“The Rational Optimist” by Matt Ridley

On page 9 of the prolog Ridley proposes the most interesting economic principle I have heard for a while: Markets don’t work well for long term assets.

On page 57 Ridley carefully distinguishes exchange or barter from both reciprocity and ‘do unto others as they do unto you’. “Quid pro quo” is another term for barter.

I agree with Ridley’s distinctions. Barter does not depend on past or future interactions, beyond refraining from mayhem for the duration of the transaction. It may require some degree of trust for the duration of the transaction. It may be facilitated by anticipation of future transactions, but not necessarily. It may be facilitated by talk of why the goods are of good or poor quality, but again this is not necessary. It is a single event.

In this context I would use Kaufmann’s notion of ‘the adjacent possible’ to describe the exponential process of trade. I presume that Ridley will also draw the analogy between trade synergy and the synergy of multicellular organisms, especially when ducts were invented 530 mya. Then deals were done by novel DNA whereas trade deals are done by transactions between brains.

In his chapter 2 Ridley tells a story similar to Jared Diamond’s of how geography bears on distribution of technology, but from an economic perspective. In Ridley’s words, the collective brain is too small in isolated groups. Many of the same conclusions follow.

The chapter “The Manufacture of Virtue” recounts the nature of institutions of cultures dominated by markets. This covers similar ground covered by Jacobs’ “Systems of Survival” much of which describes tensions between the older ‘guardians’ and the newer merchants.

In generalities I find the book going over material that is slightly obvious yet novel in that it comes from development of the adjacent possible thru economic pressures. In this way Ridley places human development for many millennia into the market framework. I don’t recall other books that have so amalgamated economic and cultural aspects of the development of modern man.

Ridley comes in several places to the issue of trust. Complementary to trust within a culture is trustworthiness. He sites statistics on the former but not the latter. The prisoner’s dilemma game results show that these must develop together within a culture. He oversimplifies but for the most part I think you can repair his story by presuming concomitant growth of both.

Bernstein’s description of trade in the millennium BC is a story mostly of mayhem seeking monopoly. Ridley does not report this. Bernstein’s trade was of luxuries—Ridley’s mostly of every day goods.

Ridley’s fabled chapter 10 has some interesting arguments. First a minor quibble. On page 344 he says of Danish wind turbines that “not a single emission has been saved because intermittent wind requires fossil-fuel back-up”. Hours when the wind blows leave this back-up idle producing no emissions. Ridley makes few such errors.

Ridley speaks vaguely of an alternative world where fossil fuel is expensive and the negative wealth impact on the poor about whom we are supposedly worrying. He is silent on the nature of this extra cost; is it a carbon tax? And if so how are the proceeds spent? I worry with the republicans about how the government might spend the money. Ridley largely sidesteps the issue of externalities. CO2 is perhaps the very first world-wide externality. Ridley correctly lists possible advantages to warming. I worry more about the next ice-age. (oops: He does suggest a carbon tax on page 346.) Ultimately I like his take on CO2; he admits it is a hard problem.

Ridley emphasizes trading goods and ideas. Perhaps these offloaded the brain starting perhaps 100,000 years ago. I have recently heard the suggestion that our brain is slightly smaller than it was 10,000 years ago and that was perhaps due to life being easier these days, with agriculture and all. Perhaps trade, more than agriculture is more to blame. Or perhaps nature just figured out how to package more smarts in a smaller volume.

Ridley’s prognostications are pretty good. I would add one thing: Gradually during this century, fragmentary machine intelligences will startle us with their accomplishments and insights. They will not become much like us, however.