What caused living standards to dramatically rise in the
nineteenth century, after thousands of years of stagnant poverty? And is the
world on track to continue this wealth explosion, or are we abandoning course? Dr.
Stephen Davies joins me to explore these questions.

Stephen Davies is the Head of Education at the Institute of Economic Affairs in London, and was previously a program officer at George Mason University’s Institute for Humane Studies. He is the author of 2003’s Empiricism and History, as well as the recently released The Wealth Explosion: The Nature and Origins of Modernity.

Below is an abbreviated transcript of our conversation. You
can read our full discussion here. You can also subscribe to my podcast on iTunes or Stitcher, or download the podcast on Ricochet.

Pethokoukis: You
place the center of the “wealth explosion” in northwestern Europe. Why did it first
occur there, of all places?

Davies: If you look, what you find is that the kind of
dynamism and innovation that marks the modern economy appears to get going
several times in various places like Greece, China, or the Middle East. But,
crucially, those earlier episodes do not last. The fire of innovation, if you
will, doesn’t keep going. It gradually flickers out.

For everywhere else in the world, the military revolution of the late Middle Ages produced very large hegemonic empires. Whereas in Europe, you have an equivalently large area divided up into about a dozen states — all with varying degrees of power, but none of them in a dominant position to impose their authority on the rest.

This changes the incentives facing rulers. Rulers in Europe do not have an incentive to stop change or reverse it. Instead, they actually have an incentive to encourage innovation. Because that gives you a head-start on your competitors, and if you don’t encourage innovation, the results are pretty unpleasant.

Once we reach the
mid-1700s in Western Europe, there’s an intense period of innovation that
accelerates even into the 1800s. Considering that so many important innovations
come in this short time period, what must have life been like in Europe before
these modern-style inventions came along?

The World Bank estimates that in 1800, more than 80 percent
of the world’s population was living on the equivalent of $1.50 a day, which is
what the World Bank reckons is a bare subsistence income.

That means, for example, that it was almost impossible to
reach the age of 21 without losing a close sibling or a parent to death from
accident or illness. If you were born in a town, you had a one-in-three chance
of dying before your first birthday. If you’re a woman and you became pregnant,
then you had a one-in-four chance of dying in childbirth. 90 percent of the
population of most of the world were peasant farmers — that’s what you did. The
range of options and opportunities open to people were extraordinarily restricted
compared to what we have today.

Throughout the
Industrial Revolution, people like Karl Marx seemed unable to realize that
incredible innovation was happening all around them. So when did people
actually get the sense that something had changed — that their lives were
different than the lives of previous generations?

That really began to dawn on people in the 1830s and 1840s.
It’s about the time that the relatively young Marx wrote the Communist Manifesto, but he was of
course only one of many observers at the time. That was when it first really
dawned on people that what was happening was unprecedented.

And that’s actually confirmed by the stats — in 1851,
Britain became the first country ever, in the whole history of humanity, to
have the majority of its population living in towns and cities rather than the
countryside. And it was just about 10 to 20 years before then that people began
to think, “Hey, something really spectacular is going on here.”

In addition to all of
the innovations in physical things, there was also an intellectual shift in
this time. Could you explain what that was?

In the 18th century, what you start to get in Western Europe quite widely is a series of ideas about the relationship of human beings to the world around them. In particular, you get two very important ideas: One is that what really matters for people is happiness in his world rather than the afterlife. Secondly, related to that is the idea that you could actually make things better — that it was possible to improve.

You could affect those ideas in the real world through the
application of reason, and there was also a rationale that made sure that all
this reliably happened: Basically, leave people to their own devices. Don’t
control people, or govern them by rules. Just let them get on with what they
want to do.

That liberty is the final necessary ingredient. Those are
the ideas that you see arising in the European Enlightenment.

There’s growing
sentiment on both the right and the left that these things aren’t important,
because the disrupting effects of innovation have grown too intense. With that
idea becoming so popular, are you confident that progress is still something
that we should want?

This is a very widespread belief across the political spectrum — that we need “a timeout from progress.” But we can’t do that if we want to keep the stuff that we have.

If you stop innovating, you won’t be able to maintain your
society’s level of production, because in order to maintain the way that we
live now, we have to constantly replenish and renew the capital stock that is
needed to sustain the way we live. The only way you can do that is by
continuing to innovate.

If you stop innovating, what you’ll find is that you will
not be able to maintain that capital stock of existing civilization, and it
will gradually decay and break down. And when that happens, you gradually go
from a highly urbanized, civilized society to a much poorer society.

That kind of thing has happened many times historically. So if we want to keep all the good things that modernity has brought, we must continue innovating.

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