The Great Enrichment refers to substantial improvements in well-being, driven by comparatively permissive, enlightened, and liberal attitudes towards experimentation and entrepreneurship. Such attitudes coalesced in western Europe, fostered innovation, and have increased real incomes by a conservatively estimated 3,000 percent since 1800. Deirdre McCloskey describes it as an era of “human ingenuity emancipated.”
Many factors influenced this enrichment, and some economists note how the introduction of luxury goods like coffee increased well-being and productivity, especially in eighteenth-century Europe. But where did people get such a boon?
Whether you have five cups a day or none at all, we often take such questions and connections for granted. We can order our favorite coffee drinks on the Starbucks app, we can quickly get another k-cup, and there are myriad devices for the more discerning coffee drinker. There are over 38,000 Starbucks and 14,000 Dunkin’ Donuts stores across the globe. Such methods of caffeination are commonplace.
People in the sixteenth and seventeenth centuries didn’t have it so easy, but they did have coffeehouses!
Coffee had only recently been discovered — cultivation took off in Ethiopia in the 1400s — but it quickly revolutionized society once introduced. Coffeehouses became an efficient organization to satisfy the desires of myriad coffee producers and consumers, from farmers and merchants to daily drinkers and occasional passersby.
One of the earliest references to coffeehouses in Istanbul (formerly Constantinople), in 1554, notes the origin and relative luxury of these places:
two private persons called Schems and Hekem, one from Damascus, and the other from Aleppo, set up each of them a coffee-house at Constantinople, in the quarter named Takh-tacalah, and began to sell coffee publickly, receiving the company on very neat couches or sofas.
In London, one of the first coffeehouses opened in the 1650s under the direction of a Levantine merchant and his assistant. Thomas Hodges was the merchant who had learned of coffee during his travels, along with the aid of Pasqua Rosee. Hodges started serving coffee to family and friends at his home in London. As this operation became too much, he encouraged Rosee to open a shop to sell coffee. The shop in St. Michael’s alley in Cornhill became a success and eventually allowed for the purchase of a larger shop nearby.
So entrepreneurship was key, but so were institutions that encouraged trade in coffee, the formation of coffeehouses, and the use of coffeehouses in other entrepreneurial plans.
In a recent article, “From Beans to Houses: the Entrepreneurship and Institutions of Coffeehouses,” in The Review of Austrian Economics, I expand upon these connections. The article reexamines the history of coffeehouses, how entrepreneurs helped bring coffee to our lives, and how institutions shaped that history. The main takeaway is not just that entrepreneurs served coffee to earn profits, it is that institutions — humanly devised formal and informal rules—influence whether innovation continues or becomes stifled.
Coffeehouses in sixteenth-century Istanbul and seventeenth-century London were similar in many respects, but they flourished in London. They became a source of social, political, technological, and financial innovation. Istanbul, the larger Ottoman Empire, and their coffeehouses remained stagnant.
British institutions that generally protected private property rights and limited governmental abuses encouraged innovation. Such institutions, perhaps along with changes in social norms about commerce, bourgeois dignity, or the regard people held for entrepreneurs, encouraged coffee entrepreneurs to make a go of it, to develop coffeehouses, and to find ways to better serve and attract customers. Such innovations include coffeehouses as sources of news from incoming ships, coffeehouses as places to gather, and coffeehouses as marketplaces.
Coffeehouses throughout the Ottoman Empire, however, rarely helped to spur the same kinds of innovations; their institutions discouraged such developments. Such institutions include the Ottoman fiscal system that left many facing uncertain taxes, Islamic charitable organizations known as awqaf, and the Janissary military corps, among others. These institutions generally encouraged entrepreneurs to serve the interests of elites, religious leaders, and Ottoman rulers, rather than customers.
These insights help us better understand these complex histories. Moreover, they help us navigate modern coffee markets and whether our institutions foster similar kinds of innovations. For example, a recent National Bureau of Economic Research (NBER) working paper shows that areas with more Starbucks also have more startup businesses. Recent tariffs over imported coffee beans (say, a 50 percent tariff on all Brazilian goods) and the uncertainties surrounding tariff schedules, however, serve to discourage such effects.
In the extreme, recent tariffs might gut local coffee shops. One story from Jessica Simmons, owner of Bethany’s Coffee Shop in Lincoln, Nebraska, indicates how. She estimates her prices have increased 18-25 percent since January, and that, “We are at a point where we don’t have a choice but to raise prices. Our margins are thin. Small businesses are struggling with the rising costs of tariffs.” Similar stories can be told in many other places too, from New York to New Mexico. These are the predictable effects when tariffs are raised, especially when there are few domestic substitutes, like for coffee beans.
Coffeehouses can bring us coffee, facilitate additional interaction, and continue the great enrichment, but only if our institutions reward entrepreneurship and innovation.
