The problem is to explain the Industrial Revolution and the subsequent period of modern economic growth. The driver of economic growth is technical progress, as Baumard recognizes. To explain the Industrial Revolution, we must explain why there was an upswing in technical progress in England after the middle of the eighteenth century.
Many explanations have been offered. I have argued that England's empire led to a trade boom that created a high wage, cheap energy economy that made it profitable to invent machines that economized on expensive labour by using more capital and energy (Allen Reference Allen2009b, Reference Allen2017b). England's high wage economy increased the demand for labour saving technology that increased output per worker and income per head. Other answers include the Scientific Revolution and the creation of a popular scientific culture (Mokyr Reference Mokyr2002; Reference Mokyr2016), England's political institutions (Acemoglu & Robinson Reference Acemoglu and Robinson2012), and a rational and enterprising culture (Clark Reference Clark2007; McCloskey Reference McCloskey2006). More scientific knowledge, more secure property rights, and more entrepreneurship increased the capacity to respond to any given set of incentives and, thus, the supply of inventions.
Baumard adds another supply side explanation to the mix based on evolutionary biology. Britain's high wage economy not only increased the demand for inventions, but it increased the supply of invention, as well. The link is Life History Theory, which implies that a more affluent environment makes animals and people more future oriented. Baumard claims that affluent humans are more optimistic about the future and have a lower discount rate. England was exceptionally prosperous at the outset of the Industrial Revolution, and that prosperity led to the upsurge in invention through these channels.
I see invention as essentially an economic challenge: The aim was to develop a product or a process that makes money. The famous textile machines of the Industrial Revolution were designed to cut labour costs. The engineering ideas were simple. The problem was to convert them into devices that could be operated reliably by low-skilled workers. It was the same story with Newcomen's steam engine: even though the initial idea stemmed from science, twelve years of work and expense were needed to convert the science into a working engine.
The decision to invent was, therefore, an investment decision. The costs of the development project had to be more than offset by the profits created by the invention once it came into use. When the decision was taken, this was not known with certainty. It was a forecast. Objective factors were involved: If the aim of the project was to create a machine that saved labour by substituting capital for it, then the return was higher, the higher was the wage. This is the demand side of the question. But the future values were not known with any certainty. They were projections, and the more optimistic were the inventors, the higher were the projected future benefits, whatever the objective circumstances.
This is where LHT makes a contribution, for it implies (in Baumard's hands) that people in eighteenth-century Britain were more optimistic than they were in other places or than they had been at earlier times because wages and other incomes were higher in England in the 1700s.
Although Baumard offers some evidence in favour of the view that people were more optimistic and forward looking in eighteenth-century Britain, more systematic work needs to be done to support the theory. First, it is not clear how the theory could be distinguished statistically from alternative explanations. Economists – and people in general – have long known that preferences vary with income: poor people spend much of their income on food and better off people spend little. When people get richer, they have more resources for luxuries including R&D, and there is less risk that they will starve if the project goes wrong. Baumard claims that “What LHT does is explain why human needs are prioritized as they are.” LHT is a theory that claims preferences shift when people are more affluent. Does LHT add anything to common sense explanations? How could we identify a preference shift at the societal level with data we could imagine collecting?
Second, there are simple comparative questions that a historican would ask. Eighteenth-century England was not alone in having a high income. The Netherlands was the richest economy of the day, but the Industrial Revolution passed it by. Why? Moreover, there were other high-wage economies that were not particularly inventive like Europe after the Black Death. Why not? Furthermore, there were many high-income groups in earlier societies that did not show the virtues Baumard emphasizes – the medieval aristocracy, for example. Perhaps more is involved in developing modern values than high incomes?
Third, how did optimistic views evolve historically? When the Royal Society was founded in 1662, it aimed not only to advance science through experimentation, but also to apply the results of that science to technical problems. Indeed, Robert Boyle (Reference Boyle1671, Essay 4, pp. 10, 20) argued that natural philosophers could invent better clocks, better dyes, and, especially, labour-saving machines. Boyle was constructing a narrative of progress that highlighted the possibilities of successful invention. Did this narrative and others like it make people more optimistic? Did the invention of new technology feed the narrative, increasing optimism further? Did this lead to an ascending spiral of invention and optimism?
Baumard has made an important contribution in highlighting the role of optimism in R&D decision making. I look forward to more research on the LHT approach and the ways in which it interfaces with other historical approaches and data.
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The problem is to explain the Industrial Revolution and the subsequent period of modern economic growth. The driver of economic growth is technical progress, as Baumard recognizes. To explain the Industrial Revolution, we must explain why there was an upswing in technical progress in England after the middle of the eighteenth century.
Many explanations have been offered. I have argued that England's empire led to a trade boom that created a high wage, cheap energy economy that made it profitable to invent machines that economized on expensive labour by using more capital and energy (Allen Reference Allen2009b, Reference Allen2017b). England's high wage economy increased the demand for labour saving technology that increased output per worker and income per head. Other answers include the Scientific Revolution and the creation of a popular scientific culture (Mokyr Reference Mokyr2002; Reference Mokyr2016), England's political institutions (Acemoglu & Robinson Reference Acemoglu and Robinson2012), and a rational and enterprising culture (Clark Reference Clark2007; McCloskey Reference McCloskey2006). More scientific knowledge, more secure property rights, and more entrepreneurship increased the capacity to respond to any given set of incentives and, thus, the supply of inventions.
Baumard adds another supply side explanation to the mix based on evolutionary biology. Britain's high wage economy not only increased the demand for inventions, but it increased the supply of invention, as well. The link is Life History Theory, which implies that a more affluent environment makes animals and people more future oriented. Baumard claims that affluent humans are more optimistic about the future and have a lower discount rate. England was exceptionally prosperous at the outset of the Industrial Revolution, and that prosperity led to the upsurge in invention through these channels.
I see invention as essentially an economic challenge: The aim was to develop a product or a process that makes money. The famous textile machines of the Industrial Revolution were designed to cut labour costs. The engineering ideas were simple. The problem was to convert them into devices that could be operated reliably by low-skilled workers. It was the same story with Newcomen's steam engine: even though the initial idea stemmed from science, twelve years of work and expense were needed to convert the science into a working engine.
The decision to invent was, therefore, an investment decision. The costs of the development project had to be more than offset by the profits created by the invention once it came into use. When the decision was taken, this was not known with certainty. It was a forecast. Objective factors were involved: If the aim of the project was to create a machine that saved labour by substituting capital for it, then the return was higher, the higher was the wage. This is the demand side of the question. But the future values were not known with any certainty. They were projections, and the more optimistic were the inventors, the higher were the projected future benefits, whatever the objective circumstances.
This is where LHT makes a contribution, for it implies (in Baumard's hands) that people in eighteenth-century Britain were more optimistic than they were in other places or than they had been at earlier times because wages and other incomes were higher in England in the 1700s.
Although Baumard offers some evidence in favour of the view that people were more optimistic and forward looking in eighteenth-century Britain, more systematic work needs to be done to support the theory. First, it is not clear how the theory could be distinguished statistically from alternative explanations. Economists – and people in general – have long known that preferences vary with income: poor people spend much of their income on food and better off people spend little. When people get richer, they have more resources for luxuries including R&D, and there is less risk that they will starve if the project goes wrong. Baumard claims that “What LHT does is explain why human needs are prioritized as they are.” LHT is a theory that claims preferences shift when people are more affluent. Does LHT add anything to common sense explanations? How could we identify a preference shift at the societal level with data we could imagine collecting?
Second, there are simple comparative questions that a historican would ask. Eighteenth-century England was not alone in having a high income. The Netherlands was the richest economy of the day, but the Industrial Revolution passed it by. Why? Moreover, there were other high-wage economies that were not particularly inventive like Europe after the Black Death. Why not? Furthermore, there were many high-income groups in earlier societies that did not show the virtues Baumard emphasizes – the medieval aristocracy, for example. Perhaps more is involved in developing modern values than high incomes?
Third, how did optimistic views evolve historically? When the Royal Society was founded in 1662, it aimed not only to advance science through experimentation, but also to apply the results of that science to technical problems. Indeed, Robert Boyle (Reference Boyle1671, Essay 4, pp. 10, 20) argued that natural philosophers could invent better clocks, better dyes, and, especially, labour-saving machines. Boyle was constructing a narrative of progress that highlighted the possibilities of successful invention. Did this narrative and others like it make people more optimistic? Did the invention of new technology feed the narrative, increasing optimism further? Did this lead to an ascending spiral of invention and optimism?
Baumard has made an important contribution in highlighting the role of optimism in R&D decision making. I look forward to more research on the LHT approach and the ways in which it interfaces with other historical approaches and data.