The Rational Optimist (P.S.)

by Matt Ridley

Because there was little or no increase in the standard of living between 1200 and 1700, this overbreeding by the rich meant there was constant downward mobility.

By 1700, therefore, in Britain most of the poor were actually the descendants of the rich. They had perhaps carried down with them into the working classes many of the habits and customs of the rich: literacy, for example, numeracy and perhaps industriousness or financial prudence.

What Europe achieved after 1750 – uniquely, precariously, unexpectedly – was an increasing division of labour that meant that each person could produce more each year and therefore could consume more each year, which created the demand for still more production. Two things, says the historian Kenneth Pomeranz, were vital to Europe’s achievement: coal and America. The ultimate reason that the British economic take-off kept on going where the Chinese – or for that matter, the Dutch, Italian, Arab, Roman, Mauryan, Phoenician or Mesopotamian – did not was because the British escaped the Malthusian fate. The acres they needed to provide themselves with corn, cotton, sugar, tea and fuel just kept on materialising elsewhere.

It was fossil fuels that eventually made slavery – along with animal power, and wood, wind and water – uneconomic.

The period that followed the Roman empire, especially in Europe, saw the widespread replacement of that human muscle power by animal muscle power. The European early Middle Ages were the age of the ox. The invention of dried-grass hay enabled northern Europeans to feed oxen through the winter. Slaves were replaced by beasts, more out of practicality than compassion one suspects. Oxen eat simpler food, complain less and are stronger than slaves. Oxen need to graze, so this civilisation had to be based on villages rather than cities. With the invention of the horse collar, oxen then gave way to horses, which can plough at nearly twice the speed of an ox, thus doubling the productivity of a man and enabling each farmer either to feed more people or to spend more time consuming other’s work. In England, horses were 20 per cent of draught animals in 1086, and 60 per cent by 1574.

In turn oxen and horses were soon being replaced by inanimate power. The watermill, known to the Romans but comparatively little used, became so common in the Dark Ages that by the time of the Domesday Book (1086), there was one for every fifty people in southern England. Two hundred years later, the number of watermills had doubled again. By 1300 there were sixty-eight watermills on a single mile of the Seine in Paris, and others floating on barges.

As for inequality, in terms of both physical stature and number of surviving children, the gap narrowed between the richest and the poorest during industrialisation. That could not have happened if economic inequality increased.

but inequality did increase see article I sent to pocket. After the black death inequality plummeted for 50 years or so then started an inexorable climb until 1900 falling for another 50 years before starting to climb again

The average Englishman’s income, having apparently stagnated for three centuries, began to rise around 1800 and by 1850 was 50 per cent above its 1750 level, despite a trebling of population.

Today, 130 years later, electricity is still transforming people’s lives when it first reaches them, bringing colourless, smokeless, weightless energy into the home. One recent study in the Philippines estimated that the average household derives $108 a month in benefits from connecting to the electricity grid – cheaper lighting ($37), cheaper radio and television ($19), more years in education ($20), time saving ($24) and business productivity ($8). Heck, it even affects the birth rate as television replaces procreation as an evening activity.

It was a description of an entirely fictional world. The concept of a steady final state, applied to a dynamic system like the economy, is as wrong as any philosophical abstraction can be. It is Pareto piffle. As the economist Eamonn Butler puts it, the ‘perfect market is not just an abstraction; it’s plain daft ... Whenever you see the word equilibrium in a textbook, blot it out.’ It is wrong because it assumes perfect competition, perfect knowledge and perfect rationality, none of which do or can exist. It is the planned economy, not the market, that requires perfect 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. Knowledge can never be gathered together in one place. It is collective, not individual. Yet the failure of any particular market to match the perfect market no more constitutes ‘market failure’ than the failure of a particular marriage to match the perfect marriage constitutes ‘marriage failure’. In an exactly analogous way, the science of ecology has an enduring fallacy that in the natural world there is some perfect state of balance to which an ecosystem will return after disturbance. This obsession with ‘the balance of nature’ runs right through Wes...

It was Paul Romer’s great achievement in the 1990s to rescue the discipline of economics from the century-long cul-de-sac into which it had driven by failing to incorporate innovation. From time to time its practitioners had tried to escape into theorems of increasing returns – Mill in the 1840s, Allyn Young in the 1920s, Joseph Schumpeter in the 1940s, Robert Solow in the 1950s – but not until Romer’s ‘new growth theory’ in the 1990s was economics fully back in the real world: a world where perpetual innovation brings brief bursts of profit through temporary monopoly to whoever can commandeer demand for new products or services, and long bursts of growth to everybody else who eventually gets to share the spilled-over idea. Robert Solow had concluded that innovation accounted for growth that could not be explained by an increase in labour, land or capital, but he saw innovation as an external force, a slice of luck that some economies had more of than others – his was Mill’s theory with calculus. Things like climate, geography and political institutions determined the rate of innovation – which is bad luck for land-locked tropical dictatorships – and not much could be done about them. Romer saw that innovation itself was an item of investment, that new, applied knowledge was itself a product. So long as people who are spending money on trying to find new ideas can profit from them before they pass them on, then increasing returns are possible.

Thomas Babington Macaulay was a poet, too, the author of ‘Horatius’ and other such well remembered ditties. In the Edinburgh Review of January 1830 he reviewed Southey’s Colloquies and did not pull his punches. Far from idyllic, the life of the rural peasant was one of hellish poverty, he said; the factory towns were better off, which was why people were flocking to them.

Although in the early 2000s some studies managed to find evidence that certain kinds of aid sometimes trigger growth in countries with specific economic policies, even these conclusions were later dashed by Raghuram Rajan and Arvind Subramanian of the International Monetary Fund in 2005. They could find no evidence that aid resulted in growth in any countries. Ever.