June 2, 2016

The Liberty of Progress: Institutions and Entrepreneurship

Read more

Find the paper at SSRN

Deirdre McCloskey’s trilogy on the Bourgeois Era has set a new intellectual standard in discussing the “Great Fact” of human history. McCloskey’s answer is it is not technological, it is not even institutional, it is ideological and without that ideological component you cannot explain the rise of the Western World. Our contribution to this symposium is to emphasize the role of “two-tiered” entrepreneurship in explaining this “Great Fact.” We argue that entrepreneurship on an institutional, or “higher-tier,” of analysis reduces the transaction costs of adopting wealth-creating institutions. By utilizing their specialized knowledge of informal institutions, which shape the beliefs and expectations of individuals, institutional entrepreneurs generate economic growth as an unintended consequence of their ability to facilitate the adoption of wealth-creating institutions in a manner that conforms to the beliefs and expectations of individuals within a particular society. When the ideas, institutions and practices align as a “combustible combination,” the Great Fact emerges, liberty expands, and well-being drastically improves for humanity.