Lecture 38: Threshold 8—The Modern Revolution
historians have discussed the main drivers of innovation at least since the
publication in 1776 of The Wealth of Nations, by Adam Smith (1723–1790).
Though historians have identi¿ ed many possible drivers of change in the
Modern era, we will concentrate on three drivers of growth that played only
a limited role in the era of Agrarian civilizations: (1) commercialization and
the spread of competitive markets, (2) the spread of capitalism, and (3) the
expansion of global exchange networks.Driver 1 is commerce. Adam Smith argued that specialization raises
productivity, and specialization depends on the extent of market competition.
Smith’s idea that the spread of competitive markets drives innovation remains
fundamental in modern economic thought.Driver 2 is the spread of capitalist social structures. Karl Marx (1818–1883),
though determined to overthrow capitalism, also admired it because he
believed it encouraged innovation. His ideas expand in important ways on
those of Smith. Marx offered a “social structure” theory of growth, arguing
that different social structures affect innovation differently. We have seen
how social structures of the Agrarian era limited innovation because neither
peasants nor tribute-taking elites had a sustained interest in generating
innovation. Capitalism is different. The dominant groups are not tribute-
takers but entrepreneurs, who make their wealth by trading ef¿ ciently on
competitive markets. The majority class consists not of self-suf¿ cient peasants
but of wage earners who have to work hard and ef¿ ciently to “market” their
labor. Capitalism forces both major social groups to concern themselves
with productivity so the spread of capitalist social structures should
encourage innovation.Driver 3 is a sudden expansion in the size and reach of exchange networks.
The coming together of the four world zones from the 16th century
stimulated commerce and capitalism by expanding the scale and intensity
of both entrepreneurial activity and information exchanges. This sudden
rearrangement of global networks of exchange also shifted the center of
wealth and power in the world away from its traditional centers (in the
Afro-Eurasian world) toward a region that had previously been somewhat
marginal—the Atlantic seaboard! That would prove one of the most radical
of all the changes associated with the Modern Revolution.