There are two simplistic ways to do economic history. The first is the muddy, materialistic, and miserly (plus Marxist) approach. The second is the airy, heavenly, and idealistic approach. I want to propose a third.
In the first, all the dependent variables are functions of material incentives. Why did the Industrial Revolution happen? Because property rights were secured, and long-term capital investments became worthwhile. Why is church attendance going down? Cable-TV has provided an ample substitute on Sunday mornings. Why did some Communist revolutions succeed and others fail? The successes occurred when the material interests of enough classes aligned. The basic tools of supply and demand explain the earthquakes and avalanches of human society, in all its peaks and valleys. (Figure 1)
The second approach can’t be expressed as a function, or if it can, it’s non-continuous and non-differentiable. Think of a Dirac-delta function. Why did the Industrial Revolution happen? The heroes of the Enlightenment wrote great tracts on liberty unleashing the spirit of human creativity and flourishing. Why is church attendance going down? The same spirit of Enlightenment has shown the old gods to be obstacles to human advancement. Why did some Communist revolutions succeed and others fail? Because some failed to properly enliven the proletariat with ideas, rhetoric, and revolutionary spirit. Supply and demand may have its place, but the primary agents of change are exogenous ideas. Ideas fall like manna from heaven. They’re a free lunch and we all get a slice. (Figure 2)
Both of these are caricatures, and I don’t believe any serious economist believes them in totum. The materialistic approach runs counter to the lived experience of being a human. Most people are motivated in business, love, and war by ideas. But the idealistic approach also runs counter to life on a material planet. Just as many people are motivated by money, pleasure, and navel-gazing self-interest. Most of life is shoving your meat bag around the planet as efficiently as you can. There’s a tension between both styles of explanation. I want to propose a third approach that hopefully incorporates the insights of both.
What is the primary actor in biological evolution? Is it the mutations of the DNA, or is it the shape of the environment? Well, the environment, after all, is what “naturally selects”, but without mutations there would be no gas for evolution to get going. One could contend that as long as mutations occur, the environment is actually the final decider waiting for the one mutation that will survive, but why do we have to presume that there is only one potential mutation that the environment will select for? Suppose there are three possible mutations that we can evolve into (A, B, and C). If the environment tells us that B will not survive, then it is still up to the randomness of mutations to decide whether we go for A or C. If the environment selects against people that are five-foot tall, we may evolve into either four-foot tall or six-foot tall creatures. From that point on, the mutations that were chosen in the past create the new environment that selects for future mutations. There are two independent operations, the source that chooses mutations and the choice that selects for them. But when put into action over time, the environment selects the mutations that survive, and the mutations that survive create the environment. This understanding of evolution as a guide to human history is primarily motivated by William James’ essay “Great Men and their Environment”.
How many counterfactual histories depend on questions about individuals? What if Hitler had gone to art school? What if Columbus hadn’t gotten the funding for his voyage? What if Mary told Gabriel no? Individual human lives, ideas, and the spirit that they infuse the world with are like novel mutations on the human soul. But the society of incentives and interests that they’re born into remains ever-powerful. Wycliffe’s reformation didn’t work, but Luther’s did. The Reds beat the Whites on the battlefield and determined the 20th century for Russia. Sometimes the commodities market does matter more than the marketplace for ideas.
Of course, there has to be a seed, but the seed cannot fall on rocky soil or thorny soil or pre-trod path. And after the crops are grown, they’re going to determine which fields are plowed next. But what came first, the seed or the soil? The answer to me is in John 1, but that’s a bit too much to go into right now.
Also:
Beliefs and Institutions. A chicken and an egg problem or are they two sides of the same coin? When somebody says that they are Catholic, does this mean that they are part of an institution or that they hold a set of beliefs? Jesus was the meeting place of heaven and earth, “The Word made flesh”. Institutions are “beliefs made flesh”. Institutions aren’t just necessary for the proliferation of beliefs, they are also the product of beliefs themselves.