Fifty Things that Made the Modern Economy

by Tim Harford

Others said they were using M-Pesa to avoid being robbed on the road, depositing money before a journey and withdrawing it on arrival. Businesses were depositing money overnight rather than keeping it in a safe. People were paying each other for services. And workers in the city were using M-Pesa to send money to relatives back home in the village. It was safer than the previous option, entrusting the bus driver with cash in an envelope.

Within two years, M-Pesa transfers amounted to 10 per cent of Kenya’s GDP – that’s since become nearly half. Soon there were a hundred times as many M-Pesa kiosks in Kenya as ATMs.

Peruvian economist concluded about twenty-five years ago, while walking through the idyllic rice fields of Bali, Indonesia. As he passed one farm, a dog would bark at his approach. Then, quite suddenly, the first dog would stop and a new hound would begin to yap away. The boundary between one farm and the next was invisible to him – but the dogs knew exactly where it was. The economist’s name is Hernando de Soto.

The standard way that anyone raises a serious line of credit is to pledge property as collateral. Land and buildings make particularly good collateral because they tend to increase in value, and because it’s hard to hide them from creditors.

this invisible web is the difference between my house being an asset – something useful that I own – and being capital – an asset recognised by the financial system.

World Bank has found that after controlling for income and economic growth, the countries with simpler, quicker property registries also had less corruption, less grey-market activity, more credit and more private investment.

Parchment was pricey: a parchment bible required the skins of 250 sheep.

By 1702, paper was so cheap, it was used to make a product explicitly designed to be thrown away after just twenty-four hours: the Daily Courant, the world’s first daily newspaper.

America became so hungry for paper that they began to run out of rags. The situation became so desperate that scavengers combed battlefields after wars, stripping the dead of their bloodstained uniforms to sell to paper mills. There was an alternative source of cellulose for making paper: wood.

When it comes to writing, though, some say paper’s days are numbered – that the computer will usher in the age of the ‘paperless office’. The trouble is, the paperless office has been predicted since Thomas Edison in the late nineteenth century. Remember those wax cylinders, the technology that ushered in recorded music and introduced an age of vast inequality of musicians’ incomes?

The idea of the paperless office really caught on as computers started to enter the workplace in the 1970s,

paper sales stubbornly continued to boom: yes, computers made it easy to distribute documents without paper, but computer printers made it equally easy for the recipients to put them on paper anyway. America’s copiers, fax machines and printers continued to spew out enough sheets of ordinary office paper to cover the country every five years.

Finally, digital is doing to paper what paper did to parchment with the help of the Gutenberg press: outcompeting it, not on quality, but on price.

Old technologies have a habit of enduring. We still use pencils and candles. The world still produces more bicycles than cars.

if you’re saving for retirement, a 1 per cent annual fee could easily eat away a quarter or more of your retirement fund.

Forty years after Bogle launched his index fund, fully 40 per cent of US stock market funds are passive trackers rather than active stock-pickers. You might say that the remaining 60 per cent are clinging to hope over experience.

Flushing toilets had previously foundered on the problem of smell: the pipe that connects the toilet to the sewer, allowing urine and faeces to be flushed away, will also let sewer odours waft back up – unless you can create some kind of airtight seal.

The challenge is that public sanitation isn’t something the market necessarily provides. Toilets cost money, but defecating in the street is free. If I install a toilet, I bear all the costs, while the benefits of the cleaner street are felt by everyone. In economic parlance, that’s what is known as a positive externality – and goods that have positive externalities tend to be bought at a slower pace than society, as a whole, would prefer.

That’s one reason why, although the S-bend has been around for ten times as long as the mobile phone, many more people currently own a mobile phone than a flushing toilet.

Iron coins aren’t terribly practical. If you traded in a handful of silver coins – just 50 grams’ worth – you’d be given your own body weight in iron coins. Even something simple like salt was worth more, gram for gram, than iron – so if you went to the market for groceries, your sackful of coins on the way there

The new system of tradable promises is very good news for Mr Zhang, because as long as one person after another finds it convenient simply to pass on his IOU as a way of paying for things, Mr Zhang never actually has to stump up the iron coins. In effect, he enjoys an interest-free loan for as long as his IOU continues to circulate. Better still, it’s a loan that he may never be asked to repay. No wonder the Chinese authorities started to think these benefits ought to accrue to them, rather than to the likes of Mr Zhang.

someone had figured out how to make cement, and therefore concrete. It was certainly being used over eight thousand years ago by desert traders to make secret underground cisterns to store scarce water; some of these cisterns still exist in modern-day Jordan and Syria.

flexible while you’re making something, utterly inflexible once it’s made. In the hands of an architect or a structural engineer, concrete is a remarkable material – you can pour it into a mould, and set it to be slim and stiff and strong in almost any shape you like. It can be dyed, or grey; it can be rough or polished smooth like marble. But the moment the building is finished, the flexibility ends: cured concrete is a stubborn, unyielding material.

a betting shop won’t gamble on life and death. A life insurance company, by contrast, does little else.

Legally and culturally, there’s a clear distinction between gambling and insurance. Economically the difference is not so easy to see. Both the gambler and the insurer are agreeing that money will change hands depending on what transpires in some unknowable future.

Eight decades after Lloyd had established his coffee house, a group of underwriters who hung out there formed the Society of Lloyd’s. Today, Lloyd’s of London is one of the most famous names in insurance.

Other lessons seem easier to forget, like the value of allowing smart people to indulge their intellectual curiosity without a clear idea of where it might lead. In bygone days, this implied a wealthy man like Leo Baekeland tinkering in his lab; in the more recent past, it’s meant government funding for basic research

but it took the military to subdue the Luddites, who correctly perceived that it was disastrous for them.

in 2006, for example, MySpace surpassed Google as the most visited website in the United States; today, it doesn’t make the top thousand.

If more travellers are willing to pay twice as much to fly, it hardly makes sense for inflation statistics to record that the cost of the journey has suddenly doubled. How, then, do we measure inflation when what we’re able to buy changes so radically over time?

Because we don’t have a good way to compare an iPod today to a gramophone a century ago, we don’t really have a good way to quantify how much all the inventions described in this book have really expanded the choices available to us. We probably never will.

Man-made light was once a thing that was too precious to use. Now it is too cheap to notice.