets work, encouraging investment and innovation, and determining economic success. Institutional analysis has not confined itself to the state, governance, and power relations, although these are central components of the story; it has also examined so-called private-order institutions (Greif, 2005), in which arrangements emerged “from the bottom up.” Oddly enough, not much of this new literature has turned to the details of British economic development in the era before and during the Industrial Revolution, though a start has been made (Mokyr, 2008).
Indeed, the entire issue of whether Britain’s advantage in leading the Industrial Revolution was in its more efficient enforcement of property rights by the state needs to be revisited. What mattered for economic performance was a level of confidence that made it possible to transact with non-kin, and increasingly with people who were almost strangers. Market activity, and especially transactions at arm’s length, increased throughout the period of the Industrial Revolution at ever accelerating rates. This happened, oddly enough, in an age during which the costs of legal action went up, its availability and efficiency were declining, and as a result fewer and fewer people took recourse to the law. We might have expected the reverse: the growing integration of goods and factor markets in the British Isles would seem to make a formal, nation-wide system of law enforcement more necessary. What kept this system operating is one of the more perplexing questions in British economic history.
Adam Smith, in his Lectures on Jurisprudence, thought he had the answer: “Whenever commerce is introduced into any country, probity and punctuality always accompany it. These virtues in a rude and barbarous country are almost unknown. Of all the nations in Europe, the Dutch, the most commercial, are the most faithfull to their word … There is no natural reason why an Englishman or a Scotchman should not be as punctual in performing agreements as a Dutchman. It is far more reduceable to self interest, that general principle which regulates the actions of every man, and which leads men to act in a certain manner from views of advantage, and is as deeply implanted in an Englishman as a Dutchman. A dealer is afraid of losing his character, and is scrupulous in observing every engagement … Where people seldom deal with one another, we find that they are somewhat disposed to cheat, because they can gain more by a smart trick than they can lose by the injury which it does their character” ([1757], 1978, p. 327). In other words, the correlation between people cooperating and behaving honestly was driven by a causal mechanism running from prior commercialization to behavior, much like Montesquieu’s notion of doux commerce. Modern economists have restated this idea in considerable detail and taken it a step further by arguing that economic growth and not just commercialization led to moral improvement (Friedman, 2005, esp. ch. 2). McCloskey maintains that “modern economic growth has led to more, not less refinement for hundreds of millions who would otherwise have been poor and ignorant … participation in capitalist markets and bourgeois virtues have civilized the world” (2006, pp. 25–26). But it seems plausible that the causal arrow went equally in the other direction, that is, the pre-existence of certain social norms led to cooperative behavior and a voluntary willingness to forego opportunistic behavior that made transactions, even at arm’s length, possible. How did these norms affect economic outcomes? By supporting markets, they led to commercialization which brought about economic growth through gains from trade. Moreover, social norms were crucial in bringing about the Industrial Revolution. Cooperation through private-order institutions supported the progress of useful knowledge and advances of technology.
If formal law was a last resort in the enforcement of contracts and the protection of property rights, how did commerce function and what prevented transactions costs and opportunistic behavior from mushrooming to the point where attaining the levels of exchange and division of labor required for a sophisticated and productive economy became impossible? A different way of posing this question was expressed by the young French economist Jérôme-Adolphe Blanqui (1824, p. 326) who wondered when visiting London how a town twice the size of Paris (nearly a million people) could maintain order with just a handful of watchmen and constables. He seemed less than satisfied by the answer that the English go to bed and lock up their shops early, and was more inclined to believe that they were working harder and were more enlightened. The idea rather than the reality of the gentleman was central to the informal social norms that governed British society in this era. The French historian Hippolyte Taine, who stayed in London in 1858, summarized the concept of a gentleman as “the three syllables that summarize the history of English society” (Taine, [1872], 1958, p. 144). Asa Briggs (1959, p. 411) noted that a gentleman was someone who accepted the notion of progress but was always suspicious of the religion of gold.
Economists have come to the conclusion that social norms of cooperation and decency can prevail even in societies in which there is little or ineffective formal law enforcement. The prevalence of a social convention that defined “honorable” or “polite” behavior as a norm of respectability, and penalized serious deviations from it through irreparable damage to one’s reputation, could substitute for formal, third-party law enforcement. The great jurist William Blackstone famously referred to Britain as a “Polite and Commercial People.” Politeness was widely equated with law-abiding behavior, and it was intuitively sensed that commercial success depended a great deal on politeness. One way of seeing this is to stress that what made commerce and credit possible was that most people had absorbed and internalized a set of values that made them eschew opportunistic behavior that might have been personally advantageous but socially destructive. In other words, economic agents did not play necessarily “defect” in the famous prisoners’ dilemma game (even if that might have been in their immediate interest) and they expected others to do the same. People needed to send out costly signals that indicated to others that they were reliable and trustworthy because they belonged to a class of reliable and trustworthy agents (see, e.g., Posner, 2000). It was important that they be costly, so that they could be credible. Such signals were the good manners in dress and language, residential location (“a good address”), rules on home furnishing and transportation, and the etiquette and manners observed by the British upper classes, and their adoption by the commercial classes created a stylized ideal of gentlemanly capitalism that resulted in an environment in which bourgeois entrepreneurs could deal with one another and with their subordinates in a cooperative fashion that made commerce work (Sunderland, 2007, pp. 15–32). During the Industrial Revolution these norms spread to the manufacturing sector, such as engineering, the backbone of British technology. Early engineers insisted on “gentlemanly conduct” as a hallmark of trustworthiness, and the signals they sent out were costly indeed, including grand country homes (Marsden and Smith, 2005, p. 256).
This kind of behavior was observed and blessed by Enlightenment thinkers. John Locke, for instance, wrote in 1693 that a gentleman’s upbringing should instill in him a love of virtue and reputation, make him from within “a good, a vertuous, and able man” and endow him with “Habits woven into the very Principles of his Nature,” not because he feared retribution but because this defined his very character (Locke, [1693], 1732, pp. 46–47). The essence of the gentleman as Locke and his successors saw him “was to be his integrity” (Carter, 2002, p. 335). The ideal of gentleman was not static and changed over the course of the centuries. In the seventeenth century, Steven Shapin (1994) has stressed, the concept of a gentleman became associated with integrity and reliability. By the middle of the nineteenth century, the importance of honesty and cooperative behavior had become paramount. Samuel Smiles (1859) described what really mattered for the gentleman: “The true gentleman has a keen sense of honour, scrupulously avoiding mean actions. His standard of probity in word and action is high. He does not shuffle or prevaricate, dodge or skulk; but is honest, upright, and straightforward. His law is rectitude—action in right lines. When he says YES, it is a law … Above all, the gentleman is truthful. He feels that truth is the ‘summit of being,’ and the soul of rectitude in human affairs.” Paul Langford (2000, p. 126) observes that one of the British aristocracy’s prime characteristics was the belief in fair play and that a cheating lord was a traitor to his class. Coleman (1973, p. 98) adds that the concept of the English gentleman merged into a code of honor providing “a luxuriant undergrowth of unwritten and unspoken rules of behaviour.” In his view, justice, magnanimity, and generosity were hardly compatible with industrial capitalism. But the point is that if a person was perceived to be generous and honest, others would be more willing to deal with him or her, and this created the institutional soil in which economic progress could thrive. The relation between ideal and norm on the one hand and reality on the other was always problematic. The question is not whether the preponderance of British economic agents behaved like this, as much as whether such ideals affected their behavior (and the way others expected them to behave) enough to make a market economy feasible without the heavy hand of law enforcement.
Economic analysis has shed considerable light on the question of how economic agents can be made to behave in ways that allow commerce to exist despite the selfishness of individuals. What is necessary is that there is a general expectation that opportunistic behavior will be credibly penalized, and that this knowledge is shared and known to be so. That kind of set-up will produce a self-enforcing equilibrium within which more sophisticated economic organization is feasible. Punishment by a central law enforcer seems to be an obvious answer, but this yields hard questions on how commercial systems emerge in societies in which law enforcement is weak or non-existent. Britain in the age of Enlightenment was in an intermediate position, since it had a formal legal system, but one that would not have been up to the task if informal institutions had not been structured to encourage voluntary cooperative behavior. Because their social reputation was linked to business behavior, economic agents faced strong incentives to behave cooperatively and make a relatively smooth functioning of an exchange economy possible even in the absence (or at least high cost) of formal legal action. Linking market relations with non-exchange social interactions meant that individuals knew that opportunistic and non-gentlemanly actions would have severe social consequences. This awareness underpinned the market economy (Spagnolo, 1999). A striking example of such a linkage can again be found among Quakers, where a member of the Society of Friends (co-religionists) could be expelled from the Society if bankruptcy resulted from demonstrable misconduct (Hoppit, 1987, p. 31).
Politeness and manners were an important part of the mechanism through which the culture of gentility filtered down to the mercantile and artisanal classes as the upper middle class tried to imitate gentlemen. This permitted “people who lacked the traditional components of social class” to achieve it by adopting different behavioral codes (Langford, 2002, p. 312). It would be a gross simplification to link this kind of cultural change directly to economic development, but without understanding how property rights were increasingly respected and contracts honored (rather than enforced), we will miss something about the institutional roots of subsequent economic growth. The findings that the eighteenth century witnessed a sharp decline in civil litigation, that formally sealed documents were increasingly replaced by verbal informal contracts, and that violent crime fell (as far as we can establish) seem suggestive at least. It is hard to measure changes in “trust” in any direct way for the past, but it is significant that sealed and formal agreements, which were in widespread use in the seventeenth century, gave way by 1750 to verbal agreements and gentlemanly handshakes (Brooks, 1989, p. 393). The polite and honest conduct of business was a critical component of the way this economy worked. Merchants and manufacturers needed to signal to all other agents with whom they transacted that they observed certain cultural codes and respected values, so that their customers, suppliers, and employees could expect to be paid. If enough people behaved this way, a society could expect to have a successful exchange economy (Brewer, 1982, pp. 214–15). As the economy expanded after 1800, the efficiency of trust in preventing opportunistic behavior declined (Sunderland, 2007, p. 159).
While evidence for this view is inevitably anecdotal and even impressionistic, foreign commentators at the time felt that the English were different in this regard than other societies. The French traveler Pierre-Jean Grosley noted the “politeness, civility and officiousness” of citizens and shopkeepers “whether great or little” (Grosley, 1772, Vol. 1, pp. 89, 92). The eighteenth-century Italian writer and philosopher Alessandro Verri felt that London merchants were far more trustworthy than Paris ones (cited by Langford, 2000, p. 124). One French visitor to early nineteenth-century London noted the probité and good faith of British shopkeepers, and that a child could shop as confidently as the most street-wise market shopper. He thought that these habits had been copied by the merchant class from the Quakers (Nougaret, 1816, p. 12). Charles Dupin (1825, pp. xi–xii) went as far as to attribute Britain’s economic successes to the “wisdom, the economy and above all the probity” of its citizens. Reputation was critical. Prosper Mérimée, commenting on the open access policies in the British Museum Library in 1857, observed that “The English have the habit of showing the greatest confidence in everyone possessing character, that is, recommended by a gentleman … whoever obtains one is careful not to lose it, for he cannot regain it once lost” (1930, pp. 153–54). This reliance on informal rules and reputation was especially marked in the securities trade. In 1734 Barnard’s Act outlawed time bargains in securities (i.e., options) on the London Stock Exchange, and this segment of the securities market had to rely on an internally enforced code of conduct, based on reputation and the fear of being excluded from trade if violations occurred (Michie, 2001, p. 31). As a result, Barnard’s Act and similar legislation were not effective in curbing trade in these securities despite the difficulty in enforcing contracts in an activity that was extra-legal (Harrison, 2003).
Perhaps the most palpable effect of the presence of trust between members of the commercial class in Britain was the importance of credit. Early modern Britain, as Muldrew (1998) has stressed, like all commercial societies in which credit played a central role depended on trust and “credit became synonymous with reputation” (p. 149). Even if we have no really good quantitative measure of it, credit was omnipresent in eighteenth-century Britain. A writer in the 1750s noted that “without credit neither domestic nor foreign trade could be carried out … it so far superior to money that it enables a small dealer to have more concerns … than a worthless wretch who owns thousands… of the Trade of this Nation you may reckon at least two thirds is carried upon credit.” What made that credit possible, beyond any question, was “that credit or reputation that the Tradesman has acquired by his industry, integrity and other virtues and good qualities” (The Tradesman’s Director, 1756, p. 10). Local tradesmen and shopkeepers gave customers personal credit (“paying on tick”), farmers signed short-term bonds, landlords mortgaged property, and long-distance merchants signed bills of exchange (Hoppit, 1986a). Small debts could be settled through arbitration in small-claims courts known as Courts of Conscience (also known as Courts of Requests), which became increasingly popular after 1750 in settling debts without the burden of an expensive court case.
Credit depended on the majority of people behaving honorably and on this behavior being common knowledge. The Church, voluntary organizations and societies, and schools, all played an important role in making the bulk of middle-class society play by the rules and internalize the rules that made it possible to engage in cooperative behavior and thus supported markets. More than any third-party enforcement of contracts, the prevalence of gentlemanly behavioral codes as a social lubricant and a facilitator of trust and market exchange is remarkable in this age, as evidenced by the expansion of personal credit. If too many people had behaved opportunistically and defaulted or absconded, the institutions supporting the British economy would have collapsed. It is inconceivable that the formal law enforcement system in eighteenth-century Britain could have dealt with massive fraud. A hard question is whether this trust was based on reputation mechanisms, or whether the system of values had mostly internalized these value, so that people saw cooperative behavior as a norm and reputation mechanisms became secondary. Reputations, it seems, remained a significant motive. Defoe, as always an astute observer, noted that a shopkeeper may borrow at better terms than a prince “if he has the reputation of an honest man” (1738, Vol. 1, p. 361). For him, reputation was the key to economic success and he strongly recommended that tradesmen sell at reasonable prices, advertise, and even be careful with the reputation of one’s debtor, presumably because harming a reputation inflicted irreparable damage (Defoe, 1727, Vol. 2, p. 298). Adam Smith, in his analysis of markets that were formally weakly enforced or even outside the law, such as options trading and gambling, pointed out that even when there was no formal redress “yet all the great sums that are lost are punctually paid. Persons who game must keep their credit, else nobody will deal with them. It is quite the same in stockjobbing” ([1757], 1978, p. 458).
In many other ways informal moral codes determined the institutional environment of the British economy as much as formal legislation and created a set of private-order contract-enforcement institutions. Historians such as Lawrence Stone (1985) have argued that the social tensions and violence of the English world before 1650 gradually transformed into a kinder and gentler environment in which contentiousness declined. Other contemporary commentators felt that the changes came later. Francis Place, the radical politician and reformer, for instance, noted that “the progress made in refinement of manners and morals seems to have gone on simultaneously with the improvement in arts, manufactures and commerce … we are a much better people than we were [half a century ago], better instructed, more sincere and kind-hearted, less gross and brutal” (cited by George, 1966, p. 18). Such impressionistic evidence indicates perhaps little more than a growing gap between the middle class and the “dangerous classes,” the lumpenproletariat of menial workers, day-laborers, pedlars, beggars, and vagrants that remained a substantial part of the British population. The entire concept of cultural norms here was highly class-specific. Yet for those members of the middle-class whose activities propelled the economy forward, a sense of shared manners and codes was a substitute for formal laws.
These shared codes of behavior allowed the British middle and upper classes to overcome free rider problems that otherwise would have derailed many forms of collective action. The most palpable and easily observed forms of social capital in eighteenth-century Britain were clubs, societies, and lodges to which the members of these classes belonged. The late seventeenth century had witnessed the expansion of the coffee- and chocolate-houses, in which members of a new commercial and intellectual urban elite congregated (Cowan, 2005). The “associational society,” while not entirely new in the eighteenth century, expanded enormously after 1750. It was felt, especially in the closing decades of the century, that the state was failing to create order and stability in an increasingly volatile society and that citizens had to create their own public goods through collective action (Clark, 2000, pp. 94–96; see also Sunderland, 2007, pp. 50–84). Eighteenth-century middle-class Britons did not bowl alone. They participated voluntarily in a bewildering variety of voluntary organizations, forming networks that provided support for credit markets, mutual insurance, and the pooling of artisanal knowledge. Some of these societies were artistic and scientific in nature, some were musical or sporting clubs, or professional associations. Some of them were patriotic, such as the anti-French associations that sprung up in the 1740s. Philanthropy was a major focus of voluntary action for the public good. Activity in charities was a good opportunity to network and signal good citizenship (Sunderland, 2007, p. 70). Another important component of the associational society were the old urban guilds such as the London livery companies, which in the mid-century had lost most of their regulatory functions but more and more reinvented themselves as social clubs and political associations, often involved in radical reform movements (Berlin, 2008, p. 339). The religious revival of these decades also contributed to the growth of “social capital,” but so did concerns about education, leading for instance to the establishment (in 1785) of the National Sunday School Society, which promoted local schools and distributed textbooks. Many others were little more than eating and drinking clubs. But even those fulfilled an important function through gossip and networking, by spreading information about individuals and thus buttressing reputation mechanisms.
Social networks of this kind were essential if markets were to exist and contracts to be honored. They reflected and reinforced the underlying culture of respectable and “polite” conduct. British Masonic lodges and friendly societies provided mutual insurance and widows’ pensions, but they also cemented commercial relations. Many societies that brought together artisans from different trades introduced the rule that only one person per occupation could be a member with the understanding that fellow members would have priority in any commercial transaction, thus mixing commercial business-to-business relations with social connections (Brewer, 1982, p. 222). The societies performed the linkage that Spagnolo’s model points to: opportunistic and un-gentlemanlike behavior was penalized by the loss of both economic relationships and social connections. Of course, the associational society included far more than those organizations. Membership of friendly societies alone in 1800 was estimated at 704,000, with no fewer than 9,672 societies (Clark, 2000, p. 350). These societies included mostly skilled workers and some working-class members, provided death benefits to widows, paid for funerals, and provided relief to sick and aged members.
To be sure, for the economy to function properly, some level of formal law and order was essential. Formal institutions supported the informal rules by imposing penalties on hard-core “deviants” who would jeopardize the system through opportunistic behavior. The penalties for reneging on contracts were severe. As Brooks has pointed out, behind every credit transaction stood the threat of potential debtors’ prison, which must have filled the hearts of potential defaulters with fear (Brooks, 1989, p. 395). The harshness with which losers were dealt with and the costs of litigation made disputes likely to be settled out of court. Daniel Defoe (1727, Vol. 2, p. 297) summarized his advice to “tradesmen” as follows: “go to law with no body tho for your just due if it may be obtained without it … try all the methods of Gentleness and Patience before you proceed to Rigour and Prosecution.” The (small claims) Courts of Conscience, significantly, were highly unpopular among working people who objected to the way they dealt with tallies run up in alehouses—a tell-tale sign that they were effective. During the eighteenth century the local powers of the Justices of the Peace increased significantly, by such legislation as the County Rates Act (1738) which gave JPs extensive powers of local taxation. The quarter sessions (courts located between the magistrate’s and the assize courts) became increasingly concerned with roads, prisons, and minor infringements of the law such as public drunkenness and poaching in addition to indictable but not capital offenses.
The exact nature of the institutional foundations of law and order in eighteenth-century Britain is a topic on which there is still quite a lot of controversy (Hay et al., 1976; Langbein, 1983a). Large parts of Britain were “virtual lawless zones,” whereas in others the actual practice deviated considerably from the letter of the law, as it was executed by amateurs and often people with a very different concept of what was legal and just (Brewer and Styles, 1980, p. 13). What counted, however, was an ideology—idealized if not fictional—that at least in principle this was a society of laws that constrained everyone at some level, and in which people of authority were held accountable. As Brewer and Styles point out, authority derived its legitimacy from the rule of law, and hence “authorities chose to limit themselves in order to acquire greater effectiveness; they traded unmediated power for legitimacy” (ibid., p. 14). This view of British governance has also found wide acceptance among economists (Acemoglu, Johnson, and Robinson, 2005a). An increasing number of people were bargaining “in the shadow of the law,” that is, the parties in disputes knew what the stakes were and the (substantial) loss they would incur if the case went to trial. Yet the law itself set guidelines for dividing up the resources in dispute, and thus made the bargaining process more likely to result in cooperation, since knowledge of the law, as well as the costs of going to trial, was common to both sides. The cost and uncertainty of litigation discouraged people from going to trial and encouraged them to compromise or seek arbitration.
It is clear, all the same, that this system could not have functioned without a culture in which the crucial economic actors—merchants, craftsmen, bankers, farmers, professionals—were bound by moral codes or concerns about their reputation. The legal foundations for third-party enforcement were in place, but the administrative tools were not. JPs were unpaid, and were selected from persons of means (from 1732 they had to have an estate paying £100 a year). Many of these JPs were accused of being corrupt and incompetent, as Smollett’s fictional Justice Gobble (in Launcelot Greaves, published in 1762) attests. Above all, what they did, when they were not feathering their own or their cronies’ nests, was to protect the interests of the propertied class. Moreover, there were not enough of them. One of the more troublesome aspects of the enforcement of laws on a daily basis in eighteenth-century Britain was the shortage of JPs willing or able to carry out their functions. There were too many rules, regulations, and restrictions on the books, far more than local government run by overworked or incapable local authorities could or wanted to enforce. As early as 1699, Davenant, in a variation on a statement cited earlier, noted that “laws relating to the poor, the highways, assizes, and other civil economy and good order in the State, those are but slenderly regarded” ([1699], 1771, Vol. 2, p. 206). In 1754, the Lord Chief Justice was induced to resurrect an antiquated practice of indicting JPs who did not carry out their function; in urban areas, especially the rapidly industrializing ones, things were worse (Langford, 1991, pp. 391, 438). The entire system depended on the willingness of members of the local landed gentry to serve without pay, out of civic duty. In the rapidly growing industrial areas after the 1780s, such men were getting scarce. In 1792, the first stipendiary magistrates were set up in London, with a few professional constables under their authority. It was the beginning of a new age of justice administration, but outside London it was slow in coming. As in so many other areas, Britain in this age showed the institutional agility to change in response to changes in the economic and social environment, but it did so slowly and deliberately.
Secure property rights are central to the proper functioning of a sophisticated economy, but in eighteenth-century Britain the prosecution of crime was largely farmed out to the private sector. It has been estimated that over 80 percent of all prosecutions were carried out by the victims of the crime (Emsley, 2005, p. 183). There was no professional police force or constabulary. Instead, daily law enforcement was in the hands of gentleman-amateurs and part-time local parish constables. For the rest, justice had to rely on volunteers, local informers, vigilante groups, and private associations specializing in prosecutions of felons. Some 450 such organizations were established in England between 1744 and 1856. London developed its constables after John Fielding was appointed magistrate at Bow Street in 1748, and his professional assistants or thieftakers became known as “Bow Street Runners.” London, precisely because it was large and complex, was in need of third-party enforcement. Colquhoun (1797) criticized law enforcement in London, and in addition to warning against assorted street hustlers and “idle and dissolute characters,” pointed to the real dangers of white collar crime. “In a commercial country and a great metropolis,” he opined, “from the vast extent of its trade and manufactures … the danger is not to be conceived from the allurements which are thus held out to young men in business, having the command of money” (p. xxi). It was not until after 1830 that anything remotely resembling a professional police force started to emerge in Britain’s large cities, and as late as 1853 half the counties in Britain were still without police.
The argument that economic development in Britain in the age of the Industrial Revolution was the result of “the rule of law,” that is, well-defined and well-enforced property rights through third party (i.e. the state) enforcement, is a gross oversimplification. It was more important, as Rodrik et al. (2004, p. 157) note, to signal credibly that property rights would be protected than to enact them into formal law. Such signals did not have to go through the state. Law enforcement at this time was still in large part a private enterprise with the courts at best serving as an enforcer of the very last resort. The Hobbesian view that insisted that order can only be achieved through firm third-party enforcement may well be true for many societies, but it appears that for Britain in the century following Hobbes’ death (1679) it was becoming an increasingly less apt description of social reality. What this means is that we cannot really place the efficiency of the state at the center of the stage of institutional explanations of the British economic miracle.
In the decades after Waterloo, however, much law enforcement was transferred back from the private to the public sector. The institutions that were suitable for the economy of 1750 were no longer appropriate in 1830. With the growth of the economy, urbanization, the rise in mobility, and the expansion of markets, the institutions that had supported the eighteenth-century economy were self-undermining and needed to be supplemented and eventually replaced. As Philips (1993, p. 159) has noted, in 1780 Britain was still policed by parish constables and uncoordinated local ad hoc agencies, whereas by 1856 the County and Borough Police Act made a professional police force mandatory for all of England and Wales (earlier laws had established the same for Scotland). It is clearly not the case that property rights enforcement cannot be left altogether to the private sector in any economy if a culture of trust and cooperation is strong. But the responsibility for law enforcement shifted between 1780 and 1850 from the private to the public sector. As the economy became larger, more urbanized, and more anonymous, reputation mechanisms were losing their effectiveness.
One original way to think about the problem proposed recently is to realize that property can be protected in two alternative ways. One is for the class of property owners to build a metaphorical wall around themselves (by purchasing guns and locks, hiring private security guards and so on). The other is to build a wall around the criminals by hiring police to arrest them, courts to judge them, and ships to sail them to penal colonies, or prison guards to lock them up. In the latter system, externalities are more prominent, because once a thief is removed from society all his potential victims have less to fear. Even when the wall-in-the-perp system is more efficient economically, to achieve it voluntarily through the private sector is difficult because of these externalities and the free rider problem. While every society adopts a combination of the two systems, the weights of the components differ over time and across countries. Britain in the period under discussion here shifted from a predominantly wall-in-the-property system to one of primarily wall-in-the-thief (Allen and Barzel, 2007, p. 15). The view that this happened because the latter system was more suitable to a more sophisticated and urbanized economy seems plausible, but is hard to demonstrate. What is clear is that a society that wants to make this transition must “nationalize” the criminal justice system so that the positive externalities accruing to property-owners from imprisoning thiefs are internalized. This is, in rough form, what happened. Yet any suggestion that this change was some kind of orderly march toward a more “modern” form of law enforcement would be far off the mark. Private law enforcement remained of substantial importance until well into the nineteenth century, as in the establishment of many local Associations for the Prosecution of Felons, in which property owners paid a fee to establish private security forces (Philips, 1993, p. 161).
The criminal justice system was on the whole a measure of last resort. In the British economy of the age of Enlightenment informal institutions and social norms favoring cooperative behavior worked, and worked well enough. Had moral codes been less widely respected and cultural beliefs been less cooperative, the worlds of credit and commerce would have disintegrated rapidly. Informal codes of behavior and formal third-party enforcement through the courts should not be regarded as substitutes but as complements. The self-enforcing nature of contracts and the maintenance of the economic order was reflected in the concepts of bankruptcy and insolvency. In extremis creditors were protected by the option to jail insolvent debtors, but obviously that draconian measure was effective primarily through deterrence rather than actual punishment. Debtors’ jail was used only for flagrant cases. Recalcitrant insolvent debtors (defined as those who owed more than 40s., and who could not or would not be declared bankrupt) who refused to pay their debt could be confined to debtors’ jail under the assumption that they were able to pay but refused. While languishing in prison, however, the likelihood that the insolvent debtor would make payments was not high. Bankruptcy proceedings became an attractive alternative. Under the Lord’s Act of 1759, Parliament allowed creditors to demand that bankrupt debtors prepare a list of their assets under oath, and they would be released when they did. The bankruptcy laws thus increasingly protected debtors from debtors’ jail. Parliament repeatedly passed legislation clearing the crowded jails. The panic of 1825 was followed by the issuance of 101,000 writs for the arrest of debtors, but by the end of 1829 there were only 1,545 prisoners for debt in London (Ford, 1926, p. 28). Clearly, Parliament had realized that insolvent debtors could not be made to pay their debts by being put in jail (Cohen, 1982, p. 159). Debtors’ prison was necessary to restrain the small minority of economic agents who played “defect”, that is, behaved opportunistically and unscrupulously in a world that was based on trust and reputations for fair dealings. The system made opportunistic behavior more costly and unattractive. Of course, at times it misfired, but on the whole British commerce, credit, and industry operated in a favorable institutional environment.
Some contracts were abrogated because of an unexpected event beyond either one of the parties’ control. Others reflected bad faith or default by one of the parties. The difficulty was to tell one from the other. On the whole, Britain’s bankruptcy laws, originating in 1542 but reformulated in the 1706 Bankruptcy Act, recognized that some debtors could not pay because of events beyond their control, and that punishing such people would have neither a deterrence nor a signaling value. Originally, the intent had to be the reverse: the preamble to the 1706 Bankruptcy Act states that bankruptcy was caused not so much by unavoidable misfortunes as by an “intent to defraud and hinder creditors of their just debts” (4 & 5 Anne, c. 17, cited by Cohen, 1982, p. 157). The creditors had the option to initiate the bankruptcy proceedings or have the debtor declared insolvent and then initiate steps to have him confined to debtors’ prison. Yet regardless of the intention, the eighteenth-century evolution of bankruptcy law increasingly benefited debtors. Bankruptcy discharged existing liabilities and thus gave the agent another fresh start—implicitly conceding that it was indeed misfortune and not intention that caused the insolvency. The obvious support for this position is that the law explicitly allowed the bankruptcy option only for “traders,” though legal scholars differed on the exact definition of a trader. Yet Blackstone and other jurists felt that insolvent traders were far more likely to be so for reasons of bad luck than for fraudulence. Blackstone noted that the law of bankrupts took into consideration “the sudden and unavoidable accidents to which men in trade are liable” and gave them back their liberty upon condition that they give up their whole estate to be divided among their creditors. At the same time, bankruptcy was a powerful signal, as a writer in 1780 noted, a stigma that was “fixed perhaps forever, a stain or tarnish that may never be wiped off” (cited by Hoppit, 1987, p. 27). In this sense, the eighteenth-century British economy was still “traditional” in that such signals were personal. Society was sufficiently networked that bankrupt businessmen would be handicapped for the rest of their career. Such a penalty alone would be a powerful incentive for most people to meet their contractual obligations and refrain from opportunistic behavior. In that sense the formal institutions of this economy (bankruptcy proceedings) supported the social norms that created a self-enforcing equilibrium in which reliance on legal mechanisms was a last resort. Bankruptcies remained unusual events. Even in the turbulent decade of the 1790s, the annual rate of bankruptcy was one in 203 firms; in the more quiet decade of 1756–65, the rate was one in 605 businesses (Hoppit, 1987, p. 51).
The harshness of the penalty meted out to those who were regarded as fraudulent reflects the assumption that the vast majority of economic agents involved in market transactions were honest, and hence they were increasingly given the option to declare bankruptcy and have their debts eliminated. From that point of view, at least, large sections of the British economy had limited liability even if they were not joint-stock entities. The formal institutional structure and cultural norms thus reinforced one another in creating an environment in which economic activity could take place with a minimum reliance on formal legal means.
The enforcement of property rights through private-order institutions reflects something deep and supremely important about British institutions in the eighteenth century. The culture of respectability and gentility helped solve the standard collective action problems that bedevil the production of public goods. The emergence of a plethora of networks, clubs, friendly societies, academies, and associations created a civil society, in which the private provision of public goods became a reality and created what might be called a civil economy. What was true for property right enforcement was true for other projects, for which elsewhere in Europe the state had to play a major role. Roads, harbors, bridges, lighthouses, river navigation improvements, drainage works, and canals were initiated through private subscriptions. In some cases, of course, there was the hope of making a profit, but commonly the entrepreneurs were motivated by the desire to improve local trade and employment. Voluntary associations founded hospitals, schools, orphanages, prosecution societies, and charitable relief committees, as well as turnpike and canal trusts. Amateurs provided local administration and justice. In Scotland, rich landowners sponsored a Board of Trustees for Improving Fisheries and Manufactures (established in 1727) as well as the British Linen Company, which was a pioneering investment bank (Whatley, 1997, p. 54). The infirmaries (hospitals) represented an amalgam of philanthropic elements and more formal institutions such as the Poor Law system. Charitable organizations were of course popular, in part because the Poor Law was inadequate in many areas. The example of Thomas Coram, described eloquently by Colley (1992, pp. 56–60), is illustrative: a successful merchant, he became a leading philanthropist particularly concerned with foundlings and orphans, and established a famous foundling hospital in London in 1741. The Marine Society, established by Jonas Hanway in 1756, similarly was a project run by merchants. The belief that an improvement in the condition of the poor required knowledge of social conditions necessitated the collection of information and data about social conditions, and this knowledge, too, became a central tenet of the later Enlightenment. A typical institution was the Society for Bettering the Condition of the Poor, founded in 1797. Its founder wrote, “let us make the inquiry into all that concerns the poor and the promotion of their happiness into a science” (cited by George, 1966, p. 25). These philanthropic projects were voluntary and patterned after a commercial organizations, replete with a board of directors. Elsewhere they were usually carried out by formal bodies such as the state or the Catholic Church; in Britain they were usually private. Middle-class people participated in and subscribed to these projects to make sure they signaled to others that they were good citizens and thus trustworthy.
The way British society overcame the paradoxes of collective action in the eighteenth century, then, was first and foremost through reputation mechanisms. People wanted to do good, because they wanted to be seen as good, and that was to their advantage. This was particularly true in the new industrial urban areas, where the old Poor Law was less effective. Collective action to palliate the effects of economic crises were especially necessary and effective in the new industrial cities. Middle-class people wanted to take part in a community of socially minded individuals (Lewis, 2001, pp. 250–55). Many of these organizations were subsequently confirmed by statutory authority acts, but they were initiated and managed by the spontaneous organization of private individuals, who banded together voluntarily to accomplish a common goal. These organizations formed a substitute for a more powerful and aggressive central government and they go some way toward explaining how an economy with a weak state was so successful in transforming its economy faster and more smoothly than its rivals in Europe. Voluntary organizations also provided some measure of quality control in those products and services where consumers might be most at the mercy of sellers because of differences in information. An example was the “Law Society” (founded in 1740), which monitored the quality of practicing attorneys and maintained standards of honesty and transparency. Most of the professions followed a path of self-organization and self-regulation through private-order institutions, eventually sanctioned by official imprimatur. Such associations could have degenerated into rent-seeking organizations through exclusion mechanisms, but before 1850 they rarely used their influence to generate barriers to entry.
The impact of voluntary collective action should perhaps not be overstated. A large number of these organizations did not get close to achieving their stated goals. They competed fiercely with one another for membership, and often were riven by internal struggles. Their impact was “muffled and limited … as a rule associational action was not effective action” (Clark, 2000, pp. 467–68). As urbanization, industrialization, and mobility increased after 1825, it became more and more difficult to overcome free rider problems, adverse selection, and other difficulties that bedevil associational activities. While they had some undeniable achievements early on, nineteenth-century Britain had increasingly to cope with the fact that for many public goods there simply was no substitute for a coercive coordinating agent, i.e., government. Judges and law enforcement agencies eventually had to be placed on a professional basis. What is certain, however, is that these associations increased the overall level of social networking, thus reducing access costs not only to useful knowledge, but also to information about other agents, and thus enforcing reputation mechanisms that supported social norms of respectable behavior in the economic sphere.
Entrepreneurship depended on the structure of institutions. Modern economists stress that for economic dynamism to have salutary effects on the economy, there has to be a system that creates order, that prevents opportunism from becoming so widespread and so deep that it deadens commerce and credit and extinguishes incentives. Yet Britain’s law enforcement system was hardly responsible for creating the secure environment in which merchants, financiers and innovators could interact to produce economic progress. Instead, informal norms and codes of behavior, to which the middle class adhered, must be seen as crucial in this regard. The British entrepreneur thought of himself, in an ethical sense, as what we would call a gentleman. Ironically, this notion of a gentleman is closer to what McCloskey (2006) calls “bourgeois virtues” than the original leisurely landed squire. The idea of gentlemanly capitalism was emphasized by Cain and Hopkins: “gentlemanly ideals … provided a shared code, based on honor and obligation, which acted as a blueprint for conduct in occupations whose primary function was to manage men rather than machines” (1993, p. 26). That definition, however, neglects the point that the typical entrepreneur during the Industrial Revolution had to be concerned with both men and machines, managing the men who ran the machines.
For a long time it used to be believed that the mixture of gentility and capitalism was an obstacle to economic growth. An artificial dualism was dreamed up between “commercial capitalism” and “industrial capitalism,” the former acceptable and sufficiently similar in lifestyle and attitudes to the landowners to be entirely separable from the grim and grimy environment of the factories and the mines associated with the latter. As Daunton summarized the traditional argument, “the more an occupation or a source of income allowed for a life style which was similar to that of the landed classes, the higher the prestige it carried and the greater the power it conferred. The gentleman-capitalist supposedly did not despise the market economy, but he did hold production in low regard and avoided full-time work” (1989, p. 128). Coleman (1973) stressed the deep divide between gentlemen and “players” (that is, practical men). That businessmen who had made money desired to be regarded as members of the leisured landed class and that there was snobbism against the newcomers does not weaken the argument that the captains of industry and commerce copied some of their social codes from the elite, and in so doing shaped the face of British industrial capitalism as a basically honorable occupation, in which men kept their word, paid their debts, and kept up a pretense of mutual respect.
The contradiction is resolved once we keep in mind that the actual gentlemen of the time, many of whom may indeed have been idle and useless drones, were as different from the social ideal of an honest and reliable person as medieval sword-wielding thugs were from the ideal of chivalry. The norms and codes for gentlemanly behavior were a matter of education, of course, and they correlated with certain forms of etiquette such as clothing, accent, and more generally politeness. What mattered for the development of the economy was that people behaved honorably, kept their word, and did not renege on promises. The code of honor of gentility and respectability involved certain family and social obligations (the ability to support one’s dependants and to keep one’s promises). In other words, gentlemanly capitalism can be seen as a way in which opportunistic behavior was made so taboo that in only a few cases was it necessary to use the formal institutions to punish deviants. This made it possible to trade with strangers, deal with people with whom there might not be repeated transactions at arm’s length, without trying to take short-term advantage of the situation. Gentlemanly enterprise, argue Cain and Hopkins, was strongly personal and held together by a social network (1993, p. 36). It was a set of relations that involved horizontal connections, with one’s peers, suppliers, partners, customers, and creditors. It was not extended to persons who were demonstrably of a lower class, such as one’s servants or employees. It was, as Davidoff (1995) has noted, heavily gendered—much like chivalry.
What mattered for the success of entrepreneurship in Britain was that if everyone could think of themselves as noblesse, everyone was, at least pro forma, obligé by a gentlemanly code of behavior. The typical entrepreneur in the Industrial Revolution was hardly the ferocious, unscrupulous, merciless money-grabber that some of the more sentimental accounts make him out to be. It was far more important “to be known and trusted in the locality” and to have “standing in the community” in addition to some form of property (Hudson, 1986, p. 262). Coleman’s (1973) failure to find any common ground between gentlemanly ideals and the “ruthless, driving, dynamic tycoon” he associated with Schumpeter, is due to the fact that he employs a caricature of what successful entrepreneurs did. A measure of cooperation and trust was more of a key to the success of an entrepreneurial class than pure individual selfish maximization. The importance of trust to economic growth is now generally acknowledged. Knack and Keefer (1997), for instance, argue that “low trust can also discourage innovation. If entrepreneurs must devote more time to monitoring possible malfeasance by partners, employees, and suppliers, they have less time to devote to innovation in new products or processes” (pp. 1252–53). They find that high levels of trust are indeed associated with better economic performance. While it is of course impossible to find retroactive measures of trust like the modern data from the world value surveys, indirect measures seem to suggest that members of the class of “gentleman-capitalists” could, indeed, trust each other more than people who did not belong to this class.
As noted, trust required focal points and costly signaling. Dress, housing location, the inside of the home, modes of transportation, membership in societies and clubs, and the labor force status of women were crucial to the middle-class existence because they indicated their social position. Accent and mode of speech were more problematic, and hence the proper education of children to make sure no doubts could exist about their social position was imperative (Lewis, 2001, ch. 11). The ideas associated with gentility served this purpose. It is hard to know with any precision when the transformation of the idea of a gentleman of leisure, whose integrity was at best supported by his disinterestedness, to a person of integrity who could be trusted in business dealings took place. McCloskey (2006, pp. 294–96) traces the transformation of the word “honor” from its aristocratic sense (“reputation”) to its more capitalist sense of “honesty” (reliability, truth-telling) and “politeness” (“doing the right thing”) to a time when the importance of these concepts began to increase in the early eighteenth century, and discovers that the same change occurred in the Dutch language. A very similar point is made by Norbert Elias (1978, pp. 102–04) in relation to the terms “civilized” and “courteous.” From terms associated with courts, they became terms denoting socially acceptable behavior and by 1694 courtoisie had become a “bourgeois concept.” In short, gentlemanly enterprise was an informal institution, part of Elias’ “civilizing process” but one that had important economic ramifications. It supported the increasingly integrated and soon-to-be national market in Britain. That market did not create the Industrial Revolution by itself, but it was an essential complement to it.
The typical entrepreneur in the eighteenth and early nineteenth centuries was thus far from being the solitary single-minded do-it-all genius who knew markets, technology, accounting, and labor management. A few such entrepreneurs may have existed, but they were far from the rule. The entrepreneur normally represented one side of the business (either technical or managerial) and had the ability to cooperate with others who represented a different comparative advantage. The most striking manifestation of the growth of social norms in which businessmen found people they could trust is the growth of partnerships; although partnerships had existed before 1700, they became more common after the middle of the eighteenth century (Smail, 1994, p. 75). Such cooperation often took the form of partnerships or even market transactions at arm’s length even if a personal element was rarely missing altogether. In other cases it involved hiring a technical expert, a manager, an overseeing engineer, who could be trusted. Pollard (1965) has shown that the finding of such personnel was an important skill in itself and often a test of successful entrepreneurship. Some such employees eventually became successful entrepreneurs, Robert Owen being the best-known example. Entrepreneurship and hardware were complementary inputs, and a country such as Britain that was good at producing hardware (and the people who could use it) also provided unique opportunities to those who could take advantage of them. The partnering of individuals with technical skill with those with commercial acumen illustrates the great advantage that Britain enjoyed in this dimension: the complementarity of human capital and favorable institutions. Boulton found his Watt, Clegg his Murdoch, Marshall his Murray, Muspratt his Gamble, and Cooke his Wheatstone. Entrepreneurial success was based less on multi-talented geniuses than on successful cooperation between individuals who had good reason to think they could trust one another. Even at that level, the classical principles of division of labor and comparative advantage held.
Pearson and Richardson (2001) and Sunderland (2007, pp. 176–78) have argued that the entrepreneur in the Industrial Revolution was heavily diversified. Rather than a sharply focused owner-manager who spent his entire life on the one business he built, the typical entrepreneur of the age of the Industrial Revolution diversified into non-core ventures. Cotton masters and other textile producers in Manchester, Leeds, and Liverpool could be found as directors of insurance companies, canal and turnpike companies, gas companies, banks, and other sectors. Country banks were the diversifying instrument par excellence: many bankers were diversified in a variety of business, and so were their partners. Profits made in shipbuilding and banking were invested in breweries (Mathias, 1979, p. 240). Abraham Darby III invested not only in turnpike trusts but also in the large hotel built to face his great iron bridge in Coalbrookdale. The woolen manufacturer Edward Pease became George Stephenson’s partner and a major entrepreneurial force in the early railroad enterprises. Innkeepers and victuallers in the west Midlands were often joint owners in metal working enterprises (Berg and Hudson, 1992, p. 32). Such diversifying behavior made sense in the highly risky environment of British business, but it is indicative of the capability of the shared codes of conduct to bring together people who might come from very different backgrounds. One could invest in a branch of business one knew little about, because the people one dealt with were expected to behave like gentlemen and therefore could be trusted. The entrepreneur-gentleman networked with people who trusted him on the basis of these social norms, helped develop local infrastructures, and signaled his trustworthiness by seemingly eschewing greed, by contributing to charitable works, by cultural patronage, and voluntary subscriptions (Pearson and Richardson, 2001, p. 672). Many of them displayed generosity that reveals long-term planning and willingness to cooperate. The Leeds flax spinner John Marshall repeatedly bailed out and supported the engineering firms which made and maintained his machinery (Cookson, 1997, p. 7). Even hard-nosed businessmen like Boulton and Watt felt the need to be reconstructed as generous gentlemen and public-spirited philosophers, and persuaded Watt’s friend, the scientist John Robison, to present them as gentlemen who exhibited openness and generosity of spirit (Miller, 1999, p. 197). Watt’s qualities were not supposed to be those of the avaricious entrepreneur, looking only to how he might profit. Trust and cooperation made diversification possible. It was particularly pronounced among Quakers, whose religion was a strong signal of trustworthiness. The Gibbins bank, for example, was a Quaker enterprise started by Welsh copper manufacturers. By not appearing too greedy, these businessmen signaled their membership in a community of cooperators who could be trusted.
What made this trust possible were social networks such as permanent members of taverns, coffee-houses, and inns, friendly societies, religious communities, Masonic lodges, and similar organizations in which businessmen and craftsmen got together and exchanged information and gossip. In eighteenth-century Britain, to be a gentleman one had to be sociable, to be part of a community. Urban society created special organizations that made polite society function, such as coffee-houses, philanthropic organizations, and intellectual societies. The social interaction that took place in these organizations was the core of civil society and its rules guided the actions of those who could claim to be “gentlemen” (Cowan, 2005, p. 101). Enlightenment writers urged sociability because this was their hope of creating a lasting moral order (Porter, 1981, p.15). What has not been fully realized is that such a moral order involved a culture of cooperation and responsibility. Any member of this Gemeinschaft who contemplated opportunistic behavior would know that such behavior, if revealed, would become public knowledge and that his reputation would be irreparably harmed. The point is that well-functioning institutions do not require people to be “moral” or altruistic; instead self-interested individuals behave cooperatively because they have adequate reason to believe that most others with whom they will come in contact will do the same.
Informal institutions, in other words, allowed society to operate far more efficiently than it would if every player had played pure Nash strategies, that is to say, displayed selfish and uncooperative behavior. That the country was not altogether devoid of Uriah Heep types is of course quite obvious, but as long as opportunistic behavior remained a minority phenomenon and was dealt with mercilessly, the cultural norms of cooperation could prevail. The British entrepreneur, far from being a ruthless egotist, was very much part of a shared value system that economists have only recently come to appreciate. The typical entrepreneur did his best to come across as trustworthy. Gentlemen, ideally, were men without occupation and presumably generous and not driven by greed. A new concept of “gentleman” arose, someone who did not behave opportunistically and could be trusted. The importance of these norms has not been fully appreciated in the history of development of the British economy.
It needs to be stressed, however, that what emerged in this economy in the eighteenth century was a mixed system in which competition and cooperation worked together, odd as it may sound. While entrepreneurs were operating in markets that were highly competitive, they still observed certain constraints in their competitive behavior. Driven by a mixture of concerns about their reputation and internalized values, they displayed a high level of “honor” and class solidarity, defined as sufficient trust in one another for pairwise cooperative behavior to be expected and maintained, and an external collective good (commercial prosperity) to be produced (Posner, 2000, p. 34).
Furthermore, the culture of gentlemen-entrepreneurs depended to a large degree on the desire for social acceptability. Apart from material advance, the hope for social promotion in itself contributed to economic success by providing the right kinds of incentive to would-be entrepreneurs. These incentives included more than just material goods. Harold Perkin (1969) pointed out that from the Restoration on, the principle upon which society was established was the link between wealth and status. Here status meant not only political influence and indirect control over the lives of one’s neighbors, but also the houses to which one was invited, the partners eligible for one’s children to marry, the rank one could attain (that is, purchase) in the army, where one lived, and how one’s children were educated. In Perkin’s view, the quality of life was determined not just by “consumption,” as usually defined by economists, but by the relative standing of the individual in the social hierarchy. Whether this social relativity hypothesis is still a good description of today’s society is an open question, but a case can be made, as Perkin does, that it is an apt description of Britain in the eighteenth century. The successful pursuit of riches, thus, meant not only enhanced material comforts, but elevated social status. Such hopes were essential to the sustained supply of talented, industrious, gutsy young men who would take up pursuits that enriched the nation, if not all entrepreneurs. It also helped determine the social norms of business. If the purpose of financial success was to eventually become a gentleman, one should start by behaving like one.
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Culture has been identified by economists primarily as social relations: can people trust one another and thus behave in a cooperative fashion? Yet technology and useful knowledge relate in large part to beliefs about nature and the willingness to manipulate it. Max Weber and more recently Lynn White and David Landes have given equal weight to cultural attitudes that help determine the ability of society to generate the kinds of innovation that spur economic growth. Religion was of course central in an age in which almost everyone was still quite pious in one form or another, and the British Enlightenment more than anywhere else was comfortable with its approach to religion and found no difficulty reconciling it with the principles of the Industrial Enlightenment. In Britain, the question whether advances in science and technology constitute an irreverent encroachment upon realms previously reserved for a deity or whether they illustrate the wisdom of the creator and thus please him was answered resoundingly in favor of the latter. Eighteenth-century Christianity in Britain clearly had abandoned most qualms about perturbing nature and thereby incurring divine wrath. Between Bacon and Newton, the message was clear. Nature made sense, it could be understood, so it could be mastered for the material benefit of mankind. Moreover, it was realized that religion was itself an important contributor to the culture of cooperation and gentlemanly behavior. David Hume’s character Cleanthes may have spoken for the spirit of this culture when he suggested that “the proper office of religion is to regulate the heart of men, humanize their conduct, infuse the spirit of temperance, order, and obedience” (Hume, 1773, p. 244).
Culture may have affected technological progress in other ways. I have suggested two examples of such attitudes that have little to do with religion and that may help explain the economic successes of the Western world (Mokyr, 1990a). One example is the willingness to borrow ideas from other societies. As already noted, the British (and most Western Europeans) had few compunctions about adopting and adapting useful knowledge generated in societies they may otherwise have detested. The slogan “Not invented here” was replaced by the ironic “Stolen with pride.” The other example is the willingness to criticize and deviate from the accepted wisdom of previous generations. The degree to which society revered the wisdom of the past was an important element in its ability and desire to innovate. If intellectuals regarded the “canon” as sacrosanct, or if artisans were discouraged from altering technological practices passed from father to son and from master to student, innovation would be squashed. In Europe, heresy and rebelliousness became ingrained during the late Middle Ages and the Renaissance. These sentiments were not new in 1500, much less in 1700, but the Enlightenment constituted their apotheosis.
But culture also involved something more: the picking of a ranking of social priorities and through them one of social prestige and respect. These priorities are critical to the allocation of talent, and decide whether the most ambitious and brightest young people will choose to become rabbis or generals. One of the most interesting and potentially significant transformations in the eighteenth century was the rise in the social prestige of inventors and engineers. It is precisely in this area that the age of Enlightenment made a large difference. In Bacon’s imaginary utopia New Atlantis inventors were treated with great respect: three of the fellows of the House of Salomon were collecting the “experiments of all mechanical arts” and three others were in charge of “how to draw out of them things of use and practice for man’s life … these were called Dowry men [sources of wealth] or benefactors” (Bacon, 1996, pp. 486–87). But the seventeenth-century reality was rather different. MacLeod (2007, p. 8) has argued that in the seventeenth century the patentee was regarded in society as little more than “the pickpocket and the fraudster.” This characterization is of course exaggerated, but there was a lot of room for improvement. In 1679, William Petty sighed that “although the inventor often times drunk with the opinion of his own merit, thinks all the world will invade and incroach upon him … for as when a new invention is first propounded, in the beginning every man objects, and the poor inventor runs the gantloop of all petulent wits … not one [inventor] of a hundred outlives this torture” (Petty, 1679, p. 53).
It is precisely in explaining the changes in these attitudes that models of cultural evolution may provide some insights. One bias in the evolutionary transmission of beliefs and attitudes is model-based bias: an individual so admired that others want to emulate him. The work of Isaac Newton affected the eighteenth century much as Einstein’s did in the twentieth century: although the majority of people were incapable of understanding the details, these breakthroughs became symbols of human ability to understand and tame nature. Newton was the thinking person’s ideal, a role model whose work others wanted to emulate. In more applied fields, highly successful inventors occupied a similar position. A few of the Industrial Revolution’s most celebrated inventors and entrepreneurs whose technological and entrepreneurial success became so commonplace as to turn them into “superstars,” such as Watt, Wedgwood, and Arkwright, helped improve the standing of inventors in society.
Another cultural “bias” in the Boyd and Richerson mode discussed in the previous chapter is the “salient events” bias. People may change their beliefs and attitudes systematically as the result of some traumatic or memorable event that leaves a deep impression on a large number of individuals. If the event is “global,” it can have deep cultural consequences. In our own generation, surely the attack of 9/11 qualifies, while in an earlier generation the events of 1940–45 played a similar role. The period of the Industrial Revolution witnessed no traumatic events, but some technological developments clearly must have impressed contemporaries and made them change their views of technology. Technology was working, and it was improving the lot of many Britons. Many of these improvements, however, were hardly conspicuous: they took the form of cheaper underwear and better nails and screws, hardly the stuff that would propel cultural evolution. But some events were dramatic and seen as such. Ballooning was one such event. The invention was of little intrinsic economic value, but greatly enhanced belief in the capability of technology to do truly remarkable things that mankind had dreamed about for endless generations (Mokyr, 1990b). The defeat of gravity by humans, which seems to us so commonplace, had never been accomplished until 1783, and ballooning became a highly popular form of entertainment, but one that carried a loud and clear cultural message. Some of the more spectacular engineering feats of the age, such as the monumental Pontcysyllte aqueduct built by canal giants Telford and Jessop and completed in 1805, and the astonishing Ouse railway viaduct completed in 1841 by John Rastrick (1,475 feet long and using 11 million bricks), also fired up the confidence of contemporaries in the ability of engineering to achieve ever higher goals. In a different area, Edward Jenner added to the respectability of innovation: human ingenuity that had defeated gravity could also defeat smallpox. Jenner became highly respected in his own time: a simple country doctor, he received honorary doctorates from Oxford and Harvard and an appointment as physician-extraordinary to George IV (Baxby, 2004).
Steam power played a similar role. The first steam engines were “salient” things—large, noisy, alien. They must have impressed contemporaries for reasons other than just their revolution in energy generation, but the cultural impression they made was one of power over nature. James Watt became, in the eyes of the general public, the true embodiment of the Industrial Revolution. Much of this respect grew after his death, in the 1820s and beyond. One could argue about whether such a view is historically justified—after all, he did not “invent” the engine and inventions by others in the area of steam may be considered equally ingenious—but it is clear that he had by the early nineteenth century become more than a cultural icon: he had become a symbol of the Industrial Enlightenment and everything that was progressive and innovative in Britain. Steam acquired a great deal of social prestige with the growth of railways and steamships, which were widespread and spectacular enough to qualify as “salient events.” It was exactly in those years that the technological results of the Industrial Enlightenment were becoming visible to more and more people. Watt was turned into a role model even if he had no responsibility for those innovations (MacLeod, 2007). His role was puffed up, perhaps deliberately, by Whig writers, but the need to find such a person had existed all along. Cultural evolution, much like technological progress, needed focusing devices.
As a result, the social respectability of inventors and innovators kept rising in Victorian Britain. The changes in culture gave the successful inventors fame and the respect of a large group of peers. There is no easy way to measure the effects of such cultural changes. But the observed glory of Jenner, Watt, and others sent a powerful signal to other would-be inventors. Neither during the Industrial Revolution nor in any other period were inventors solely motivated by money, even if money was important. Fame, unlike today, did not equal wealth almost automatically, but there was a correlation all the same, and many ambitious innovators could see for themselves the changes in attitudes that constituted the Industrial Enlightenment, and which formed the cultural origins of the Industrial Revolution.