Summary

Life now is better than at any point in humanity’s past and living standards will continue to rise as long as we encourage trade, exchange and specialization. Read The Wizard And The Prophet for a more nuanced view.

Key Takeaways

• For culture to turn cumulative, ideas needed to meet and mate. Exchange is to cultural evolution as sex is to biological evolution.
• Averages conceal a lot.
• Growth will resume – unless prevented by the wrong policies. Trading and selling generates more prosperity than owning assets – the “curse of resources” – though this might be more due to policy (Saudi Arabia has thrived, for example).
• Cooking enabled hominids to trade gut size for brain size.
• Societies that use markets extensively develop a culture of cooperation, fairness and respect for the individual.
• Smiling is a small, instinctive gesture of trust.
• 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.
• Good rules reward exchange and specialisation; bad rules reward confiscation and politicking.
• Political fragmentation is often the friend, not the enemy, of economic advance, because of the stop which it gives ‘both to power and authority.’ (ancient examples: Phoenicia, Athens; modern example: Switzerland)
• The best entrepreneurs, they thrived despite, rather than because of their government.
• History proves: free trade causes mutual prosperity while protectionism causes poverty.
• Countries lower their birth rates as they grow healthier, wealthier, better educated, more urbanised and more emancipated.
• “Renewables are not green.” They require massive amounts of land to supply the energy we require.
• Civilisation, like life itself, has always been about capturing energy.
• Jevons Paradox: new modes of economy will lead to an increase of consumption.
• The paradox of the modern world: people embrace technological change and hate it at the same time.
• Throughout the industrial revolution, scientists were the beneficiaries of new technology, much more than they were the benefactors.
• Equilibrium and stagnation are not only avoidable in a free-exchanging world; they are impossible: discovery is a fast-breeder chain reaction; innovation is a feedback loop; invention is a self­ fulfilling prophecy.
• The one thing aid cannot reliably do is to start or accelerate economic growth.
• 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.
• History repeats itself as a spiral not a circle.

What I got out of it

Ridley argues that life now is better than at any point in humanity’s past by virtually any metric, and that life continues to improve, a similar message one can find in Factfulness.

To me this is obvious, but given the rating of both books, this doesn’t seem to be the case for everyone.

Ridley attributes our prosperity to trade, exchange and subsequently specialization, and advocates stimulating and encouraging trade as much as possible. This ties in nicely with the emphasis on decentralization Nassim Taleb proposes in Antifragile (such as how Switzerland is run).

I feel the way Ridley presents the evidence lends itself to survivorship bias. I’d need to look into the history of societies that were trade-focused and failed to make up my mind on Ridley’s notion.

That said, I found Ridley’s The Evolution Of Everything a more interesting read: he takes the most interesting points of The Rational Optimist and Nature Via Nurture and extends it across more domains. He is even more assertive in his stance in that book, however, so beware.

Summary Notes

Prologue – When Ideas Have Sex

This book is about the rapid, continuous and incessant change that human society experiences in a way that no other animal does. What is it about human beings that enables them to keep changing their lives in this tumultuous way?

At some point, human intelligence became collective and cumulative in a way that happened to no other animal.

Sex is what makes biological evolution cumulative, because it brings together the genes of different individuals. A mutation that occurs in one creature can therefore join forces with a mutation that occurs in another. The analogy is most explicit in bacteria, which trade genes without replicating at the same time – hence their ability to acquire immunity to antibiotics from other species.

Evolution can happen without sex; but it is far, far slower. If culture consisted simply of learning habits from others, it would soon stagnate. For culture to turn cumulative, ideas needed to meet and mate.

Exchange is to cultural evolution as sex is to biological evolution.

By exchanging, human beings discovered ‘the division of labour’, the specialisation of efforts and talents for mutual gain.

Experiments in laboratories have long confirmed that:

• Markets in goods and services for immediate consumption – haircuts and hamburgers – work so well that it is hard to design them so they fail to deliver efficiency and innovation; 
• Markets in assets are so automatically prone to bubbles and crashes that it is hard to design them so they work at all. Speculation, herd exuberance, irrational optimism, rent-seeking and the temptation of fraud drive asset markets to overshoot and plunge – which is why they need careful regulation.

Rational optimism holds that the world will pull out of the current crisis because of the way that markets in goods, services and ideas allow human beings to exchange and specialise honestly for the betterment of all.

A Better Today: The Unprecedented Present 

Averages conceal a lot.

Most past bursts of human prosperity have come to naught because they allocated too little money to innovation and too much to asset price inflation or to war, corruption, luxury and theft.

The same ‘curse of resources’ has afflicted countries with windfalls ever since, especially those with oil (Russia, Venezuela, Iraq, Nigeria) that end up run by rent-seeking autocrats. Despite their windfalls, such countries experience lower economic growth than countries that entirely lack resources but get busy trading and selling – Holland, Japan, Hong Kong, Singapore, Taiwan, South Korea. 

• Even the Dutch, those epitomes of seventeenth-century enterprise, fell under the curse of resources in the late twentieth century when they found too much natural gas: the Dutch dis­ease, they called it, as their inflated currency hurt their exporters. 
• Japan spent the first half of the twentieth century jealously seeking to grab resources and ended up in ruins; it spent the second half of the century trading and selling without resources and ended up topping the lifespan league.

Growth will resume – unless prevented by the wrong policies.

Exchange and specialisation from the resulting division of labour lead to more free time. Self-sufficiency is therefore not the route to prosperity.

Innovation changes the world but only because it aids the elaboration of the division of labour and encourages the division of time.

The Collective Brain: Exchange And Specialisation After 200,000 Years Ago 

Natural selection is a conservative force. It spends more of its time keeping species the same than changing them. Only towards the edge of its range, on an isolated island, or in a remote valley or on a lonely hill top, does natural selection occasionally cause part of a species to morph into something different. That different sport sometimes then spreads to conquer a broader ecological empire, perhaps even returning to replace the ancestral species – to topple the dynasty from which it sprang.

Cooking enabled hominids to trade gut size for brain size.

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. (Jim note: sounds like autocatalysis)

Cooking adds value: the great advantage of cooked food is that though it takes longer to prepare than raw food, it takes just minutes to eat, and this means that somebody else can eat as well as the person who prepares it.

Cooking encourages specialisation by sex. The first and deepest division of labour is the sexual one. It is an iron rule documented in virtually all foraging people that ‘men hunt, women and children gather’.

There is a neat economic explanation for the sexual division of labour in hunter-gatherers: 

• In terms of nutrition, women generally collect dependable, staple carbohydrates whereas men fetch precious protein. 
• Combine the two – predictable calories from women and occa­sional protein from men – and you get the best of both worlds. 
• At the cost of some extra work, women get to eat some good protein without having to chase it; men get to know where the next meal is coming from if they fail to kill a deer. That very fact makes it easier for them to spend more time chasing deer and so makes it more likely they will catch one.

The extraordinary thing about exchange is that it breeds: the more of it you do, the more of it you can do. And it calls forth innovation.

Technology was made possible by division of labour: market exchange calls forth innovation.

Tools are in effect a measure of the extent of the division of labour and, as Adam Smith argued, the division of labour is limited by the extent of the market.

Even the relatively simple lifestyle of a hunter-gatherer cannot exist without a large population exchanging ideas and skills.

The Manufacture Of Virtue: Barter, Trust And Rules After 50,000 Years Ago 

Societies that use markets extensively develop a culture of cooperation, fairness and respect for the individual.

Exchange teaches people to be kind; it is that exchange teaches people to recognise their en­lightened self-interest lies in seeking cooperation.

Most people assume that long-distance trade among strangers and the very concept of the market was a comparatively late development in human history, coming long after agriculture. But, as the Australian aborigines suggest, this is bunk. There is no known human tribe that does not trade.

This ability to transact with strangers as if they were friends is made possible by an intrinsic, instinctive human capacity for trust. Often the very first thing you do when you meet a stranger and begin to transact with him or her, say a waiter in a restau­rant, is to smile – a small, instinctive gesture of trust.

Even among adults, a touch, a massage, or, as experiments have shown, a simple act of financial generosity, can cause the release of the hormone oxytocin in the brain of the recipient, and oxytocin is the chemical that evolution uses to make mammals feel good about each other.

Oxytocin does not affect reciprocity, just the tendency to take a social risk, to go out on a limb. Oxytocin specifically increases trusting, rather than general risk-taking.

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.

Where commerce thrives, creativity and compassion both flourish. The innovations that made the world nicer are institutions, not technologies:

• The golden rule
• The rule of law
• Respect for private property
• Democratic government
• Iimpartial courts
• Credit
• Consumer regulation
• The welfare state
• A free press
• Religious teaching of morality
• Copyright

These rules made trustful, safe commerce possible, at least as much as vice versa.

Good rules reward exchange and specialisation; bad rules reward confiscation and politicking.

The Feeding Of The Nine Billion: Farming After 10,000 Years Ago 

Farming does not work in a highly volatile climate.

One of the reasons that farming spreads so rapidly once it starts is that the first few crops are both more productive and more easily grown than later crops, so farmers are always happy to move on to virgin land.

Preemptively raiding your neighbours lest they raid you is routine human behaviour. As Paul Seabright has written: ‘Where there are no institutional restraints on such behaviour, systematic killing of unrelated individuals is so common among human beings that, awful though it is, it cannot be described as exceptional, pathological or disturbed.’

The Triumph Of Cities: Trade After 5,000 Years Ago 

Trade emerged from the interactions of individuals. It evolved. Nobody was in charge.

Around 1200 BC, the power of both Egypt and Assyria waned, the Minoans fell, the Myceneans fragmented and the Hittites came and went. It was a dark age for empires, and 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. It was a different Phoenician invention, the bireme galley, that truly created the classical world.

All around the Mediterranean, markets grew into towns and ports into cities.

Trade, once more, was the flywheel of the innovation machine.

The Phoenician diaspora is one of the great untold stories of history – untold because Tyre and its books were so utterly destroyed.
They knitted together not only the entire Mediterranean, but bits of the Atlantic, the Red Sea and the overland routes to Asia, yet they never had an emperor, had comparatively little time for religion and fought no memorable battles – unless you count Cannae, fought by a mercenary army paid by Carthage. I do not mean they were necessarily nice: they traded in slaves, sometimes resorted to war and did deals with the piratical Philistine ‘sea peoples’ who destroyed coastal cities around 1200 BC, but the Phoenicians seem to have managed to resist the temptations of turning into thieves, priests and chiefs better than most successful people in history. Through enterprise they discovered social virtue.

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’. There was no need for Tyre, Sidon, Carthage and Gadir to unite as a single political entity for them all to prosper. At most they were a federation. (Jim note: reminds me of Taleb’s story about Switzerland.)

The extraordinary flowering of wealth and culture around the Aegean between 600 and 300 BC tells the same story. First the Milesians then the Athenians and their allies grew wealthy by trading among small, independent ‘citizen states’, not by uniting as an empire.

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.

The Mauryan empire in India seems to have harvested the prosperity of the Ganges valley to combine an imperial monarchy with expanding trade. 

• It was ruled at its zenith in 250 BC by Asoka, a warrior who turned into a Buddhist pacifist once he had won and was as economically benign a head of state as you could wish. 

• He built roads and waterways to encourage the movement of goods, established a common currency and opened maritime trade routes with China, south-east Asia and the Middle East, sparking an export-led boom in which cotton and silk textiles played a prominent part. 
• Trade was carried on almost entirely by private firms (sreni) of a recognisably corporate kind; taxation, though extensive, was fairly administered. 
• There were remarkable scientific advances, not least the invention of zero and the decimal system and the accurate calculation of pi. 

Asoka’s empire disintegrated before it had become totalitarian, and its legacy was impressive: for the next few centuries the Indian subcontinent was both the most populous and the most prosperous part of the world, with a third of the world’s people and a third of the world’s GDP. It was without question the economic superpower of the day, dwarfing both China and Rome, and its capital city Pataliputra was the largest city in the world, famous for its gardens, luxuries and markets. Only later, under the Guptas, did the caste system ossify Indian commerce.

The best entrepreneurs, they thrived despite, rather than because of their government.

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 by 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.

Empires, indeed governments generally, tend to be good things at first and bad things the longer they last. 

• First they improve society’s ability to flourish by providing central services and removing impediments to trade and specialisation.
• But then, governments gradually employ more and more ambitious elites who capture a greater and greater share of the society’s income by interfering more and more in people’s lives as they give themselves more and more rules to enforce, until they kill the goose that lays the golden eggs.

Because it is a monopoly, government brings inefficiency and stagnation to most things it runs; government agencies pursue the inflation of their budgets rather than the service of their customers; pressure groups form an unholy alliance with agencies to extract more money from taxpayers for their members.

Because of its peninsulas and mountain ranges, Europe is much harder to unify than China: ask Charles V, Louis XIV, Napoleon or Hitler. For a while the Romans achieved a sort of European unity, and the result was just like the Ming: stagnation and bureaucracy.

The message from history is so blatantly obvious – that free trade causes mutual prosperity while protectionism causes poverty.

Escaping Malthus’s Trap: Population After 1200

The Malthusian crisis comes not as a result of popu lation growth directly, but because of decreasing specialisation. 

Increasing self-sufficiency is the very signature of a civilisation under stress, the definition of a falling standard of living.

The plague may have been one of the sparks that lit the Renaissance, because the shortage of labour shifted income from rents to wages as landlords struggled to find both tenants and employees. With rising wages, some of the surviving peasantry could once more just afford the oriental luxuries and fine cloth that Lombard and Hanseatic merchants supplied. There was a rash of financial innovation: bills of credit to solve the problem of how to pay for goods without transporting silver through bandit country, double-entry bookkeeping, insurance.

As soon as it felt prosperity from trade, Asia experienced precisely the same transition to lower birth rates that Europe had experienced before.

The pattern is always the same: mortality falls first, causing a population boom, then a few decades later, fecundity falls quite suddenly and quite rapidly. It usually takes about fifteen years for birth rate to fall by 40 percent.

The best that can be said for sure about the demographic transition is that countries lower their birth rates as they grow healthier, wealthier, better educated, more urbanised and more emancipated.

The Release Of Slaves: Energy After 1700 

Efficiency in the coal industry did not itself contribute significantly to rising productivity in Britain even in the nineteenth century. Cotton contributed thirty-four times as much as coal to productivity growth in industrialising Britain.

The great increase in coal consumption (five-fold in the eighteenth century, fourteen-fold in the nineteenth century) was the result mainly of more investment, not more productivity. Contrast this with the iron industry, where the amount of coal needed to smelt a tonne of pig iron and then refine it into wrought iron halved every thirty years.

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.

To get an idea of just how landscape-eating the renewable alternatives are, consider that to supply just the current 300 million inhabitants of the United States with their current power demand of roughly 10,000 watts each (2,400 calories per second) would require:

• Solar panels the size of Spain 
• Wind farms the size of Kazakhstan 
• Woodland the size of India and Pakistan 
• Hayfields for horses the size of Russia and Canada combined 
• Hydroelectric dams with catchments one-third larger than all the continents put together.

As it is, a clutch of coal and nuclear power stations and a handful of oil refineries and gas pipelines supply the 300 million Americans with nearly all their energy from an almost laughably small footprint – even taking into account the land despoiled by strip mines.

Hundreds of orang-utans are killed a year because they get in the way of oil-palm bio­ fuel plantations. ‘Let’s stop sanctifying false and minor gods,’ says the energy expert Jesse Ausubel, ‘and heretically chant “Renewables are not green”.

The environmental benefits of biofuels are not just illusory; they are negative. Fermenting carbohydrate is an inefficient business compared with burning hydrocarbon. Every acre of maize or sugar cane requires tractor fuel, fertilisers, pesticides, truck fuel and distillation fuel – all of which are fuel.
So the question is: how much fuel does it take to grow fuel?
Answer: about the same amount.

Do not forget the single most important problem with biofuels, the one that makes them so capable of making environ­ mental problems worse – they need land.

Civilisation, like life itself, has always been about capturing energy. That is to say, just as a successful species is one that converts the sun’s energy into offspring more rapidly than another species, so the same is true of a nation.

Jevons paradox: ‘It is wholly a confusion of ideas to suppose that the economical use of fuel is equivalent to a diminished consumption. The very contrary is the truth. As a rule, new modes of economy will lead to an increase of consumption.’

The Invention of Invention: Increasing Returns After 1800 

“He who receives an idea from me, receives instruction himself without lessening mine; as he who lights his taper at mine, receives light without darkening me.” – Thomas Jefferson

The more knowledge you generate, the more you can generate. And the engine that is driving prosperity in the modern world is the accelerating generation of 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.

There is no equilibrium in nature; there is only constant dynamism. As Heraclitus put it, ‘Nothing endures but change.’

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.

When the credit card took off in California in the 1960s, driven by Joseph Williams of Bank of America, there was nothing new about buying on credit. It was as old as Babylon. There was not even anything new about charge cards. Diner’s Club had been issuing cards for the convenience of restaurant users since the early 1950s and department stores for longer than that. What the BankAmericard achieved, especially once it emerged as Visa from the chaos of the mass mailings in the late 1960s, under Dee Hock’s reinvention, was the democratisation of credit.

The paradox of the modern world: people embrace technological change and hate it at the same time.

Of the four men who made the biggest advances in the steam engine – Thomas Newcomen, James Watt, Richard Trevithick and George Stephenson – three were utterly ignorant of scientific theories, and historians disagree about whether the fourth, Watt, derived any influence from theory at all. It was they who made possible the theories of the vacuum and the laws of thermodynamics, not vice versa. Throughout the industrial revolution, scientists were the beneficiaries of new technology, much more than they were the benefactors. (Jim note: practitioners over advisors. Have skin in the game.)

Although Benjamin Franklin’s fertile mind generated many inventions based on principles, from lightning rods to bifocal spectacles, none led to the founding of industries.

Most technological change comes from attempts to improve existing technology. It happens on the shop floor among apprentices and mechanicals, or in the workplace among the users of computer programs, and only rarely as a result of the application and transfer of knowledge from the ivory towers of the intelligentsia.

Money is certainly important in driving innovation, but it is by no means paramount. Even in the most entrepreneurial of economies, very little saving finds its way to innovators.

There are several ways to turn ideas into property:

• You can keep the recipe secret, as John Pemberton did for Coca-Cola in 1886.
• You can capture the first-mover advantage, as Sam Walton, the founder of Wal-Mart, did throughout his career.
• The way to keep your customers, if you are Michael Dell, Steve Jobs or Bill Gates, is to keep making your own products obsolete.
• Have a patent, a copyright or a trademark.

A large study by the Organisation for Economic Cooperation and Development concluded that government spending on R&D has no observable effect on economic growth, despite what governments fondly believe. Indeed it ‘crowds out resources that could be alternatively used by the private sector, including private R&D’.

The perpetual innovation machine that drives the modern economy owes its existence not mainly to science; nor to money; nor to patents; nor to government. It is not a top-down process at all. It is the ever-increasing exchange of ideas that causes the ever-increasing rate of innovation in the modern world: exchange.

So long as it can hop from country to country and from industry to industry, discovery is a fast-breeder chain reaction; innovation is a feedback loop; invention is a self­ fulfilling prophecy. So equilibrium and stagnation are not only avoidable in a free-exchanging world; they are impossible.

Turning Points: Pessimism After 1900 

As the average age of a country’s population rises, so people get more and more neophobic and gloomy. There is immense vested interest in pessimism, too. 

• No charity ever raised money for its cause by saying things are getting better. 
• No journalist ever got the front page by telling his editor that he wanted to write a story about how disaster was now less likely. 
• Good news is no news, so the media megaphone is at the disposal of any politician, journalist or activist who can plausibly warn of a coming disaster.

Famine is largely history.  Where it still occurs the fault lies with government policy, not population pressure.

There is not a single non-renewable resource that has run out yet: not coal, oil, gas, copper, iron, uranium, silicon, or stone. 

The amount of oil left, the food-growing capacity of the world’s farmland, even the regenerative capacity of the bio­ sphere – these are not fixed numbers; they are dynamic variables produced by a constant negotiation between human ingenuity and natural constraints. Embracing dynamism means opening your mind to the possibility of posterity making a better world rather than preventing a worse one.

Viruses undergo natural selection as well as mutation once established in a new species of host and casually transmitted viruses like flu replicate more successfully if they cause mild disease, so that the host keeps moving about and meeting new people. 

• A victim lying in a darkened room alone is not as much use to the virus as somebody who feels just well enough to struggle into work coughing. 
• The modern way of life, with lots of travel but also rather more personal space, tends to encourage mild, casual-contact viruses that need their victims to be healthy enough to meet fresh targets fleetingly.

By contrast, it is no accident that water-borne and insect-borne diseases such as typhoid, cholera, yellow fever, typhus and malaria are so much more virulent, because they can spread from immobilised victims. Malaria spreads more easily if its victims are laid low in a darkened room – bait for mosquitoes.

The Two Great Pessimisms Of Today: Africa And Climate After 2010 

Aid can save lives, reduce hunger, deliver a medicine, a mosquito net, a meal or a metalled road. Combating malaria has economic as well as medical benefits. But statistics, anecdotes and case histories all demonstrate that the one thing aid cannot reliably do is to start or accelerate economic growth.

Most aid is delivered by governments to governments. It can therefore be a source of both corruption and discouragement to entrepreneurship. The aid business could be transformed into a more transparent market­ place where donations compete to fund projects and projects compete to attract donations.

But Botswana’s biggest advantage is one that the rest of Africa could easily have shared: good institutions. 

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. This is much the same explanation for why England had a good eighteenth century while China did not.

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.

The key policies for Africa:

• To abolish Europe’s and America’s farm subsidies, quotas and import tariffs,
• Formalise and simplify the laws that govern business, undermine tyrants and above all encourage the growth of free-trading cities.

The Catallaxy: Rational Optimism About 2100 

Said Lord Macaulay, ‘We see in almost every part of the annals of mankind how the industry of individuals, struggling up against wars, taxes, famines, conflagrations, mischiev­ous prohibitions, and more mischievous protections, creates faster than governments can squander, and repairs whatever invaders can destroy.’

History repeats itself as a spiral not a circle.