RIP Nathan Rosenberg By Alberto Mingardi

Nathan Rosenberg died on August 24th. Read the obituaries by Joshua Gans on Digitopoly and by Richard Langlois on Organizations and Markets.

Together with lawyer L.E. Birdzell, Rosenberg wrote a book that is a true must read: How the West Grew Rich. Consistent with its title, the book is a splendid tour-de-force that investigates the basis of the development of Western countries and reasons elegantly on the drivers of the industrial revolution. How the West Grew Rich was published in 1986, a few years after Jean Baechler’s The Origins of Capitalism (which first appeared in French in 1971) and E.L. Jones’s The European Miracle (1981). These three books had a great impact among social scientists but also, I would dare say, on the general public. In a short book that is a treasure trove for the historian of ideas, Baechler advanced the thesis that capitalism emerged because of a particular institutional setting: Europe was never turned into a monolithic, top-down “Empire” but allowed for political pluralism. Jones likewise stressed the importance of institutional pluralism, which allowed for a limitation of the predatory behaviour on the part of sovereigns. Rosenberg and Birdzell saw the development of industrial capitalism as strongly intertwined with what we call “economic freedom”. Of course, events as complex as all those occurrences that we like to cluster under the label “industrial revolution” have multiple causes. But these three books help in focusing some essential factors.

Rosenberg is remembered as a historian of innovation. How the West Grew Rich emphasizes the importance of innovation in Western growth. This is indissolubly linked to the persistence of a system of decentralised decision making–aka capitalist firms in a free market. In the ever more prosperous West

the economic enterprise had become a unit for making a wide range of economic decisions, and its gains and losses from decisions were expected to accrue to the enterprise or, less abstractly, to its owners. Virtually without thought or discussion, the West delegated to enterprises the making of a decision basic in the innovation process: which ideas should be tested and which should be allowed to die. For economic innovation requires not only an idea, but an experimental test of the idea in laboratory, factory, and market. (…) Markets determined who won the rewards of innovation and the quantum of the reward. The response of the market was the test of success or failure of an innovation.

The narrative of How the West Grew Rich was in itself “an argument for capitalism,” noted Deirdre McCloskey in 1986, “in the same way that the successes of Hong Kong or the failures of Moscow are arguments for capitalism.” If you haven’t read it yet, perhaps you should.