Contrary to economists from Adam Smith to Karl Marx to Thomas Piketty, our riches cannot be explained by the accumulation of capital, as the misleading word capitalism implies. The Great Enrichment did not come from piling brick on brick, or bachelor's degree on bachelor's degree, or bank balance on bank balance, but from piling idea on idea. The accumulation of capital was of course necessary. But so were a labor force and the existence of liquid water. Oxygen is necessary for a fire. Yet it would be unhelpful to explain the Chicago Fire of October 8–10, 1871, by the presence of oxygen in the earth's atmosphere.

The modern world, in other words, can't be explained by routine brick piling, such as the Indian Ocean trade, English banking, canals, the British savings rate, the Atlantic slave trade, the enclosure movement, the exploitation of workers in satanic mills, or the original accumulation of capital in European cities. Such routines are too common in world history and too feeble in quantitative oomph to explain the 30- to 100-fold enrichment per person unique to the past two centuries.

Hear again that amazing fact: In the two centuries after 1800, the goods and services made and consumed by the average person in Sweden or Taiwan rose by a factor of 30 to 100—that is, a rise of 2,900 to 9,900 percent. The Great Enrichment of the past two centuries has dwarfed any of the previous and temporary enrichments. It was caused by massively better ideas in technology and institutions. And the betterments were released for the first time by a new liberty and dignity for commoners—expressed as the ideology of European liberalism. Not "liberalism" as it's come to be understood in the United States, as ever-increasing government, but its old and still European sense, what Adam Smith advocated in 1776: "allowing every man to pursue his own interest his own way, upon the liberal plan of equality, liberty and justice."

Why did such ideas shift so dramatically in northwestern Europe, and for a while only there? Why did Leonardo da Vinci in 1519 conceal his engineering dreams in secret writing, yet in 1825 James Watt of steam-engine fame was to have a statue set up in Westminster Abbey? In 1400 or even in 1600, a canny observer would have bet on an Industrial Revolution and a Great Enrichment—if she could have imagined such freakish events—in technologically advanced China or the vigorous Ottoman Empire. Not in backward, quarrelsome Europe.

The answer does not lie in some 1,000-year-old superiority, such as English common law, or in the deep genetic ancestry of Europeans. The liberalism that led to ordinary people being allowed to have a go, and then bettering their lives and ours with a wave of gadgets, lies rather in the black-swan luck of northwestern Europe's reaction to the turmoil of the Early Modern—the coincidence in northwestern Europe of successful reading, reformation, revolt, and revolution. The dice were rolled by Gutenberg, Luther, Willem van Oranje, and Oliver Cromwell. By a lucky chance for England their payoffs were deposited in that formerly not-so-consequential nation in a pile late in the late 17th century. A result of those four Rs was a fifth R, a crucial revaluation of the bourgeoisie, an egalitarian reappraisal of ordinary people.

The Renaissance, much to be admired for other reasons, was not one of the relevant Rs. It yielded betterments, all right—human dissection, perspective drawing, Palladian architecture, and the printing of edited Greek classics, among my favorites. But the test it applied for valuing them was aristocratic, not bourgeois, that is, not a market-tested betterment. They did not improve the lives of ordinary people, at any rate not for a very long time.

One could argue, as the brilliant economic historian Joel Mokyr does, that what mattered for betterment was the change in outlook among a technical elite of doctors, chemists, technicians, instrument makers. An essay that Mokyr co-wrote recently puts it this way: "What counted above all was [Britain's] highly skilled mechanics and engineers, who may not have been a large proportion of the labor force."

If one is speaking of the proximate cause, surely he's right: A tiny elite mattered. Yet where did such a technical elite come from? In Holland and Britain and the United States, and then the world, it came from ordinary people freed from ancient suppressions of their hopes. Such freeing is the sole way of achieving a mass of technically literate folk, oriented not toward rare luxuries or military victories but toward the ordinary goods of peacetime for the bulk of ordinary people—iron bridges, chemical bleaching, weaving of wool cloth by machines powered by falling water. The problem in, say, France in the 18th century was that the engineers came from the younger sons of its large nobility, such as Napoleon, educated for military careers. In Britain, by contrast, a promising lad from the working class could become a bourgeois master of new machines and of new institutions as an engineer or an entrepreneur. Or at least he could do pretty well as a clockmaker or a spinning-machine mechanic.

In Britain and its offshoots and imitators, in other words, the career of the enterprising bourgeois or the skilled worker was open to talent. John Harrison (1693–1776), the inventor of the marine chronometer, which solved by machine the problem of finding longitude in the wideness of the sea, against the arrogantly enforced demand by the elite that it be solved in the heavens by elite astronomy, was a rural Lincolnshire carpenter. His first clock was made of wood. The British working man, Napoleon might have said but didn't, carried the baton of a field marshal of industry in his rucksack.

What began to characterize northwestern Europe in the 17th and 18th centuries was not so much new ethics at the level of individual responsibility, though that happened a little, encouraging and benefiting from arms-length trading. Much more important was a change at the social level of the ethical opinion people had of each other. "You made a fortune trading with the East. Good." Or: "That fellow invented a new transmission for automobiles. Good."

In other words, the new liberty and dignity for commoners was a sociological event, not a psychological one. It originated in a changing conversation in the society, not in psychological self-monitoring by the individual. People in Holland and then England (and now China and India) didn't suddenly start alertly attending to profit. They suddenly started admiring such alertness and stopped calling it sinful greed.

It was not, as you may have heard recently from the World Bank, "institutions." An institution works well not merely because of good official rules of the game, beloved of economists, "incentives." An institution works, if it does, mainly because of the good ethics of its participants, intrinsic motivations powerfully reinforced by the ethical opinion people have of each other. A society can craft an official rule against cheating in business, a good institution. Yet if the rule is enforced with a nudge and a wink among people who ignore simple honesty or who sneer at the very language of ethics, and who are not effectively condemned by the rest of society for doing so—as in a corrupt Chicago during the 1890s or in a corrupt Shanghai during the 1990s—the economy won't work as well as it could.

The crux is not black-letter constitutions but how the constitutions came about ethically and how they are sustained in social ethics, the continually renegotiated dance located out in the language games that people play as much as in their "utility functions." When a society or its elite earnestly wants the rules of the game to work, and talks about them a lot, and scolds violators from an early age, the constitutions work, pretty much regardless of imperfections in the written-down rules and incentives. The political scientists Elinor and Vincent Ostrom at Indiana University showed repeatedly that a situation that would in the usual economics always be a hopeless case of "free riding" and "the tragedy of the commons," such as the overexploitation of the Los Angeles aquifer, can often be solved by talk among serious-minded, ethically disciplined people.

After the failed revolutions of 1848, a new and virulent detestation of the bourgeoisie infected the mass of artists, intellectuals, journalists, professionals, and bureaucrats—the "clerisy," as it was called by the poet Coleridge. The clerisy of Germany, Britain, and especially France came to hate the merchants and manufacturers and indeed anyone who did not admire the clerisy's books and paintings. (Flaubert declared, "I call bourgeois whoever thinks basely.") In the 18th century, certain members of the clerisy, such as Voltaire and Tom Paine, had courageously advocated for liberty in trade. But by 1848 a much enlarged clerisy, mostly the sons of bourgeois fathers, had commenced sneering at the economic liberties their fathers exercised so vigorously. They advocated instead the vigorous use of the state's monopoly of violence to achieve utopia, now.

On the political right the clerisy, influenced by the Romantic movement, looked back with nostalgia to an imagined Middle Ages free from the vulgarity of trade, a non-market golden age in which rents and hierarchy ruled. Such a Romantic vision of olden times fits well with the right's perch in the ruling class, governing the mere in-dwellers. Later, under the influence of a version of science, the right seized upon social Darwinism and eugenics to devalue the liberty and dignity of ordinary people, and to elevate the nation's mission above the mere individual person, recommending colonialism and compulsory sterilization and the cleansing power of war.

On the left, meanwhile, the cadres of another version of the clerisy—also influenced by Romance and then by a scientistic enthusiasm, in their case for historical materialism—developed the illiberal idea that ideas do not matter. What matters to progress, the left declared, is the unstoppable tide of history, aided (it declared further, contradicting the unstoppability) by protest or strike or revolution directed at the thieving bourgeoisie. Such thrilling actions would be led, of course, by the clerisy. Later, in European socialism and American progressivism, the left proposed to defeat bourgeois monopolies in meat and sugar and steel by gathering them all into one supreme monopoly called the state.

While all this deep thinking was roiling the clerisy of Europe, the commercial bourgeoisie created merely the Great Enrichment and the modern world. The Enrichment gigantically improved our lives. In doing so, it proved that both social Darwinism and economic Marxism were mistaken. The allegedly lower races and lower classes proved to be creative, not inferior. The allegedly exploited proletariat was enriched, not immiserated. In its enthusiasm for the deeply erroneous pseudo-discoveries of the 19th century—Benthamite utilitarianism, Comtean positivism, nationalism, socialism, historical materialism, social Darwinism, scientific racism, theorized imperialism, eugenics, geographic determinism, institutionalism, social engineering, progressive regulation, the rule of experts, a cynicism about the force of ethical ideas—much of the clerisy mislaid its earlier commitment to a free and dignified common people. It forgot the correct social discovery of the 19th century, which was itself in accord with a Romanticism so mischievous in other ways: that ordinary men and women do not need to be directed from above, and when honored and left alone become immensely creative. "I contain multitudes," sang Walt Whitman, the democratic poet. And he did.

The economic liberation and social honoring together did the trick in Holland and England, then in Austria and Japan. Now they are doing the trick with astonishing force in Taiwan and South Korea, China and India.

CORRECTION: A previous version of this article stated that marine chronometers help determine latitude. They determine longitude.