Nathan Rosenberg & Birdzell:


"How the West Grew Rich" (Basic, 1986)

(Copyright © 2014 Piero Scaruffi | Legal restrictions )
This is an all-time favorite: a history of Western economic and technological progress from the Middle Ages to the Cold War period. Rosenberg shows how the West got out of the "dark ages" and into the industrial age thanks to international trade, way before the invention of machines; and how then machines shaped the market economy; and how then the big corporation evolved to exploit that market.

Economic growth started with trade, not with industry. Trade created capitalism, and capitalism led to the industrial revolution, and then technology became fundamental to innovation, and then (after the 1890s) science became fundamental to technology. It all started with the boom of trade in the late Middle Age. In modern times, countries that tried to jumpstart their economy with industry (the communist countries) failed; whereas countries that tried to jumpstart their economy with trade (the Far East) succeeded.

Medieval trade by independents could develop because the authority of the state was so weak.

Indirectly, this is a study that gives credit to the political chaos of medieval times for laying the foundations upon which the chaotic world of capitalism rests. Medieval chaos led to loose control by the state on the economy (a separation of politics and economics), which led to innovation in trade and craft, and eventually to the industrial revolution. The medieval world was a world living in a state of constant instability, and so is the capitalist/technological world. The chaotic world of modern capitalism, driven by competition and adaptation, is still a variant of medieval chaos. "Decentralized economic organization" sounds like a description of medieval society, but Rosenberg uses the expression while talking about modern Western capitalism. The multitude of enterprises that populate a capitalist economy recalls the multitude of competing city states of medieval Italy. Big states engaged in constant military competition the same way that big corporations engage in constant technological competition. Competition doesn't just produce lower costs, it also produces a chaotic community of companies, each trying to differentiate from the others. The West, coming out of the Middle Ages and still engulfed in endless conflicts (soon to become world wars), was best adapted at dealing with chaos. Innovation leads to instability and the West was better at coping with instability than the East because its institutions had been shaped by the chaos of the Middle Ages. A society that was willing to tolerate continuous political change was also more likely to tolerate continuous technological change. The post-feudal economy remained autonomous, and inventors were increasingly free from religious and political interference: the reward for the inventor came from the market, not from the state or the church.

The book ends by highlighting the coexistence of big corporations and startups, each contributing something to innovation. It fails to give credit to governments for contributing to innovation (the Internet and the Human Genome Projects are examples of government-funded innovation). In modern Europe governments also account for a large share of jobs. The book discusses job creation, showing how the USA specializes in creating jobs via many small companies in fast-growing industries (smaller companies account for most of the jobs in the USA). It fails to discuss the European system, in which typically government accouts for more jobs than either big corporations or small companies.

I don't think this book contains the final answer to why the West came to rule the world, but its chapters are enlightening on many of the factors that created the modern world.