April 7, 2011


The More Things Exchange: a review of The Rational Optimist: How Prosperity Evolves By Matt Ridley (Joseph F. Johnston, Jr., April 2011, American Spectator)

What explains mankind's relatively recent cultural explosion? To find the answer, see Matt Ridley's very readable and persuasive book, The Rational Optimist: How Prosperity Evolves. Ridley's theory is not entirely novel. He gives appropriate credit to Frederic Hayek, who wrote in 1960 that social evolution involves "selection by imitation of successful institutions and habits." Ridley brings historical depth and analytical precision to Hayek's insight. He concludes that, some time around 100,000 years ago, humans began to exchange things with each other, that "once they started doing so, culture suddenly became cumulative," and what we call "progress" began. "Barter," says Ridley, "was the trick that changed the world."

By exchanging ideas as well as things, humans discovered the division of labor (that is, the specialization of efforts and talents). The ability to specialize through exchange gave man the capacity to continuously improve his condition and, indeed, to dominate the earth. Ridley is not just another observer of culture, but is a trained biologist and well-known writer on evolution and other scientific topics, who expertly traces this history of exchange and specialization and the resulting increase in human prosperity. The story, for Ridley, is an optimistic one. Today, "the vast majority of people are much better fed, much better sheltered, much better entertained, much better protected against disease and much more likely to live to old age than their ancestors have ever been." This is probably true (with the possible exception of entertainment), although there are some aspects of our civilization that might be listed on the pessimistic side of the ledger -- a point to which we will return.

Ridley shows, with detailed examples from millennia of development, how exchange leads to specialization, to expertise, to technological innovation, and then to increasingly complex and sophisticated trade. The pattern continues today. In the terms defined by Adam Smith and David Ricardo, it is the story of free trade and comparative advantage. It is also the basis of human freedom and prosperity. "The lesson of the last two centuries is that liberty and welfare march hand in hand with prosperity and trade." The free market has a liberating effect and is the key to prosperity for those who allow it to operate.

In a sample of 127 countries, Ridley notes, the 63 with the most economic freedom had more than four times the income per capita and nearly twice the growth rate of the countries with less economic freedom. The successful countries are those that have institutions, such as rules protecting private property, that make successful commerce possible.

Once you get the design right everything else follows.


Posted by at April 7, 2011 3:52 PM

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