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Exchange is to cultural evolution as sex is to biological evolution.
The more human beings diversified as consumers and specialised as producers, and the more they then exchanged, the better off they have been, are and will be.
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.
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. Besides, by a strange statistical paradox, while inequality has increased within some countries, globally it has been falling.
Healthcare and education are among the few things that cost more in terms of hours worked now than they did in the 1950s.
Falling consumer prices is what enriches people (deflation of asset prices can ruin them, but that is because they are using asset prices to get them the wherewithal to purchase consumer items). And, once again, notice that the true metric of prosperity is time.
But given the ease with which modern machinery can assemble a house, the price should have come down much faster than that. Governments prevent this by, first, using planning or zoning laws to restrict supply (especially in Britain); second, using the tax system to encourage mortgage borrowing (in the United States at least – no longer in Britain); and third, doing all they can to stop property prices falling after a bubble. The effect of these measures is to make life harder for those who do not yet have a house and massively reward those who do.
That is to say, on average, across the board, on the whole, other things being equal, more money does make you happier. In the words of one of the studies, ‘All told, our time-series comparisons, as well as evidence from repeated international cross-sections, appear to point to an important relationship between economic growth and growth in subjective well-being’.
Americans currently show no trend towards increasing happiness.
It was not because the Americans are too rich to get any happier: Japanese and Europeans grew steadily happier as they grew richer despite being often just as rich as Americans. Moreover, surprisingly, American women have become less happy in recent decades despite getting richer.
they are after all endowed with instincts for ‘rivalrous competition’ descended from hunter-gatherers whose relative, not absolute, status determined their sexual rewards.
psychologists find people to have fairly constant levels of happiness to which they return after elation or disaster.
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
So long as somebody allocates sufficient capital to innovation, then the credit crunch will not in the long run prevent the relentless upward march of human living standards.
This is the diagnostic feature of modern life, the very definition of a high standard of living: diverse consumption, simplified production. Make one thing, use lots.
Prosperity, or growth, has been synonymous with moving from self-sufficiency to interdependence, transforming the family from a unit of laborious, slow and diverse production to a unit of easy, fast and diverse consumption paid for by a burst of specialised production.
There is no such thing as unproductive employment, so long as people are prepared to buy the service you are offering.
Today, 1 per cent works in agriculture and 24 per cent in industry, leaving 75 per cent to offer movies, restaurant meals, insurance broking and aromatherapy.
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.
This is history’s greatest theme: the metastasis of exchange, specialisation and the invention it has called forth, the ‘creation’ of time.
‘progress’ was born, by which I mean technology and habits changing faster than anatomy. They had stumbled on what Friedrich Hayek called the catallaxy: the ever-expanding possibility generated by a growing division of labour. This is something that amplifies itself once begun.
because people can value highly what they do not have access to.
throughout the human race, males and females specialise and then share food.
In other words, cooking encourages specialisation by sex. The first and deepest division of labour is the sexual
Without trade, innovation just does not happen. Exchange is to technology as sex is to evolution. It stimulates novelty.
Rejecting the offer is costly for the second player, but he reckons it is worth it to teach the first player a 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. Here, then, lies a clue to the unique human attribute of being able to deal with strangers, to extend the division of labour to include even your enemies.
‘Oxytocin is a physiologic signature of empathy,’ says the neuro-economist Paul Zak, who conducts these experiments, ‘and appears to induce a temporary attachment to others.’
Yet oxytocin has no such effect on the back transfers offered by the trustees, who are just as generous without oxytocin as with. So – as animal experiments have suggested – oxytocin does not affect reciprocity, just the tendency to take a social risk, to go out on a limb.
So oxytocin specifically increases trusting, rather than general risk-taking.
so often in this game, three-quarters of subjects said they would cooperate, reinforcing Smith’s point that people are innately nice (economics students, who have been taught the self-interested nature of human beings, are twice as likely to defect!).
Human beings are capable of empathy, and are discerning trusters.
The more you look at altruism and cooperation, the less uniquely human it appears. 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.
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 success of trust-based peer organizations such as eBay, Wikipedia, and the open-source movement, indicates that trust is a highly expandable network property.’ Perhaps the internet has returned us to a world a bit like the Stone Age in which there is no place for a fraudster to hide. That response would be naïve. There is plenty of innovative and destructive cyber-crime to come. None the less, the internet is a place where the problem of trust between strangers is solved daily.
My point is simply this: with frequent setbacks, trust has gradually and progressively grown, spread and deepened during human history, because of exchange. Exchange breeds trust as much as vice versa.
Like Milton Friedman, I notice that ‘business corporations in general are not defenders of free enterprise. On the contrary, they are one of the chief sources of danger.’ They are addicted to corporate welfare, they love regulations that erect barriers to entry to their small competitors, they yearn for monopoly and they grow flabby and inefficient with age.
repeat: firms are temporary aggregations of people to help them do their producing in such a way as to help others do their consuming.
Where commerce thrives, creativity and compassion both flourish.
But note here that 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.
Of course, not all poverty is in Africa. I am well aware that there is terrible want in many other parts of the world, in Haiti and Afghanistan, in Bolivia and Cambodia, in Calcutta and São Paolo, even in parts of Glasgow and Detroit. But compared with a generation ago, thanks chiefly to progress elsewhere, poverty has come to be concentrated in that one continent as never before. Of the ‘bottom billion’ left behind by recent booms – Paul Collier’s phrase – more than 600 million are Africans.
They could find no evidence that aid resulted in growth in any countries. Ever. It is worse than that. Most aid is delivered by governments to governments. It can therefore be a source of both corruption and discouragement to entrepreneurship.
do more good and less harm, says Easterly, the aid business could be transformed into a more transparent marketplace where donations compete to fund projects and projects compete to attract donations. Fortunately, the internet makes this possible for the first time. Globalgiving.com, for instance, allows projects to bid for donations from any donor.
forums like this, aid could be democratised, taken out of the hands of inefficient international bureaucrats and corrupt African officials, taken away from idealistic free-market shock therapists, separated from arms deals, removed from big industrial projects, distanced from patronising do-gooders and given person-to-person.
those who say that this would make an uncoordinated, unplanned business, I reply: exactly. Grandiose goals and centralised plans have just as long and just as disastrous a history in aid as they do in politics. Nobody planned the industrial revolution, or China’s economic surge. The planners’ role was to get out of the way of bottom-up evolutionary solutions.
It is true that Botswana has a small and ethnically somewhat homogeneous population, unlike many other countries. But its biggest advantage is one that the rest of Africa could easily have shared: good institutions. In particular, Botswana turns out to have secure, enforceable property rights that are fairly widely distributed and fairly well respected.
When Daron Acemoglu and his colleagues compared property rights with economic growth throughout the world, they found that the first explained an astonishing three quarters of the variation in the second and that Botswana was no outlier: the reason it had flourished was because its people owned property without fear of confiscation by chiefs or thieves to a much greater extent than in the rest of Africa.
So give the rest of Africa good property rights and sit back and wait for enterprise to work its magic? If only it were that easy. Good institutions cannot usually be imposed from above: that way they are oxymorons. They must evolve from below.
Give local people the power to own, exploit and profit from natural resources in a sustainable way and they will usually preserve and cherish those resources. Give them no share in a wildlife resource that is controlled – nay ‘protected’ – by a distant government and they will generally neglect, ruin and waste it. That is the real lesson of the tragedy of the commons.)
Property rights are not a silver bullet. In some countries, their formalisation simply creates a rentier class.
What Tanzania needs to do, as Europe and America did hundreds of years ago, is not to enforce its unaffordable official legal system, but gradually to encourage this bottom-up, informal law to broaden and standardise itself.
