Title: The Birth of Plenty: How the Prosperity of the Modern World was Created
Author: William J. Bernstein
Scope: 4 stars
Readability: 5 stars
My personal rating: 5 stars
See more on my book rating system.
Topic of Book
Bernstein seeks to explain why the standard of living of people was almost exclusively impoverished and then in a few countries, it exploded after 1820.
While I believe that Bernstein neglects the role of biology, geography and values, he is correct in identifying the importance of institutions in promoting economic and growth, military power, and democratic governance. I see these factors as intermediate causes (that are caused by deeper underlaying factors), while Bernstein views them as ultimate causes.
Despite the quibbling above, this book is one of the most readable summaries of the history of economic growth in Northwest Europe. I would highly recommend reading it.
- Property rights, the scientific method, capital markets, information technology and transportation technology are importance to economic growth.
- These factors first came together in 16th Century Netherlands and then 18th Century Britain.
- In the 19th and 20th Centuries, these factors spread to the rest of Northwest Europe.
- Modern-day United States is the best example of these forces coming together to promote economic growth, military power and democratic governance.
Important Quotes from Book
Since the dawn of the modern era, it has been the conceit that the technologic advances of the day are unique and revolutionary—certainly, the thinking in our time is no exception. This is, however, an illusion. To see the full effect of scientific progress on human affairs, we need look no further than the technologic explosion that occurred in those 120 years and transformed life from the top to the bottom of the social fabric. At a stroke, the speed of transportation increased tenfold, and communication became almost instantaneous.
Since 1850, the pace of technological progress has slowed slightly, not accelerated.
The reason for this resilience is simple: Capital market turbulence does not fundamentally alter the ultimate source of economic growth—the relatively steady flow of scientific and technological advance.
But the bald fact is, the Renaissance and the early Enlightenment only minimally improved the lot of the average person.
Until approximately 1820, per capita world economic growth registered near zero… The great tragedy of the premodern era was that large bodies of knowledge were lost for millennia. Before Gutenberg and Bacon, inventors lacked two critical advantages that we take for granted today: robust information storage and a firm foundation of scientific theory. The lack of a scientific method meant that technological advances relied purely on trial and error and were
thus few and far between. Furthermore, absent the printing press, inventors and manufacturers could record their work in only a few places. Consequently, inventions were frequently “lost,” and the technological and economic condition of the ancients retrogressed almost as often as it advanced.
Then, not long after 1820, prosperity began flowing in an ever-increasing torrent; with each successive generation, the life of the son became observably more comfortable, informed, and predictable than that of the father. This book will examine the nature, causes, and consequences of this transformation.
I will identify the points in both time and space where economic growth sprang to life after millennia of slumber. I will also describe and examine the history of the four factors—property rights, scientific rationalism, capital markets, and improvements in transport and communication—that are the essential ingredients for igniting and sustaining economic growth and human progress. The second section tells the story of when and how these factors came into play: first in Holland, then in England and its cultural offspring, followed, in turn, by the rest of Europe, Japan, and, finally, the remainder of East Asia.
The four factors responsible for modern wealth—property rights, borne on the common law, scientific rationalism, advanced capital markets, and the great advances in transportation and communication—were largely European in origin. Although prosperity has become a global phenomenon, there is no escaping the fact that its nursery lay in the area between Glasgow and Genoa.
First, the bad news: In a world that is growing more and more prosperous, people are not necessarily becoming happier, particularly in the West. But the good news is that substantial improvements in individual well-being are occurring in developing nations. As nations advance from the third world to the first, their citizens do indeed become more satisfied. We’ll find, moreover, that economic development facilitates democracy, not the other way around—“too much” democracy may actually be bad for economic growth. The rule of law is the essential bulwark of a robust system of property rights. Property rights, in turn, are essential to prosperity, which itself is the essential fertile soil in which democracy flourishes.
I will argue that the destinies of nations are determined far more by their economic dynamism than by the vagaries of war, culture, and politics.
In all but the most exceptional cases, national prosperity is not about physical objects or natural resources. Rather, it is about institutions—the framework within which human beings think, interact, and carry on business.
Four such institutions stand out as prerequisite for economic growth:
- Secure property rights, not only for physical property, but also for intellectual property and one’s own person-civil liberties.
- A systematic procedure for examining and interpreting the world – the scientific method
- A widely available and open source of funding for the development and production of new inventions the modern capital marketplace
- The ability to rapidly communicate vital information and transport people and goods.
Not until all four of these factors—property rights, scientific rationalism, effective capital markets, and efficient transport and communication—are in place can a nation prosper. These four factors first coalesced, briefly, in sixteenth century Holland but
were not securely in place in the English-speaking world until about 1820.
Modern economic growth can be likened to the structural lattice of a skyscraper: Each element supports all of the others, and none will stand without all solidly in place.
The development of the steam railway and electrical telegraph most clearly demonstrate this concept. These key inventions were not possible without the incentive provided by property rights, a scientific mind-set, and financing from the capital markets.
Today, property rights appear to be the critical ingredient for economic growth. But this is a modern phenomenon. In today’s world, the other three factors are now much more easily obtainable than property rights are.
To summarize [the research on happiness]:
- Within a single nation or society, wealth is an important, but far from the only, determinant of happiness.
- Across nations, this is less true. National wealth only loosely correlates with national happiness; at the global level, cultural and historical factors become more important.
- Because of the relative nature of wealth perception—the neighbor effect—increases in aggregate national wealth that result from economic growth do not make nations any happier.
An understanding of economic development provides deep insight into the history of major power politics and explains the shape of the modern world.
Distilled to its essence, modern warfare is largely an industrial endeavor, and the most productive nations generally prevail.
In the prolonged global conflicts between grand coalitions that have characterized the modern era, technological, motivational, and geographic factors “averaged out” over many nations and far-flung battlefields, and economic heft almost always provided the margin of victory.
Both democracy and military power spring from the same source: economic prosperity, spread widely among the populace.
What of democracy and power? Modern liberal democracies possess a subtle, yet powerful, geopolitical advantage: Their political structures provide an effective brake on the kind of imperial overstretch that doomed Habsburg Spain, the ancien régime, Nazi Germany, and the Soviet Union.
Modern liberal democracies also check military adventurism through a second mechanism: With increasing wealth and individual liberties come a lower tolerance of war casualties.
Historically, secure property rights and rule of law, while necessary, have not proven sufficient by themselves to ensure prosperity. The Athenians and the late medieval British acquired robust rule of law and secure property, yet they did not experience vigorous economic growth.
In hindsight, they lacked the other three factors.
While a sophisticated system of property rights provided the Greeks and the medieval English with relatively little economic benefit, property acquired critical importance in the modern world as the other three factors—scientific rationalism, capital markets, and modern power generation, transport, and communications—came into being. Not only did the other three factors become
available in the modern era, they became available for the taking.
All four of our factors are now solidly established in the world’s developed nations, and it would take a world-ending catastrophe—one essentially eradicating all of humanity from the face of the earth—to destroy their imprints.