The Rational Optimist: How Prosperity Evolves

This is a 2010 book by Matt Ridley. I had also read his 1993 book titled "The Red Queen: Sex and the Evolution of Human Nature." Matt Ridley is a joy to read. 

This book came 9 years before Steven Pinker's book about "Enlightenment Now" and already explained well how good we are having it in this modern age. (Here is my earlier review of Pinker's "Enlightenment Now".) In contrast to Pinker, who kept beating a dead horse for 500 pages, Ridley made his point quickly about how prosperous we are now and used the rest of the book to make a case about the root cause trait that led to this prosperity. Ridley argues that the reason Homo Sapiens prospered compared to any other species is because of the *innate human tendency to trade goods and services*. Of course Ridley is an expert on both economy and evolution, so he starts from millions of years ago with hominids, and manages to make a convincing case that trade, together with the specialization linked to it, is the source of modern human civilization.

Some of my highlights from the book

Look again at the hand axe and the mouse. They are both ‘man-made’, but one was made by a single person, the other by hundreds of people, maybe even millions. That is what I mean by collective intelligence. No single person knows how to make a computer mouse. The person who assembled it in the factory did not know how to drill the oil well from which the plastic came, or vice versa. At some point, human intelligence became collective and cumulative in a way that happened to no other animal.

The answer, I believe, is that at some point in human history, ideas began to meet and mate, to have sex with each other.

‘To create is to recombine’ said the molecular biologist François Jacob.

Specialisation encouraged innovation, because it encouraged the investment of time in a tool-making tool. That saved time, and prosperity is simply time saved, which is proportional to the division of labour.

I am writing in times [2010] of unprecedented economic pessimism. The world banking system has lurched to the brink of collapse; an enormous bubble of debt has burst; world trade has contracted; unemployment is rising sharply all around the world as output falls.

I am a rational optimist: rational, because I have arrived at optimism not through temperament or instinct, but by looking at the evidence. In the pages that follow I hope to make you a rational optimist too. First, I need to convince you that human progress has, on balance, been a good thing, and that, despite the constant temptation to moan, the world is as good a place to live as it has ever been for the average human being – even now in a deep recession. That it is richer, healthier, and kinder too, as much because of commerce as despite it. Then I intend to explain why and how it got that way. And finally, I intend to see whether it can go on getting better.

Even inequality is declining worldwide. It is true that in Britain and America income equality, which had been improving for most of the past two centuries (British aristocrats were six inches taller than the average in 1800; today they are less than two inches taller), has stalled since the 1970s. The reasons for this are many, but they are not all causes for regret. For example, high earners now marry each other more than they used to (which concentrates income), immigration has increased, trade has been freed, cartels have been opened up to entrepreneurial competition and the skill premium has grown in the work place. All these are inequality-boosting, but they stem from liberalising trends.

This is what prosperity is: the increase in the amount of goods or services you can earn with the same amount of work.

Of course, it is possible to get rich and find that you are unhappy not to be richer still, if only because the neighbour – or the people on television – are richer than you are. Economists call this the ‘hedonic treadmill’; the rest of us call it ‘keeping up with the Joneses’.                

Psychologists find people to have fairly constant levels of happiness to which they return after elation or disaster. Besides, a million years of natural selection shaped human nature to be ambitious to rear successful children, not to settle for contentment: people are programmed to desire, not to appreciate.

Getting richer is not the only or even the best way of getting happier. Social and political liberation is far more effective, says the political scientist Ronald Ingleheart: the big gains in happiness come from living in a society that frees you to make choices about your lifestyle – about where to live, who to marry, how to express your sexuality and so on. It is the increase in free choice since 1981 that has been responsible for the increase in happiness recorded since then in forty-five out of fifty-two countries.

Where does all this free time come from? It comes from exchange and specialisation and from the resulting division of labour. A deer must gather its own food. A human being gets somebody else to do it for him, while he or she is doing something for them – and both win time that way.

Self-sufficiency is therefore not the route to prosperity.

This is the diagnostic feature of modern life, the very definition of a high standard of living: diverse consumption, simplified production.                

You are poor to the extent that you cannot afford to sell your time for sufficient price to buy the services you need, and rich to the extent that you can afford to buy not just the services you need but also those you crave.

A New Zealand lamb, shipped to England, requires one-quarter as much carbon to get on to a London plate as a Welsh lamb; a Dutch rose, grown in a heated greenhouse and sold in London, has six times the carbon footprint of a Kenyan rose grown under the sun using water recycled through a fish farm, using geothermal electricity and providing employment to Kenyan women.

In truth, far from being unsustainable, the interdependence of the world through trade is the very thing that makes modern life as sustainable as it is.

The cumulative accretion of knowledge by specialists that allows us each to consume more and more different things by each producing fewer and fewer is, I submit, the central story of humanity. Innovation changes the world but only because it aids the elaboration of the division of labour and encourages the division of time.

If prosperity is exchange and specialisation – more like the multiplication of labour than the division of labour – then when and how did that habit begin? Why is it such a peculiar attribute of the human species?

Because the species that made it has long been extinct we may never quite know how it was used. But one thing we do know. The creatures that made this thing were very content with it. By the time of the Boxgrove horse butchers, their ancestors had been making it to roughly the same design – hand-sized, sharp, double-sided, rounded – for about a million years. Their descendants would continue to make it for hundreds of thousands more years.                

Not only that; they made roughly the same tools in south and north Africa and everywhere in between. They took the design with them to the Near East and to the far north-west of Europe (though not to East Asia) and still it did not change. A million years across three continents making the same one tool. During those million years their brains grew in size by about one-third. Here’s the startling thing. The bodies and brains of the creatures that made Acheulean hand axes changed faster than their tools.

Cooking enabled hominids to trade gut size for brain size.

Erectus hominids, in other words, had almost everything we might call human: two legs, two hands, a big brain, opposable thumbs, fire, cooking, tools, technology, cooperation, long childhoods, kindly demeanour. And yet there was no sign of cultural take-off, little progress in technology, little expansion of range or niche.

According to DNA scripture, it was then that one quite small group of people began to populate the entire African continent, starting either in East or South Africa and spreading north and rather more slowly west. Their genes, marked by the L3 mitochondrial type, suddenly expanded and displaced most others in Africa, except the ancestors of the Khoisan and pygmy people.       

This time, however, some of the L3 people promptly spilled out of Africa and exploded into global dominion. The rest, as they say, is history.

The second theory is that a fortuitous genetic mutation triggered a change in human behaviour by subtly altering the way human brains were built. This made people fully capable of imagination, planning, or some other higher function for the first time, which in turn gave them the capacity to make better tools and devise better ways of making a living. For a while, it even looked as if two candidate mutations of the right age had appeared – in the gene called FOXP2, which is essential to speech and language in both people and songbirds. Adding these two mutations to mice does indeed seem to change the flexibility of wiring in their brain in a way that may be necessary for the rapid flicker of tongue and lung that is called speech, and perhaps coincidentally the mutations even change the way mice pups squeak without changing almost anything else about them. But recent evidence confirms that Neanderthals share the very same two mutations, which suggests that the common ancestor of Neanderthals and modern people, living about 400,000 years ago, may have already been using pretty sophisticated language. *If language is the key to cultural evolution, and Neanderthals had language, then why did the Neanderthal toolkit show so little cultural change?* 

Whatever the explanation for the modernisation of human technology after 200,000 years ago, it must be something that gathers pace by feeding upon itself, something that is *auto-catalytic*.

As you can tell, I like neither theory. I am going to argue that the answer lies not in climate, nor genetics, nor in archaeology, nor even entirely in ‘culture’, but in economics. Human beings had started to do something to and with each other that in effect began to build a collective intelligence.

They had started, for the very first time, to exchange things between unrelated, unmarried individuals; to share, swap, barter and trade. Hence the Nassarius shells moving inland from the Mediterranean.                

The effect of this was to cause specialisation, which in turn caused technological innovation, which in turn encouraged more specialisation, which led to more exchange – and ‘progress’ was born, by which I mean technology and habits changing faster than anatomy.

... the ever-expanding possibility generated by a growing division of labour. This is something that amplifies itself once begun.

Reciprocity means giving each other the same thing (usually) at different times. Exchange – call it barter or trade if you like – means giving each other different things (usually) at the same time: simultaneously swapping two different objects. In Adam Smith’s words, ‘Give me that which I want, and you shall have this which you want.’

For barter to work, two individuals do not need to offer things of equal value. Trade is often unequal, but still benefits both sides.

True barter requires that you give up something you value in exchange for something else you value slightly more.

Birute Galdikas reared a young orang-utan in her home alongside her daughter Binti, and was struck by the contrasting attitudes to food sharing of the two infants. ‘Sharing food seemed to give Binti great pleasure,’ she wrote. ‘In contrast, Princess, like any orang-utan would beg, steal and gobble food at every opportunity’.

My argument is that this habit of exchanging, this appetite for barter, had somehow appeared in our African ancestors some time before 100,000 years ago. Why did human beings acquire a taste for barter as other animals did not? Perhaps it has something to do with cooking. 

Neither gathering nor hunting is especially good evolutionary preparation for sitting at a desk answering the telephone.

Without trade, innovation just does not happen. Exchange is to technology as sex is to evolution. It stimulates novelty.                

especially Tasmania, and on the Andaman islands, for example – their technological virtuosity was stunted and barely progressed beyond those of Neanderthals. There was nothing special about the brains of the moderns; it was their trade networks that made the difference – their collective brains. The most striking case of technological regress is Tasmania. Isolated on an island at the end of the world, a population of less than 5,000 hunter-gatherers divided into nine tribes did not just stagnate, or fail to progress. They fell steadily and gradually back into a simpler toolkit and lifestyle, purely because they lacked the numbers to sustain their existing technology.

By the time Europeans first encountered Tasmanian natives, they found them not only to lack many of the skills and tools of their mainland cousins, but to lack many technologies that their own ancestors had once possessed.

Bone tools, for example, grew simpler and simpler until they were dropped altogether about 3,800 years ago. Without bone tools it became impossible to sew skins into clothes, so even in the bitter winter, the Tasmanians went nearly naked but for seal-fat grease smeared on their skin and wallaby pelts over their shoulders. 

So it was not that there was no innovation; it was that regress overwhelmed progress.

There was nothing wrong with individual Tasmanian brains; there was something wrong with their collective brains. Isolation – self-sufficiency – caused the shrivelling of their technology. Earlier I wrote that division of labour was made possible by technology. But it is more interesting than that. Technology was made possible by division of labour: market exchange calls forth innovation.

The ‘Tasmanian effect’ may also explain why technological progress had been so slow and erratic in Africa after 160,000 years ago.

Exchange teaches people to recognise their enlightened self-interest lies in seeking cooperation.

There is no known human tribe that does not trade. Western explorers, from Christopher Columbus to Captain Cook, ran into many confusions and misunderstandings when they made first contact with isolated peoples. But the principle of trading was not one of them, because the people they met in every case already had a notion of swapping things.

the biology is only the start. It is something that makes prosperity possible, but it is not the whole explanation. Besides, there is still no evidence that any of this biology is uniquely developed in human beings. Capuchin monkeys and chimpanzees are just as resentful of unfair treatment as human beings are and just as capable of helpful acts towards kin or group members.

just as the genes for digesting milk as an adult have changed in response to the invention of dairying, so the genes for flushing your brain with oxytocin have probably changed in response to population growth, urbanisation and trading – people have become oxytocin-junkies far more than many other animals.

As a broad generalisation, the more people trust each other in a society, the more prosperous that society is, and trust growth seems to precede income growth.

The sexual and political liberation of women in the 1960s followed directly their domestic liberation from the kitchen by labour-saving electrical machinery.

In Greece, farmers arrived suddenly and dramatically around 9,000 years ago. Stone tools suggest that they were colonists from Anatolia or the Levant who probably came by boat deliberately seeking to colonise new land. Moreover, these very earliest Greek farmers were also apparently enthusiastic traders with each other and were very far from being self-sufficient: they relied upon specialist craftsmen to produce obsidian tools from raw material imported from elsewhere. This is once again not what conventional wisdom envisages. Trade comes first, not last. Farming works precisely because it is embedded in trading networks.

Uruk did not last, because the climate dried out and the population collapsed, aided no doubt by soil erosion, salination, imperial overspending and uppity barbarians. But Uruk was followed by an endless series of empires on the same ground: Sumerian, Akkadian, Assyrian, Babylonian, neo-Assyrian, Persian, Hellenistic, Roman (briefly, under Trajan), Parthian, Abbasid, Mongol, Timurid, Ottoman, British, Saddamite, Bushite ... Each empire was the product of trading wealth and was itself the eventual cause of that wealth’s destruction. Merchants and craftsmen make prosperity; chiefs, priests and thieves fritter it away.

The more prosperous and free that people become, the more their birth rate settles at around two children per woman with no coercion necessary.

Wilberforce’s ambition would have been harder to obtain without fossil fuels. ‘History supports this truth,’ writes the economist Don Boudreaux: ‘Capitalism exterminated slavery.’

The economist Pietra Rivoli writes, ‘As generations of mill girls and seamstresses from Europe, America and Asia are bound together by this common sweatshop experience – controlled, exploited, overworked, and underpaid – they are bound together too by one absolute certainty, shared across both oceans and centuries: this beats the hell out of life on the farm.’

The invention of invention: increasing returns after 1800... 

He who receives an idea from me, receives instruction himself without lessening mine; as he who lights his taper at mine, receives light without darkening me. THOMAS JEFFERSON

When Mark Zuckerberg invented Facebook in 2004 as a Harvard student, he needed very little R&D expenditure. Even when expanding it into a business, his first investment of $500,000 from Peter Thiel, founder of Paypal, was tiny compared with what entrepreneurs needed in the age of steam or railways.                

There are several ways to turn ideas into property. You can keep the recipe secret, as John Pemberton did for Coca-Cola in 1886. This works well where it is hard for rivals to ‘reverse-engineer’ your secrets by dismantling your products. Machinery, by contrast, betrays its secrets too easily.

Or, second, you can capture the first-mover advantage, as Sam Walton, the founder of Wal-Mart, did throughout his career.

The way to keep your customers, if you are Michael Dell, Steve Jobs or Bill Gates, is to keep making your own products obsolete.

The third way to profit from invention is a patent, a copyright or a trademark. Yet there is little evidence that patents are really what drive inventors to invent. Most innovations are never patented. In the second half of the nineteenth century neither Holland nor Switzerland had a patent system, yet both countries flourished and attracted inventors. And the list of significant twentieth century inventions that were never patented is a long one. It includes automatic transmission, Bakelite, ballpoint pens, cellophane, cyclotrons, gyrocompasses, jet engines, magnetic recording, power steering, safety razors and zippers. By contrast, the Wright brothers effectively grounded the nascent aircraft industry in the United States by enthusiastically defending their 1906 patent on powered flying machines.

Africa and climate therefore confront the rational optimist with a challenge, to say the least. For somebody who has spent 300 pages looking on the bright side of human endeavour, arguing along the way that the population explosion is coming to a halt, that energy will not soon run out, that pollution, disease, hunger, war and poverty can all be expected to continue declining if human beings are not impeded from exchanging goods, services and ideas freely – for such a person as your author, African poverty and rapid global warming are indeed acute challenges.

And at present there is no way to make Africans as rich as Asians except by them burning more fossil fuels per head. So Africa faces an especially stark dilemma: get rich by burning more carbon and then suffer the climate consequences; or join the rest of the world in taking action against climate change and continue to wallow in poverty. That is the conventional wisdom. I think it is a false dilemma and that an honest appraisal of the facts leads to the conclusion that by far the most likely outcome of the next nine decades is both that Africa gets rich and that no catastrophic climate change happens.

Human nature will not change. The same old dramas of aggression and addiction, of infatuation and indoctrination, of charm and harm, will play out, but in an ever more prosperous world. In Thornton Wilder’s play The Skin of Our Teeth, the Antrobus family (representing humankind) just manages to survive the ice age, the flood and a world war, but their natures do not change. History repeats itself as a spiral not a circle, Wilder implied, with an ever-growing capacity for both good and bad, played out through unchanging individual character. So the human race will continue to expand and enrich its culture, despite setbacks and despite individual people having much the same evolved, unchanging nature. The twenty-first century will be a magnificent time to be alive. Dare to be an optimist.