The Rational Optimist: How Prosperity Evolves

by Matt Ridley

In 1699, all judges and students were told to wear gowns of wool; in 1700 all corpses were ordered to wear shrouds of sheep’s wool; and from 1701 it was decreed that ‘all calicoes painted, dyed, printed or stained…shall not be worn’. So ladies of fashion bought plain muslin and had it dyed.

Riots broke out and women seen wearing cotton were even attacked by gangs of silk or wool weavers. Cotton was considered unpatriotic.

So, stuck between booming demand and stalling supply, the putters-out and their suppliers were ripe customers for any kind of productivity-enhancing invention, and with such an incentive, the inventors soon obliged. John Kay’s flying shuttle, James Hargreaves’s spinning jenny, Richard Arkwright’s water frame, Samuel Crompton’s mule – these were all just milestones on a continuous road of incrementally improving productivity.

Until 1800 most of the raw cotton spun in England came from Asia. But Chinese and Indian cotton growers either could not or would not increase their output. They had little fresh land to exploit and little incentive either: the zemindar landlord or the imperial bureaucrat took the profit of any productivity increase. Instead it was the southern states of America that took up the opportunity. From producing an insignificant quantity of cotton in 1790, America became the world’s biggest producer by the 1820s and by 1860 was growing two-thirds of the world’s cotton. Cotton accounted for half of all American exports by value between 1815 and 1860.

The wages of a coal hewer in the North-east of England were twice as high, and rising twice as fast, as those of a farm worker in the nineteenth century. Without coal, innovation in England’s textile, iron and transport industry would have had to stagnate after 1800, when all that ferment of invention had as of yet had almost no effect on living standards.

Now Lancashire could beat the world for both quality and price. In 1750, India’s muslins and calicoes were the envy of weavers everywhere. A century later, despite wages that were four or five times higher than in India, Lancashire was able to flood even India with cheap cotton cloth, some of it manufactured from Indian raw cotton that had made a 13,000-mile round trip. This was thanks entirely to the productivity of Lancashire’s mechanised mills. That is how much difference having fossil fuels made. No matter how low his wages, an Indian weaver could not compete with the operator of a steam-driven Manchester mule. By 1900, 40 per cent of the world’s cotton goods were produced within thirty miles of Manchester.

Industrialisation became contagious: the increased productivity of cotton mills encouraged demand from the chemical industry, which invented chlorine for bleaching, and from the printing industry, which turned to drum printing to print coloured cloth. By cutting the price of cotton, it also released consumer expenditure for other goods, which stimulated other manufacturing inventions. And of course to make the new machines, it demanded high-quality iron, which was made possible by cheap coal.

But try to see its magic. Try to see it through the eyes of somebody who has never known power that was invisible and weightless, that could be transmitted miles through a slender wire, that can do almost anything, from lighting to toasting, from propulsion to music playing. Two billion people alive today have never turned on a light switch.

Imagine yourself at the Vienna exhibition of 1873. There is a stand exhibiting the work of the splendidly named semi-literate Belgian inventor Zénobe Théophile Gramme, and it is manned by his business partner, the equally euphonious French engineer Hippolyte Fontaine. They are showing off the Gramme dynamo, the first electricity generator that can produce a smooth current, and a steady light, when set spinning by hand or by a steam engine. Over the next five years, their dynamos will power hundreds of new industrial lighting installations all over Paris. In the Vienna exhibition, one of the workmen makes a careless mistake. He connects the wires from the spinning dynamo accidentally to the spare dynamo that is there to provide a back-up in case the first one fails. The reserve dynamo immediately begins to spin all by itself, in effect it becomes a motor. Fontaine’s mind starts spinning too. He calls for the longest wire that can be found and connects the two dynamos by a wire that is 250 metres long. The reserve dynamo springs to life as soon as it is connected. Suddenly it became clear that electricity can transmit power over a distance far greater than belts, chains or cogs could.

Or, to put it another way, a patch of ground roughly five yards by five yards receives as much sunlight as you need to run your techno life.

Thanks mainly to new energy technologies, what took a textile worker twenty minutes in 1750 took just one minute in 1850.

He could therefore either supply twenty times as many people in a day’s work, or supply each customer with twenty times as much cloth, or free his customer to spend 19/20ths of his income on something other than shirts.

Today, the average person on the planet consumes power at the rate of about 2,500 watts, or to put it a different way, uses 600 calories per second. About 85 per cent of that comes from burning coal, oil and gas, the rest from nuclear and hydro (wind, solar and biomass are mere asterisks on the chart, as is the food you eat).

generate about fifty watts, this means that it would take 150 slaves, working eight-hour shifts each, to peddle you to your current lifestyle. (Americans would need 660 slaves, French 360 and Nigerians 16.) Next time you lament human dependence on fossil fuels, pause to imagine that for every family of four you see in the street, there should be 600 unpaid slaves back home, living in abject poverty: if they had any better lifestyle they would need their own slaves. That is close to a trillion people.

So influential was Jevons’s jeremiad about what would now be called ‘peak coal’ that it led to a newspaper-led ‘coal panic’ of 1866, to William Gladstone’s budgetary promise of that year to start paying down the national debt while coal lasted and to a Royal Commission on the coal supply. Ironically, this was the very decade when vast coal reserves were discovered all over the world and petroleum drilling began in earnest in the Caucasus and North America.

In the twentieth century oil has been the chief cause of anxiety. In 1914, the United States Bureau of Mines predicted that American oil reserves would last ten years. In 1939 the Department of the Interior said American oil would last thirteen years. Twelve years later it said the oil would last another thirteen years. President Jimmy Carter announced in the 1970s that: ‘We could use up all of the proven reserves of oil in the entire world by the end of the next decade.’

Moreover, it is an undeniable if surprising fact, often overlooked, that fossil fuels have spared much of the landscape from industrialisation. Before fossil fuels, energy was grown on land and it needed lots of land to grow it.

The truth is, it was western Europe’s incredible good fortune that just when humankind began to bear down on its landscapes and habitats most heavily, instead of ecological disaster as happened in Babylon, there appeared from underground a near-magical substance so that the landscape could be partly spared. Today you do not have to use acres to grow your transport fuel (oil has replaced hay for horses), your heating fuel (natural gas for timber), your power (coal for water), or your lighting (nuclear and coal for beeswax and tallow). You still have to grow much of your clothing, although ‘fleeces’ now come from oil. More’s the pity: if cotton could be replaced by a synthetic substance of the same quality, the Aral Sea could be restored and parts of India and China given back to tigers.

This is what makes the ethanol and biofuel boondoggle so enraging. Not even Jonathan Swift would dare to write a satire in which politicians argued that – in a world where species are vanishing and more than a billion people are barely able to afford to eat – it would somehow be good for the planet to clear rainforests to grow palm oil, or give up food-crop land to grow biofuels, solely so that people could burn fuel derived from carbohydrate rather than hydrocarbons in their cars, thus driving up the price of food for the poor. Ludicrous is too weak a word for this heinous crime. But I will calm myself just long enough to go through the numbers in case nobody has heard them.

supply below world food demand in 2008 and cause food riots all over the world. Between 2004 and 2007 the world maize harvest increased by fifty-one million tonnes, but fifty million tonnes went into ethanol, leaving nothing to meet the increase of demand for all other uses of thirty-three million tonnes: hence the price rose. The poor, remember, spend 70 per cent of their incomes on food. In effect, American car drivers were taking carbohydrates out of the mouths of the poor to fill their tanks.

Moreover, it takes about 130 gallons of water to grow, and five gallons of water to distil a single gallon of maize ethanol – assuming that only 15 per cent of the crop is irrigated. By contrast, it takes less than three gallons of water to extract, and two gallons to refine, a gallon of gasoline.

The chief reason it gained such a stranglehold on American politicians is because of the lobbying and political funding supplied by big companies.

food yields from land continue to increase at the current rate, the current acreage of farmland will – just – feed the world in 2050, so the extra land for growing fuel will have to come from rainforests and other wild habitats.

Ah, for one good reason, you reply: climate change. I will address that issue in chapter 10. For now, simply note that if it were not for the climate-change argument, you could not begin to justify the claim that renewable energy is green and fossil energy is not.

‘I am ashamed at the number of things around my house and shops that are done by animals – human beings, I mean – and ought to be done by a motor without any sense of fatigue or pain. Hereafter a motor must do all the chores.’ CHAPTER 8

Yet that is precisely the character of the human experience since 100,000 years ago. Inexorably, the global nut bowl has yielded ever more pecans, however many get used. The pace of acceleration of returns lurched upwards around 10,000 years ago in the agricultural revolution. It then lurched upwards again in ad 1800 and the acceleration continued in the twentieth century. The most fundamental feature of the modern world since 1800 – more profound than flight, radio, nuclear weapons or websites, more momentous than science, health, or material well-being – has been the continuing discovery of ‘increasing returns’ so rapid that they outpaced even the population explosion.

The more you prosper, the more you can prosper. The more you invent, the more inventions become possible. How can this be possible? The world of things – of pecans or power stations – is indeed often subject to diminishing returns. But the world of ideas is not.

The dissemination of useful knowledge causes that useful knowledge to breed more useful knowledge.

The possibility of new knowledge makes the steady state impossible. Somewhere somebody will have a new idea and that idea will enable him to invent a new combination of atoms both to create and to exploit imperfections in the market. As Friedrich Hayek argued, knowledge is dispersed throughout society, because each person has a special perspective.

This obsession with ‘the balance of nature’ runs right through Western science, since even before Aristotle, and sees its recent expression in concepts like ecological climax, the natural vegetation that will clothe an area if it is left for long enough.

Take the place where I am sitting. Supposedly, its climax vegetation is oak forest, but the oaks only arrived a few thousand years ago, replacing the pines, the birch and before that the tundra. Just 18,000 years ago, where I sit was under a mile of ice, and 120,000 years ago it was a steaming swamp complete with hippos. Which of these is its ‘natural’ state? Besides, even if the climate settled down to an unvarying stability (something it has never done), oak saplings cannot thrive under oaks (oak-eating pests rain down on them), so after a few thousand years of oak domination an oak forest gives way to something else. Lake Victoria was bone-dry 15,000 years ago. The Great Barrier Reef was partly a range of coastal hills 20,000 years ago. The Amazon rainforest is in a state of constant perturbation: from tree falls to fires and floods, its diversity requires it to be constantly changing. There is no equilibrium in nature; there is only constant dynamism. As Heraclitus put it, ‘Nothing endures but change.’

Even so, the generation of new useful knowledge is very far from routine, uniform, steady or continuous. Although the human race as a whole has experienced incessant change, individual peoples saw a much more intermittent flickering progress because the pace and place of that change was itself always changing. Innovation is like a bush fire that burns brightly for a short time, then dies down before flaring up somewhere else. At 50,000 years ago, the hottest hot-spot was west Asia (ovens, bows-and-arrows), at 10,000 the Fertile Crescent (farming, pottery), at 5,000 Mesopotamia (metal, cities), at 2,000 India (textiles, zero), at 1,000 China (porcelain, printing), at 500 Italy (double-entry book-keeping, Leonardo), at 400 the Low Countries (the Amsterdam Exchange Bank), at 300 France (Canal du Midi), at 200 England (steam), at 100 Germany (fertiliser); at 75 America (mass production), at 50 California (credit card), at 25 Japan (Walkman). No country remains for long the leader in knowledge creation.

As I have argued in the previous three chapters, the answer lies in two phenomena: institutions and population. In the past, when societies gorged on innovation, they soon allowed their babies to grow too numerous for their land, reducing the leisure, wealth and market that inventors needed (in effect, the merchant’s sons became struggling peasants again). Or they allowed their bureaucrats to write too many rules, their chiefs to wage too many wars, or their priests to build too many monasteries (in effect, the merchants’ sons became soldiers, sybarites or monks). Or they sank into finance and became parasitic rentiers. As Joel Mokyr puts it: ‘Prosperity and success led to the emergence of predators and parasites in various forms and guises who eventually slaughtered the geese that laid the golden eggs.’ Again and again, the flame of invention would splutter and die…only to flare up elsewhere. The good news is that there is always a new torch lit. So far.

cheaply for now. Very roughly, the best industry to be in as an innovator was: 1800 – textiles; 1830 – railways; 1860 – chemicals; 1890 – electricity; 1920 – cars; 1950 – aeroplanes; 1980 – computers; 2010 – the web. Whereas the nineteenth century saw a rash of new ways to move people about (railways, bicycles, cars, steamships), the twentieth century saw a rash of new ways to move information about (telephones, radio, television, satellites, fax, the internet, mobile telephones). Admittedly, the telegraph came long before the aeroplane, but the general point stands.

This was especially true in the biological world. Aspirin was curing headaches for more than a century before anybody had the faintest idea of how. Penicillin’s ability to kill bacteria was finally understood around the time bacteria learnt to defeat it. Lime juice was preventing scurvy centuries before the discovery of vitamin C. Food was being preserved by canning long before anybody had any germ theory to explain why it helped.

In imperial Rome, no doubt scores of unknown slaves knew how to make better olive presses, better watermills and better

wool looms, while scores of plutocrats knew how to save, invest and consume. But the two lived miles apart, separated by venal middlemen who had no desire to bring them together.

inherently no value to us,’ read a Western Union internal memo in 1876. That is why Apple, not IBM, perfected the personal computer, why the Wright brothers, not the French army, invented powered flight, why Jonas Salk, not the British National Health Service, invented a polio vaccine, why Amazon, not the Post Office, invented one-click ordering and why a Finnish lumber-supply company, not a national telephone monopoly, became the world leader in mobile telephony.

The internet has revived this possibility in recent years. Sites like Innocentive and yet2.com allow companies both to post problems they cannot solve, promising rewards for their solution,

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 perpetual innovation machine that drives the modern economy owes its existence not mainly to science (which is its beneficiary more than its benefactor); nor to money (which is not always a limiting factor); nor to patents (which often get in the way); nor to government (which is bad at innovation). It is not a top-down process at all. Instead, I am going to try now to persuade you that one word will suffice to explain this conundrum: exchange.

The secret of the modern world is its gigantic interconnectedness. Ideas are having sex with other ideas from all over the planet with ever-increasing promiscuity. The telephone had sex with the computer and spawned the internet. The first motor cars looked as though they were ‘sired by the bicycle out of the horse carriage

This is one area in which cultural evolution has an unfair advantage over genetic evolution. For insuperable practical reasons connected with the pairing of chromosomes during meiosis, cross fertilisation cannot happen between different species of animal.

other species on average – one reason bacteria are so darned good at evolving resistance to antibiotics, for example.) As soon as two races of animals have diverged substantially, they find themselves able to produce only sterile offspring – like mules – or none at all. That is the very definition of a species.

The wonderful thing about knowledge is that it is genuinely limitless. There is not even a theoretical possibility of exhausting the supply of ideas, discoveries and inventions. This is the biggest cause of all for my optimism. It is a beautiful feature of information systems that they are far vaster than physical systems: the combinatorial vastness of the universe of possible ideas dwarfs the puny universe of physical things. As Paul Romer puts it, the number of different software programs that can be put on one-gigabyte hard disks is twenty-seven million times greater than the number of atoms in the universe. Or if you were to combine any four of the 100 chemical elements into different alloys and compounds in different proportions ranging from one to ten, you would have 330 billion possible chemical compounds and alloys to test, or enough to keep a team of researchers busy testing a thousand a day for a million years.

If, on the other hand, you say catastrophe is imminent, you may expect a McArthur genius award or even the Nobel Peace Prize. The bookshops are groaning under ziggurats of pessimism.

Even the good news is presented as bad news. Reactionaries and radicals agree that ‘excessive choice’ is an acute and present danger – that it is corrupting, corroding and confusing to encounter ten thousand products in the supermarket, each reminding you of your limited budget and of the impossibility of ever satisfying your demands. Consumers are ‘overwhelmed with relatively trivial choices’ says a professor of psychology. This notion dates from Herbert Marcuse, who turned Marx’s notion of the ‘immiseration of the proletariat’ by steadily declining living standards on its head and argued that capitalism forced excessive consumption on the working class instead. It resonates well in the academic seminar, causing heads to nod in agreement, but it is sheer garbage in the real world.

There has probably never been a generation since the Palaeolithic that did not deplore the fecklessness of the next and worship a golden memory of the past. The endless modern laments about how texting and emails are shortening the attention span go back to Plato, who deplored writing as a destroyer of memorising

The ‘youth of today’ are shallow, selfish, spoiled, feral good-for-nothings full of rampant narcissism and trained to have ephemeral attention spans, says one commentator. They spend too long in cyberspace, says another, where their grey matter is being ‘scalded and defoliated by a kind of cognitive Agent Orange, depriving them of moral agency, imagination and awareness of consequences’. Balderdash. Of course, there are twerps and geeks in every generation, but today’s young are volunteering for charities, starting companies, looking after their relatives, going to work – just like any other generation, maybe more so. Mostly when they are staring at screens it is to indulge in rampant social engagement. The Sims 2 game, which sold more than a million copies in ten days when launched in 2004, is a game in which the players – often girls – get virtual people to live complex, realistic, highly social lives and then chat about it with their friends. Not much scalding and defoliating there.

Pessimism has always been big box office. It plays into what Greg Easterbrook calls ‘the collective refusal to believe that life is getting better’.