We've established that the direct causes of the IR were entrepreneurs, inventors, and innovators. The unanswered question that remains is how did people get richer because of this? The answer is a domino effect. Technology increases worker productivity, thus more products are created, and wages rise. Our ability to produce goods and services always increases faster than the number of workers. This explains why machines didn't, and never will, fully replace human labor.
Indirect reasons of the IR are more difficult to establish, but here are a few of the theories:
- Gradual emergence of political units and a newfound sense of nationalism in England
- Decay of religious mysticism--> new belief that life on earth was as important as life in heaven
- Pure science was not as important to the IR as the top-down collaboration of people who increased technological productivity at the margin.
- Technology of defense outweighed other technology --> it was difficult for England to be conquered or colonized because it's an island without resources of immense value.
- Institutions: consciously formed social arrangements --> Adam Smith suggested that they were the single most important determinants of wealth.
- When people engage in commerce, it promotes the idea that they themselves are of value. Virtue=capitalism
- Shifted perceptions of the Bourgeoisie class --> no longer a threat.
- Better health care allowed for higher life expectancies, which fosters the development and continuation of culture.
Mercantilism: An outdated form of government in which the monarch controls the economy; also referred to as progressive corporatism. It reigned with feudalism until the mid 1700s until it was ended by French physicists and Scottish moral philosophers.
Once this type of government was replaced with a more democratic alternative, all of the downsides of mercantilism disappeared. These included:
- Heavy restraints on people and creativity
- Protectionism
- Formation of craft guilds
- Difficulty of licensing --> monarchs granted monopolies
- Import/export regulation
- Restrictions on the movement of citizens
- Limits on domestic production
- Price and wage controls/maximums
- The idea that the people of a country were property of the king or queen
Francis Quesnay came up with the idea of circular flow, or the constant flow of money and goods between the individual and the firms.
Essentially, this model depicts the interactions of the factor market (money) and the good market (stuff). He also asserted that income=expenditures. Every dollar earned in a particular economy is also spent.
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