The Rational Optimist (P.S.)

by Matt Ridley

collective brain

Human cultural progress is a collective enterprise and it needs a dense collective brain.

30,000 years ago in western Asia and the Near East – the so-called Upper Palaeolithic Revolution – may be explained by a dense population. Fed by an increasingly intensive and vegetarian hunter-gathering lifestyle, and with close contact between tribes, the people of south-west Asia were in a position to accumulate more and more skills and technologies than any previous human populations.

Money is not metal. It is trust inscribed.

Ultimatum Game,

lesson. The argument is not that exchange teaches people to be kind; it is that exchange teaches people to recognise their enlightened self-interest lies in seeking cooperation.

specialising is risky

but specialisation with exchange allows three times the pay-off of self-sufficiency.

Trade is prehistoric and ubiquitous.

human beings can build complicated societies and experience prosperity is down to the fact that they have a biological instinct that encourages cooperation? If only it were that simple. If only the arguments of Hobbes and Locke, of Rousseau and Voltaire, of Hume and Smith, of Kant and Rawls, could be brought to such a neat and reductionist conclusion. However, the biology is only the start. It is something that makes prosperity possible, but it is not the whole explanation.

Oxytocin is common to all mammals, and is used for mother-love in sheep and lover-love in voles, so the chances are that it is available to underpin trust in almost any social mammal. It is necessary, but not sufficient to explain the human propensity to exchange.

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.

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

collective brains,

‘The success of trust-based peer organizations such as eBay, Wikipedia, and the open-source movement, indicates that trust is a highly expandable network property.’

The history of human prosperity, as Robert Wright has argued, lies in the repeated discovery of non-zero-sum bargains that benefit both sides.

Mercantilism said that exports made you rich and imports made you poor, a fallacy mocked by Adam Smith when he pointed out that Britain selling durable hardware to France in exchange for perishable wine was a missed opportunity to achieve the ‘incredible aug mentation of the pots and pans of the country’. Marxism said that capitalists got rich because workers got poor, another fallacy. In the film Wall Street, the fictional Gordon Gekko not only says that greed is good; he also adds that it’s a zero-sum game where somebody wins and somebody loses. He is not necessarily wrong about some speculative markets in capital and in assets, but he is about markets in goods and services. The notion of synergy, of both sides benefiting, just does not seem to come naturally to people. If sympathy is instinctive, synergy is not.

There is a direct link between commerce and virtue.

In that sense ‘capitalism’ is dying, and fast. The size of the average American company is down from twenty-five employees to ten in just twenty-five years. The market economy is evolving a new form in which even to speak about the power of corporations is to miss the point. Tomorrow’s largely self-employed workers, clocking on to work online in bursts for different clients when and where it suits them, will surely look back on the days of bosses and foremen, of meetings and appraisals, of time sheets and trade unions, with amusement. I repeat: firms are temporary aggregations of people to help them do their producing in such a way as to help others do their consuming.

But for anybody who thinks great art and great philosophy have nothing to do with commerce, let him visit Athens and Baghdad to ask how Aristotle and al-Khwarizmi had the leisure time to philosophise. Let him visit Florence, Pisa and Venice and inquire into how Michelangelo, Galileo and Vivaldi were paid. Let him go to Amsterdam and London and ask what funded Spinoza, Rembrandt, Newton and Darwin.

the world is indeed becoming a more trusting and less violent place as it becomes more commercial,

a country’s economic freedom predicts its prosperity better than its mineral wealth, education system or infrastructure do. In a sample of 127 countries, the sixty-three with the higher economic freedom had more than four times the income per capita and nearly twice the growth rate of the countries that did not.

Human history is driven by a co-evolution of rules and tools. The increasing specialisation of the human species, and the enlarging habit of exchange, are the root cause of innovation in both.

Oetzi lived about 5,300 years ago in an Alpine valley. This was 2,000 years after agriculture reached southern Europe.

day. Farming is the extension of specialisation and exchange to include other species.

In the 1960s, Jane Jacobs suggested in her book The Economy of Cities that agriculture was invented to feed the first cities, rather than cities being made possible by the invention of agriculture. This goes too far, and archaeologists have discredited the idea of urban centres preceding the first farms. The largest permanent settlements of hunter-gatherers cannot be described as urban even among the fishermen of the Pacific coast of North America. None the less, there was a germ of truth in her idea: the first farmers were already enthusiastic traders breaking free of subsistence through exchange, and farming was just another expression of trade. 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.

Copper smelting was a practice that makes no sense for an individual trying to meet his own needs, or even for a self-sufficient tribe. It requires a stupendous effort to mine the ore and then by virtue of elaborate bellows to smelt it in a charcoal fire at more than 1,083°C, just to produce a few ingots of a metal that is strong and malleable, but not very hard. Imagine: you have to cut wood and make charcoal from it, make ceramic crucibles for the smelting, dig and crush the ore, then mould and hammer the copper. Only by consuming the stored labour of others – by living off capital – could you even finish the job. Then, even if you can sell copper axes to other hunter-gatherers, the market is likely to be too small to make it worth your while setting up a smelting operation. But once agriculture has provided the capital, increased the density of people, and given them a good reason for chop ping down trees, then there might be a market large enough to support a community of full-time copper smelters, so long as they can sell the copper to neighbouring tribes. Or, in the words of two theorists: ‘The denser societies made possible by agriculture can realize considerable returns to better exploitation of the potential of co-operation, co-ordination and the division of labour.’

Compared with the farmers on the Danube Plain, the Mitterberg copper miners left behind few ornaments or luxuries. But they were better off than they could be trying to live self-sufficiently in the mountains raising their own food. They were not supplying a need; they were making a living, responding to economic incentives as clearly as any modern person. Homo economicus was not an eighteenth-century Scottish invention. Their copper, turned into ingots and sickles, standardised for weight, then broken up and circulated far and wide, would soon become a primitive form of money widely used throughout Europe to lubricate exchange.

The characteristic signature of prosperity is increasing specialisation. The characteristic signature of poverty is a return to self-sufficiency.

The archaeologist Steven LeBlanc says that the evidence of constant violence in the ancient past has been systematically overlooked by Rousseauesque wishful thinking among academics.

Rome declined from a million inhabitants in 100 BC to less than 20,000 in the early Middle Ages. Since people have generally done more dying than procreating when in cities, big cities have always depended on rural immigrants to sustain their numbers.

Just as agriculture appeared in six or seven parts of the world simultaneously, suggesting an evolutionary determinism, so the same is true, a few thousand years later, of cities. Large urban settlements, with communal buildings, monuments and shared infrastructure, start popping up after seven thousand years ago in several fertile river valleys. The oldest cities were in southern Mesopotamia, in what is now Iraq. Their emergence signified that production was becoming more specialised, consumption more diversified.

Euphrates valley began to grow sufficiently prosperous, in a period of high rainfall, to exchange their grain and woven wool for timber and precious stones from the people in the hills to the north. From about 7,500 years ago, a distinctive ‘Ubaid’ style of pottery, clay sickles and house design spread all across the Near East, reaching up into the mountains of Iran, across to the Mediterranean and along the shores of the Arabian peninsula, where fishermen sold fish to Ubaid merchants in exchange for grain and nets. This was a trading diaspora, not an empire: the domestic habits of th...

Trade with the hills continued, but increasingly it came to look like tribute as Uruk merchants’ dwellings, complete with distinctive central halls, niched-façade temples and peculiar forms of pottery and stone tool, were plonked amid the rural settlements of trading partners in the hills. A cooperative trade network seems to have turned into something much more like colonialism. Tax and even slavery soon began to rear their ugly heads. Thus was set the pattern that would endure for the next 6,000 years – merchants make wealth; chiefs nationalise it. The story of Ubaid and Uruk is familiar and modern. You can imagine the Ubaid merchants displaying their cloths and pots and groaning sacks of grain to the wide-eyed peasants of the hills. You can see the Uruk nabobs in their privileged enclaves, surrounded by subservient natives, like the British in India or Chinese in Singapore. It is with a start that you recall this is still essentially the Stone Age. Only towards the end of the Ubaid period is copper being smelted, and well into the Uruk times, sickles and knives are still made of stone or clay. Late in the Uruk period clay tablets appear with uniform marks on them meticulously accounting for merchants’ stocks and profits. Those dull records, dug into the surfaces of clay tablets, are the ancestors of writing – accountancy was its first application. The message those tablets tell is that the market came long before the other appurtenances of civilisation. Exchange and tra...

To argue, therefore, that emperors or agricultural surpluses made the urban revolution is to get it backwards. Intensification of trade came first. Agricultural surpluses were summoned forth by trade, which offered farmers a way of turning their produce into valuable goods from elsewhere. Emperors, with their ziggurats and pyramids, were often made possible by trade. Throughout history, empires start as trade areas before they become the playthings of military plunderers from within or without. The urban revolution was an extension of the division of labour.

now seems that the state did not so much sponsor trade, as capture it. The more that comes to light about ancient trade, the more bottom-up it looks.

So the typical Akkadian tamkarum or merchant was a businessman of the most surprisingly modern kind, who depended for his livelihood on freely exchanging goods for profit. Though there was no minted coinage, from the end of the fourth millennium BC there were silver-based prices, which fluctuated freely. The temple would act as a sort of bank, lending money at interest – and the Uruk word for high priest is the same as the word for accountant. By 2000 BC, under the Assyrian empire, merchants from Ashur operated in ‘karum’ enclaves in the independent states of Anatolia as thoroughly modern entrepreneurs with ‘head offices, foreign branch-plants, corporate hierarchies, extra-territorial business law, and even a bit of foreign direct investment and value-added activity’. They bought gold, silver and copper in exchange for tin, goat-hair felt, woven textiles and perfumes shipped in on caravans of up to 300 donkeys. The profit margin was 100 per cent on tin and 200 per cent on textiles, but it had to be because the transport was unreliable and the risk of theft high. One such merchant, Pusu-Ken, operating in a tax-free zone in the Anatolian city of Kanesh, was to be found in 1900 BC lobbying the king, paying fines for evading textile import regulations imposed by the assembly, and sharing profits with his investor-partners, sounding in other words every inch the modern chief executive. Such merchants ‘did not devote themselves to trading in copper and wool because Assyria neede...

these Bronze Age empires, commerce was the cause, not the symptom of prosperity. None the less, a free trade area lends itself easily to imperial domination. Soon, through tax, regulation and monopoly, the wealth generated by trade was being diverted into the luxury of the few and the oppression of the many. By 1500 BC you could argue that the richest parts of the world had sunk into the stagnation of palace socialism as the activities of merchants were progressively nationalised. Egyptian, Minoan, Babylonian and Shang dictators ruled over societies of rigid dirigisme, extravagant bureaucracy and feeble individual rights, stifling technological innovation, crowding out social innovation and punishing creativity. A Bronze Age empire stagnated for much the same reason that a nationalised industry stagnates: monopoly rewards caution and discourages experiment, the income is gradually captured by the interests of the producers at the expense of the interests of the consumers, and so on. The list of innovations achieved by the pharaohs is as thin as the list of innovations achieved by British Rail or the US Postal Service.

Around 1200 BC,

like the later Dark Ages that followed the fall of Rome, this political fragmentation, perhaps aided by a population decline, caused a burst of invention as demand rose among free people. The Philistines invented iron; the Canaanites the alphabet; and their coastal cousins, the Phoenicians, glass.

Suddenly, for the first time, a large-scale seaborne division of labour became a possibility: wheat from Egypt could feed the Hittites in Anatolia; wool from Anatolia could clothe the Egyptians on the Nile; olive oil from Crete could enrich the diets of Assyrians in Mesopotamia. The ships of what is now Lebanon could trade for profit and scour the seas for tempting products. Grain, wine, honey, oil, resin, spices, ivory, ebony, leather, wool, cloth, tin, lead, iron, silver, horses, slaves, or a purple dye made from a gland in the body of the murex shellfish – there was little the Phoenicians could not find

The effect of the Phoenicians must have been to create a burst of specialisation all around the Mediterranean.

The Phoenician diaspora teaches another important lesson, first advanced by David Hume: political fragmentation is often the friend, not the enemy, of economic advance, because of the stop which it gives ‘both to power and authority’.

Yet as soon as Greece was unified into an empire by a thug – Philip of Macedon in 338 BC – it lost its edge. Had his son Alexander’s empire lasted, it would undoubtedly have become as commercially and intellectually inert as its Persian predecessor. But because the empire fragmented on Alexander’s death, parts of it were reborn as independent city states that lived off trade, most notably Alexandria in Egypt, which reached a third of a million people living in a state of famous wealth under the comparatively benign rule of the book-collecting Ptolemy III. That wealth was based on new roads to bring cash crops of cotton, wine, grain and papyrus within reach of the river Nile for export. This is not to say that democratic city states are the only places where economic progress can occur, but it is to discern a pattern. Plainly, there is something beneficial to the growth of the division of labour when governments are limited (though not so weak that there is widespread piracy), republican or fragmented. The chief reason is surely that strong governments are, by definition, monopolies and monopolies always grow complacent, stagnant and self-serving. Monarchs love monopolies because where they cannot keep them to themselves, they can sell them, grant them to favourites and tax them. They also fall for the perpetual fallacy that they can make business work more efficiently if they plan it rather than allow and encourage it to evolve. The scientist and historian Terence Kealey p...

Think about this from the consumer’s point of view. Nobody in China can blow glass; nobody in Europe can reel silk. Thanks to a middleman in India, however, the European can wear silk and the Chinese can use glass. The European may scoff at the ridiculous legend that this lovely cloth is made from the cocoons of caterpillars; and the Chinese may guffaw at the laughable fable that this transparent ceramic is made from sand. But both of them are better off and so is the Indian middleman. All three have acquired the labour of others. In Robert Wright’s terms, this is a non-zero transaction. The collective brain has expanded across the entire Indian Ocean and lifted the standard of living at both ends. Ships of the desert

Thanks to a newly perfected technology, the camel, the people of the Arabian Peninsula found themselves well placed to profit from trade between East and West. The camel caravans of Arabia were the source of the wealth that carried Muhammad and his followers to power.

‘ships of the desert’.

In due course, these Muslim gains from trade began to lift Europe out of its self-sufficiency thanks largely to Jewish traders, who in the tenth century abandoned the increasingly oppressive court of the Abbasids in Baghdad for the more tolerant regime of the Egyptian Fatimids. Settling along the southern shores of the Mediterranean and in Sicily, these Maghribi traders developed their own rules of contract enforcement and punishment by ostracism, quite outside the official courts. Like all the best entrepreneurs, they thrived despite, rather than because of their government. And it was they who began to trade with the ports of Italy. Italian peasants started to discover that instead of dividing their land among impoverished heirs they could send sons to town to trade with Maghribi Jews. Northern Italy, because of a stand-off between the Holy Roman emperor and the pope, was temporarily favoured by an absence of greedy rent-seeking kings.

Amalfi, Pisa, and above all Genoa began to flourish on the back of the Maghribi trade. It was a Pisan trader living in north Africa, Fibonacci, who brought Indian–Arabic decimals, fractions and the calculation of interest to Europe’s notice in his book Liber Abaci, published in 1202. Genoa’s trade with North Africa doubled after an agreement for the protection of merchants was reached in 1161, and by 1293 the city’s trade exceeded the entire revenue of the king of France. Lucca acquired a strong position in the silk trade and then in banking. Florence became wealthy through weaving wool and silk. Milan, gateway to the Alpine passes, flourished as a market town. And Venice, long independent in the safety of its lagoon, gradually became the epitome of the trading state. Despite competing and often warring with each other, republican city states, run by merchants, not only took care not to tax or regulate trade into extinction, but did everything they could to encourage it: in Venice, for example, the government built and leased ships and arranged convoys. Italy’s prosperity

Regions that participated in Asian trade grew richer than the regions that did not: by 1500 Italy’s GDP per capita was 60 per cent higher than the European average. But historians often put too much emphasis on exotic trade with the Orient. As late as 1600, European trade with Asia, dominated because of transport costs of luxuries such as spices, was only half the value of the inter-regional European trade in cattle alone. Europe could trade with Asia because it traded so much with itself, not vice versa.