Rational Optimist — Notes
11 min readDec 23, 2020
- François Quesnay and his fellow ‘physiocrats’ argued in eighteenth-century France that manufacturing produced no gain in wealth and that switching from agriculture to industry would decrease a country’s wealth: only farming was true wealth creation. Two centuries later the decline in industrial employment in the late twentieth century caused a similar consternation among economists, who saw services as a frivolous distraction from the important business of manufacturing. They were just as wrong. 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.
- Human beings evolved to strive to signal social status and sexual worth. What this implies is that far from being merely materialist, human consumption is already driven by a sort of pseudo-spiritualism that seeks love, heroism and admiration. Yet this thirst for status then encourages people to devise recipes that rearrange the atoms, electrons or photons of the world in such a way as to make useful combinations for other people. Ambition is transmuted into opportunity.
- 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. Innovation changes the world but only because it aids the elaboration of the division of labour and encourages the division of time.
- Prosperity is exchange and specialisation — more like the multiplication of labour than the division of labour
- Most species do not change their habits during their few million years on earth or alter their lifestyle much in different parts of their range. 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.
- Whereas other primates have guts weighing four times their brains, the human brain weighs more than the human intestine. Cooking enabled hominids to trade gut size for brain size.
- The rich meat diet enabled erectus hominids to grow a larger brain, an organ that burns energy at nine times the rate of the rest of the body.
- If sympathy is instinctive, synergy is not.
- ‘during our evolutionary tenure, we lived in a zero-sum (win-lose world), in which one person’s gain meant another person’s loss’.
- Mercantilism said that exports made you rich and imports made you poor
- A successful transaction between two people — a sale and purchase — should benefit both. If it benefits one and not the other, it is exploitation, and it does nothing to raise the standard of living. The history of human prosperity, as Robert Wright has argued, lies in the repeated discovery of non-zero-sum bargains that benefit both sides.
- Trust is a highly expandable network property. (eBay had 0.01% frauds, Wikipedia)
- Norway is heaving with trust (65 per cent trust each other) and wealthy, while Peru is wallowing in mistrust (5 per cent trust each other) and poor. ‘A 15% increase in the proportion of people in a country who think others are trustworthy,’ says Paul Zak, ‘raises income per person by 1% per year for every year thereafter.’
- The intelligentsia has disdained commerce throughout Western history.
- This particularly offends intellectuals, for capitalism renders them redundant.
- Capitalism exterminated slavery.
- Energy: Human to animal to water to wind to fossil fuel.
- Roman used people to build their empire. European early middle ages was age of Ox and Horses. Then came watermills.
- The secret of the industrial revolution was shifting from current solar power (plants, rain, wind) to stored solar power.
- Economic growth only became sustainable when it began to rely on non-renewable, non-green, non-clean power.
- Every economic boom in history, from Uruk onwards, had ended in bust because renewable sources of energy ran out: timber, crop land, pasture, labour, water, peat.
- Coal not only did not run out, no matter how much was used: it actually became cheaper and more abundant as time went by, in marked contrast to charcoal, which always grew more expensive once its use expanded beyond a certain point, for the simple reason that people had to go further in search of timber.
- Lancashire — Cotton capital of world
- A low level of demand from the masses was far more important than a rich demand from a few, (in 1700, in England)
- Initially, it was the cost of luxuries that fell fastest. If you could afford only to buy food, fuel and fibre, you were not much better off than your medieval predecessor; but if you could afford spices, wine, silk, books, sugar, candles, buckles and the like, then you were three times better off, not because your income had gone up, but because the price of these
- Cotton tells the tale best, though. In the 1600s, English people wore wool, linen and — if they were rich — silk.
- Two billion people alive today have never turned on a light switch.
- Today, the average person on the planet consumes power at the rate of about 2,500 watts, or to put it a different way, uses 600 calories per second. About 85 per cent of that comes from burning coal, oil and gas, the rest from nuclear and hydro (wind, solar and biomass are mere asterisks on the chart, as is the food you eat). Since a reasonably fit person on an exercise bicycle can generate about fifty watts, this means that it would take 150 slaves, working eight-hour shifts each, to peddle you to your current lifestyle.
- The poor, remember, spend 70 per cent of their incomes on food. In effect, American car drivers were taking carbohydrates out of the mouths of the poor to fill their tanks.
- The more you prosper, the more you can prosper. The more you invent, the more inventions become possible. How can this be possible? The world of things — of pecans or power stations — is indeed often subject to diminishing returns. But the world of ideas is not. 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.
- Equilibrium 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’.
- Although the human race as a whole has experienced incessant change, individual peoples saw a much more intermittent flickering progress because the pace and place of that change was itself always changing. Innovation is like a bush fire that burns brightly for a short time, then dies down before flaring up somewhere else. 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). No country remains for long the leader in knowledge creation.
- 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. The good news is that there is always a new torch lit. So far.
- 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.
- Whereas the nineteenth century saw a rash of new ways to move people about (railways, bicycles, cars, steam ships), the twentieth century saw a rash of new ways to move information about (telephones, radio, television, satellites, fax, the internet, mobile telephones).
- The greatest impact of an increasing-return wave comes long after the technology is first invented. It comes when the technology is democratised.
- But Orwell’s scepticism misses the point. It is not the speed but the cost — in terms of hours of work — that counts.
- Earlier a transatlantic telephone call was absurdly expensive; now a transpacific email is absurdly cheap.
- Sanitation and medicine have not added several years to life expectancy, as Macaulay rashly predicted, they have doubled it.
- The resources and technologies of 1960 could not have supported six billion — but the technologies changed and so the resources changed.
- ‘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.
- Just as sex made biological evolution cumulative, so exchange made cultural evolution cumulative and intelligence collective.
- 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. Two individuals could each have two tools or two ideas while each knowing how to make only one. Ten individuals could know between them ten things, while each understanding one. In this way exchange encouraged specialisation, which further increased the number of different habits the Species could have, while shrinking the number of things that each individual knew how to make. Consumption could grow more diversified, while production grew more specialised. At first, the progressive expansion of the Species’ culture was slow, because it was limited by the size of each connected population. Isolation on an island or devastation by a famine could reduce the population and so diminish its collective intelligence. Bit by bit, however, the Species expanded both in numbers and in prosperity. The more habits it acquired, the more niches it could occupy and the more individuals it could support. The more individuals it could support, the more habits it could acquire. The more habits it acquired, the more niches it could create.
- The cultural progress of the Species encountered impediments along the way. Overpopulation was a constant problem: as soon as the capacity of the local environment to support the population began to suffer, so individuals began to retreat from specialisation and exchange into defensive self-sufficiency, broadening their production and narrowing their consumption. This reduced the collective intelligence they could draw upon, which reduced the size of the niche they occupied, putting further pressure on population. So there were crashes, even local extinctions. Or the Species found itself expanding in numbers but not in living standards. Yet, again and again the Species found ways to recover through new kinds of exchange and specialisation. Growth resumed.
- Other impediments were of the Species’ own making. Equipped by their animal ancestry with an ambitious and jealous nature, individuals were often tempted to predate upon and parasitise their fellows’ productivity — to take and not to give. They killed, they enslaved, they extorted. For millennium after millennium this problem remained unsolved and the expansion of the Species, both its living standards and its population, was sporadically slowed, set back and reversed by the enervating greed of the parasites. Not all of the hangers-on were bad: there were rulers and public servants who lived off the traders and producers but dispensed justice and defence, or built roads and canals and schools and hospitals, making the lives of the specialise-and-exchange folk easier, not harder. These behaved like symbionts, rather than parasites (government can do good, after all). Yet still the Species grew, both in numbers and in habits, because the parasites never quite killed the system off which they fed.
- People are willing to share their photographs on Flickr, their thoughts on Twitter, their friends on Facebook, their knowledge on Wikipedia, their software patches on Linux, their donations on GlobalGiving, their community news on Craigslist, their pedigrees on Ancestry.com, their genomes on 23andMe, even their medical records on PatientsLikeMe.
- People will more and more freely find ways to exchange their specialised production for diversified consumption.
- Intelligence will become more and more collective; innovation and order will become more and more bottom-up; work will become more and more specialised, leisure more and more diversified. Large corporations, political parties and government bureaucracies will crumble and fragment as central planning agencies did before them. The Bankerdämmerung of 2008 swept away a few leviathans but fragmented and short-lived hedge funds and boutiques will spring up in their place. The collapse of Detroit’s big car makers in 2009 leaves a flock of entrepreneurial startups in charge of the next generation of cars and engines. Monolithic behemoths, whether private or nationalised, are vulnerable as never before to this Lilliputian assault.
- As Paul Romer puts it: ‘Every generation has perceived the limits to growth that finite resources and undesirable side effects would pose if no new recipes or ideas were discovered. And every generation has underestimated the potential for finding new recipes and ideas. We consistently fail to grasp how many ideas remain to be discovered.’
- Empires bought stability at the price of creating a parasitic court; monotheistic religions bought social cohesion at the price of a parasitic priestly class; nationalism bought power at the expense of a parasitic military; socialism bought equality at the price of a parasitic bureaucracy; capitalism bought efficiency at the price of parasitic financiers.
- The online world will attract parasites too: from regulators and cyber-criminals to hackers and plagiarists. Some of them may temporarily throttle their generous hosts.
- Chiefs, priests, thieves, financiers, consultants and others will appear on all sides, feeding off the surplus generated by exchange and specialisation, diverting the life-blood of the catallaxy into their own reactionary lives.
- 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.’
- So long as human exchange and specialisation are allowed to thrive somewhere, then culture evolves whether leaders help it or hinder it, and the result is that prosperity spreads, technology progresses, poverty declines, disease retreats, fecundity falls, happiness increases, violence atrophies, freedom grows, knowledge flourishes, the environment improves and wilderness expands.
