The Rational Optimist: How Prosperity Evolves (P.s.)
Kindle Highlights
‘Capitalism exterminated slavery.’
We have accumulated far more knowledge than we have lost.
The more knowledge you generate, the more you can generate
innovation and order will become more and more bottom-up; work
Two billion people alive today have never turned on a light switch.
People do not start businesses unless there is demand from consumers.
century. Population growth is slowing even while death rates are falling.
Some things are finite but vast; some things are infinitely renewable, but very limited.
The twenty-first century will be a magnificent time to be alive. Dare to be an optimist.
Probably by far the best policy for reducing population is to encourage female education.
Heck, it even affects the birth rate as television replaces procreation as an evening activity.
Ideas are having sex with other ideas from all over the planet with ever-increasing promiscuity.
Cities exist for trade. They are places where people come to divide their labour, to specialise and exchange.
It was fossil fuels that eventually made slavery – along with animal power, and wood, wind and water – uneconomic.
The plain fact is that the mechanisation of production in the industrial revolution raised incomes across all classes.
There is no equilibrium in nature; there is only constant dynamism. As Heraclitus put it, ‘Nothing endures but change.’
‘Implicit confidence in the beneficence of progress’ said Hayek, ‘has come to be regarded as the sign of a shallow mind.’
Pythagoras probably got his theorem from a student of Thales the Milesian who learnt geometry on trade excursions to Egypt.
Despite the wars, in the half-century to 1950, the longevity, wealth and health of Europeans improved faster than ever before.
Malthusian population limitation does not really apply to human beings, because of their habit of exchange and specialisation.
The way to keep your customers, if you are Michael Dell, Steve Jobs or Bill Gates, is to keep making your own products obsolete.
Increasing self-sufficiency is the very signature of a civilisation under stress, the definition of a falling standard of living.
Throughout the world, birth rates are falling. There is no country in the world that has a higher birth rate than it had in 1960,
Throughout the industrial revolution, scientists were the beneficiaries of new technology, much more than they were the benefactors.
The concept of a steady final state, applied to a dynamic system like the economy, is as wrong as any philosophical abstraction can be.
Large corporations, political parties and government bureaucracies will crumble and fragment as central planning agencies did before them.
‘There is no need to impose coercive population control measures; economic freedom actually generates a benign invisible hand of population control.’
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.
Were it not for this inexhaustible river of invention and discovery irrigating the fragile crop of human welfare, living standards would undoubtedly stagnate.
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 story of the twentieth century was the story of giving everybody access to the privileges of the rich, both by making people richer and by making services cheaper.
In technical jargon, the entire world is experiencing the second half of a ‘demographic transition’ from high mortality and high fertility to low mortality and low fertility.
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.
zippers. By contrast, the Wright brothers effectively grounded the nascent aircraft industry in the United States by enthusiastically defending their 1906 patent on powered flying machines.
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 book-keeping, insurance.
But here goes, none the less. I forecast that the twenty-first century will show a continuing expansion of catallaxy – Hayek’s word for spontaneous order created by exchange and specialisation.
Very roughly, the best industry to be in as an innovator was: 1800 – textiles; 1830 – railways; 1860 – chemicals; 1890 – electricity; 1920 – cars; 1950 – aeroplanes; 1980 – computers; 2010 – the web.
In other words, 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.
There are still people about, including it seems those who write the textbooks from which my children learn history, who follow Karl Marx in believing that the industrial revolution drove down most living standards,
The reason that the poverty of early industrial England strikes us so forcibly is that this was the first time writers and politicians took notice of it and took exception to it, not because it had not existed before.
The wonderful thing about knowledge is that it is genuinely limitless. There is not even a theoretical possibility of exhausting the supply of ideas, discoveries and inventions. This is the biggest cause of all for my optimism.
Can you doubt that if NASA had not existed some rich man would by now have spent his fortune on a man-on-the-moon programme for the prestige alone? Public funding crowds out the possibility of knowing an answer to that question.
For all their brilliance, there are Watts, Davys, Jenners and Youngs galore in every country at every time. But only rarely do sufficient capital, freedom, education, culture and opportunity come together in such a way as to draw them out.
‘Most environmentalists still haven’t got the word. Worldwide, birth-rates are in free fall … On every part of every continent and in every culture (even Mormon), birth rates are headed down. They reach replacement level and keep on dropping.’
somebody could paint a picture of the great men of Silicon Valley and posterity will stand amazed at the thought that giants like Gordon Moore and Robert Noyce, Steve Jobs and Sergey Brin, Stanley Boyer and Leroy Hood all lived at the same time and in the same place.
Nobody predicted this. The pioneers of political economy expected eventual stagnation. Adam Smith, David Ricardo and Robert Malthus all foresaw that diminishing returns would eventually set in, that the improvement in living standards they were seeing would peter out.
That is the conventional wisdom. I think it is a false dilemma and that an honest appraisal of the facts leads to the conclusion that by far the most likely outcome of the next nine decades is both that Africa gets rich and that no catastrophic climate change happens.
Fossil fuels cannot explain the start of the industrial revolution. But they do explain why it did not end. Once fossil fuels joined in, economic growth truly took off, and became almost infinitely capable of bursting through the Malthusian ceiling and raising living standards.
habitats. But now that even the United Nations’ best estimate is that world population will probably start falling once it peaks at 9.2 billion in 2075, there is every prospect of feeding the world for ever. After all, there are already 6.8 billion on the earth and they are still
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.
So the Japanese, to a spectacular extent, retreated from technology and trade and reduced their demands on merchants as they became more self-sufficient. The market for technology of all kinds atrophied. They even gave up capital-intensive guns in favour of labour-intensive swords.
The most fundamental feature of the modern world since 1800 – more profound than flight, radio, nuclear weapons or websites, more momentous than science, health, or material well-being – has been the continuing discovery of ‘increasing returns’ so rapid that they outpaced even the population explosion.
The big firms that survive will do so by turning themselves into bottom-up evolvers. Google, dependent on millions of instantaneous auctions to raise revenue from its AdWords, is ‘an economy unto itself, a seething laboratory’, says Stephen Levy. But Google will seem monolithic compared with what comes next.
I have tried to show that, just as sex made biological evolution cumulative, so exchange made cultural evolution cumulative and intelligence collective, and that there is therefore an inexorable tide in the affairs of men and women discernible beneath the chaos of their actions. A flood tide, not an ebb tide.
What is the alternative? Banning Chinese prosperity? The question is not ‘Can we go on as we are?’ because of course the answer is ‘No’, but how best can we encourage the necessary torrent of change that will enable the Chinese and the Indians and even the Africans to live as prosperously as Americans do today.
The secret of the industrial revolution was shifting from current solar power to stored solar power. Not that human muscle power disappeared: slavery continued, in Russia, the Caribbean and America as well as many other places. But gradually, erratically, more and more of the goods people made were made with fossil energy.
‘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.
But now that even the United Nations’ best estimate is that world population will probably start falling once it peaks at 9.2 billion in 2075, there is every prospect of feeding the world for ever. After all, there are already 6.8 billion on the earth and they are still feeding better and better every decade. Only 2.4 billion to go.
The fashionable reason for pessimism changed, but the pessimism was constant. In the 1960s the population explosion and global famine were top of the charts, in the 1970s the exhaustion of resources, in the 1980s acid rain, in the 1990s pandemics, in the 2000s global warming. One by one these scares came and (all but the last) went.
The economist Vernon Smith, in his memoirs, recalls how in the Depression his family moved in the 1930s from Wichita, Kansas, to a farm when his father was laid off as a machinist, because ‘we could at least grow most of our own food and participate in a subsistence economy.’ This return to subsistence happens often in human history.
The perpetual innovation machine that drives the modern economy owes its existence not mainly to science (which is its beneficiary more than its benefactor); nor to money (which is not always a limiting factor); nor to patents (which often get in the way); nor to government (which is bad at innovation). It is not a top-down process at all.
Civilisation, like life, is a Sisyphean flight from chaos,’ as Peter Huber and Mark Mills put it. ‘The chaos will prevail in the end, but it is our mission to postpone that day for as long as we can and to push things in the opposite direction with all the ingenuity and determination we can muster. Energy isn’t the problem. Energy is the solution.’
The result is gloriously unpredictable. When Charles Townes invented the laser in the 1950s, it was dismissed as ‘an invention looking for a job’. Well, it has now found an astonishing range of jobs nobody could have imagined, from sending telephone messages down fibreglass wires to reading music off discs to printing documents, to curing short sight.
Until 2002, the United Nations, when projecting future world population density, assumed that birth rates would never fall below 2.1 children per woman in most countries: that is the ‘replacement rate’, at which a woman produces enough babies to replace her and her husband, with 0.1 babies added in to cover childhood deaths and a slightly male-biased sex ratio.
It is somewhat distasteful to the intelligentsia to accept that consumption and commerce could be the friend of population control, or that it is when they ‘enter the market’ as consumers that people plan their families – this is not what most market-phobic professors, preaching anticapitalist asceticism, want to hear. Yet the relationship is there, and it is strong.
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.
Deliciously, nobody really knows how to explain this mysteriously predictable phenomenon. Demographic transition theory is a splendidly confused field. The birth-rate collapse seems to be largely a bottom-up thing that emerges by cultural evolution, spreads by word of mouth, and is not commanded by fiat from above. Neither governments nor churches can take much credit.
When Asia experienced a population boom in the early twentieth century, it had no such emigration safety valve. In fact, Western countries firmly and deliberately closed the door, terrified by the ‘yellow peril’ that might otherwise head their way. The result was a typical Malthusian increase in self-sufficiency. By 1950 China and India were bursting with the self-sufficient agrarian poor.
In this book I have tried to build on both Adam Smith and Charles Darwin: to interpret human society as the product of a long history of what the philosopher Dan Dennett calls ‘bubble-up’ evolution through natural selection among cultural rather than genetic variations, and as an emergent order generated by an invisible hand of individual transactions, not the product of a top-down determinism.
In 1807, as Parliament in London was preparing to pass at last William Wilberforce’s bill to abolish the slave trade, the largest factory complex in the world had just opened at Ancoats in Manchester. Powered by steam and lit by gas, both generated by coal, Murrays’ Mills drew curious visitors from all over country and beyond to marvel at their modern machinery. There is a connection between these two events.
Somewhere in Africa more than 100,000 years ago, a phenomenon new to the planet was born. A Species began to add to its habits, generation by generation, without (much) changing its genes. What made this possible was exchange, the swapping of things and services between individuals. This gave the Species an external, collective intelligence far greater than anything it could hold in its admittedly capacious brain.
Futurology always ends up telling you more about your own time than about the future. H.G. Wells made the future look like Edwardian England with machines; Aldous Huxley made it feel like 1920s New Mexico on drugs; George Orwell made it sound like 1940s Russia with television. Even Arthur C. Clarke and Isaac Asimov, more visionary than most, were steeped in the transport-obsessed 1950s rather than the communication-obsessed 2000s.
Yet the tragedy is that this top-down coercion was not only counter-productive; it was unnecessary. Birth rates were already falling rapidly in the 1970s all across the continent of Asia quite voluntarily. They fell just as far and just as fast without coercion. They continue to fall today. As soon as it felt prosperity from trade, Asia experienced precisely the same transition to lower birth rates that Europe had experienced before.
Not only did the Americas ship back their produce; they also allowed a safety valve for emigration to relieve the Malthusian pressure of the population boom induced by industrialisation. Germany, in particular, as it industrialised rapidly in the nineteenth century, saw a huge increase in the birth rate, but a flood of emigrants to the United States prevented the division of land among multiple heirs and the return to poverty and self-sufficiency that had afflicted Japan two centuries before.
The Newcomen steam engine worked at 1 per cent efficiency – that is to say it converted 1 per cent of the heat from burning coal into useful work. Watt’s engine was 10 per cent efficient and rotated much faster. Otto’s internal combustion engine was about 20 per cent efficient and faster still. A modern combined-cycle turbine is about 60 per cent efficient at making electricity from natural gas and runs at 1,000 rpm. Modern civilisation therefore gets more and more work out of each tonne of fossil
At 50,000 years ago, the hottest hot-spot was west Asia (ovens, bows-and-arrows), at 10,000 the Fertile Crescent (farming, pottery), at 5,000 Mesopotamia (metal, cities), at 2,000 India (textiles, zero), at 1,000 China (porcelain, printing), at 500 Italy (double-entry book-keeping, Leonardo), at 400 the Low Countries (the Amsterdam Exchange Bank), at 300 France (Canal du Midi), at 200 England (steam), at 100 Germany (fertiliser); at 75 America (mass production), at 50 California (credit card), at 25 Japan (Walkman).
Top of the list of explanations, paradoxically, comes falling child mortality. The more babies are likely to die, the more their parents bear. Only when women think their children will survive do they plan and complete their families rather than just keep breeding. This remarkable fact seems to be very poorly known. Most Western, educated people seem to think, rationally enough, that keeping babies alive in poor countries is only making the population problem worse and that … well, the implication is usually left unspoken.
Most economists are now more worried about the effects of imploding populations than they are about exploding ones. Countries with very low birth rates have rapidly ageing workforces. This means more and more old people eating the savings and taxes of fewer and fewer people of working age. They are right to be concerned, though they would be wrong to be apocalyptic, after all, today’s 40-year-olds will surely be happier to continue operating computers in their seventies than today’s 70-year-olds are to continue operating machine tools.
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.
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.
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. This theory accounts especially well for the otherwise puzzling rise in literacy during the early modern period. It may also account for the steady decline in violence. Your chances of being a victim of homicide in England fell from 0.3 per thousand in 1250 to 0.02 per thousand in 1800: you were ten times more likely to be killed in the earlier period.
The twentieth century, too, is replete with technologies that owe just as little to philosophy and to universities as the cotton industry did: flight, solid-state electronics, software. To which scientist would you give credit for the mobile telephone or the search engine or the blog? In a lecture on serendipity in 2007, the Cambridge physicist Sir Richard Friend, citing the example of high-temperature superconductivity – which was stumbled upon in the 1980s and explained afterwards – admitted that even today scientists’ job is really to come along and explain the empirical findings of technological tinkerers after they have discovered something.
(Incidentally, there is now overwhelming evidence that well crafted property rights are also the key to wildlife and nature conservation. Whether considering fish off Iceland, kudu in Namibia, jaguars in Mexico, trees in Niger, bees in Bolivia or water in Colorado, the same lesson applies. 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.)
It is precisely this ‘evitable’ misery that is the reason for pressing on urgently with economic progress, innovation and change, the only known way of bringing the benefits of a rising living standard to many more people. It is precisely because there is so much poverty, hunger and illness that the world must be very careful not to get in the way of the things that have bettered so many lives already – the tools of trade, technology and trust, of specialisation and exchange. It is precisely because there is still so much further to go that those who offer counsels of despair or calls to slow down in the face of looming environmental disaster may be not only factually but morally wrong.
Thus Britons rightly celebrate Michael Faraday’s genius in devising an electric motor and a dynamo – he was even recently on a banknote for a while – but forget that he got at least half the concept from the Dane Hans Christian Oersted. Americans learn that Edison invented the incandescent light bulb out of thin air, when his less commercially slick forerunners, Joseph Swan in Britain and Alexander Lodygin in Russia, deserve at least to share the credit, if not rather more. Samuel Morse, when applying for his patent on the telegraph, in the historian George Basalla’s words, ‘stoutly and falsely denied’ that he had learned anything from Joseph Henry. Technologies reproduce, and they do so sexually.
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.
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.
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.
A constant drumbeat of pessimism usually drowns out any triumphalist song of the kind I have vented in this book so far. If you say the world has been getting better you may get away with being called naïve and insensitive. If you say the world is going to go on getting better, you are considered embarrassingly mad. When the economist Julian Simon tried it in the 1990s, he was called everything from imbecile and Marxist to flat-earther and criminal. Yet no significant error came to light in Simon’s book. When Bjørn Lomborg tried it in the 2000s, he was temporarily ‘convicted’ of scientific dishonesty by the Danish National Academy of Sciences, with no substantive examples given nor an opportunity to defend himself, on the basis of an error-strewn review in Scientific American. Yet no significant error has come to light in Lomborg’s book.
The importance of property rights can even be demonstrated in the laboratory. Bart Wilson and his colleagues set up a land of three virtual villages inhabited by real undergraduates of two kinds – merchants and producers – making and needing three kinds of unit: red, blue and pink. Since no village can make all three units, the subjects had to start trading among themselves and did. Unlike in the previous, simpler experiment (see pages 89–90) they graduated to impersonal, market-like exchange. But when the players had a history of no property rights – i.e., they were able to steal units from each other’s caches – the trading never flourished and the undergraduates went home poorer than if they had a history of property rights. It is exactly what de Soto and economists like Douglass North have been saying about the real world for some time.
The mad world of biofuels This is what makes the ethanol and biofuel boondoggle so enraging. Not even Jonathan Swift would dare to write a satire in which politicians argued that – in a world where species are vanishing and more than a billion people are barely able to afford to eat – it would somehow be good for the planet to clear rainforests to grow palm oil, or give up food-crop land to grow biofuels, solely so that people could burn fuel derived from carbohydrate rather than hydrocarbons in their cars, thus driving up the price of food for the poor. Ludicrous is too weak a word for this heinous crime. But I will calm myself just long enough to go through the numbers in case nobody has heard them. In 2005, the world made roughly ten billion tonnes of ethanol, 45 per cent of it from Brazilian sugar cane and 45 per cent from American maize.
Suppose you had said to my hypothetical family of 1800, eating their gristly stew in front of a log fire, that in two centuries their descendants would need to fetch no logs or water, and carry out no sewage, because water, gas and a magic form of invisible power called electricity would come into their home through pipes and wires. They would jump at the chance to have such a home, but they would warily ask how they could possibly afford it. Suppose that you then told them that to earn such a home, they need only ensure that father and mother both have to go to work for eight hours in an office, travelling roughly forty minutes each way in a horseless carriage, and that the children need not work at all, but should go to school to be sure of getting such jobs when they started work at twenty. They would be more than dumbfounded; they would be delirious with excitement. Where, they would cry, is the catch?