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Event Economics

The Rational Optimist: How Prosperity Evolves

Monday September 2011


Matt Ridley Author, The Rational Optimist: How Prosperity Evolves

About the Author

Matt Ridley latest book is The Rational Optimist: How Prosperity Evolves, which was short-listed for the Samuel Johnson prize for nonfiction books. He is also the author of the best-seller Genome, a biography of the biologist Francis Crick, and three widely acclaimed books on evolution The Red Queen, The Origins of Virtue, and Nature via Nurture. Educated at Oxford University, Ridley has a Ph.D. in zoology and was science editor of The Economist during the 1980s. He later became Washington correspondent and American editor of The Economist and then a freelance writer and columnist for various newspapers and magazines. He currently writes the "Mind and Matter" column for the weekend edition of The Wall Street Journal. As well as writing, Ridley has worked in various other fields. He was founding chairman of the Centre for Life, an educational charity devoted to public engagement, science education, research, and technology transfer in Newcastle, England. He has also worked as a nonexecutive director of companies in banking, insurance, venture capital, and consulting. He lives in Newcastle, in Northern England, running a family business and property first acquired by a coal-trading eighteenth century entrepreneur ancestor, and is married to the neuroscientist Anya Hurlbert.

Event Transcript

by John Tierney, New York Times

Thank you, Larry. And thanks to the Manhattan Institute for this opportunity to celebrate an intellectual hero of mine. For two decades, Matt Ridley has been charming and enlightening legions of fans with his wide-ranging insights. If you want to know the connection between Ice Age hunters in Europe and 13th-century bankers in Arabia, or between the political theories of Thomas Hobbes and the feeding habits of vampire bats, then Matt is your man.

And yet, for all Matt's knowledge, he has not succumbed to what Friedrich Hayek called the Fatal Conceit of intellectuals: the belief that wise people like themselves should be planning life for everyone else. Instead, Matt has acted according to one of Hayek's famous pronouncements: "The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design."

If that's the task of economics, then economists today could convene in Washington beneath a banner with large letters: "Mission Not Accomplished." Most politicians still imagine they create jobs, and most intellectuals still equate larger government with greater virtue.

Matt Ridley disagrees, and he has looked at a wider range of evidence than just about anyone else – at millions of years of evolution and tens of thousands of years of economic history. After getting a PhD in zoology at Oxford, Dr. Ridley did some slumming in journalism for the Economist before returning to to his home northeastern England to produce one remarkable book after another about science and society. His books have been honored repeatedly and sold more than 850,000 copies in 30 languages.

My favorite of his books used to be The Origins of Virtue, in which he combined anthropology, psychology, genetics, economics and game theory to look at the evolution of cooperation in human society. He considered previous theories and then, with his usual flair, reached his own conclusion: "For St. Augustine, the source of social order lay in the teachings of Christ. For Hobbes it lay in the sovereign. For Rousseau it lay in solitude. For Lenin it lay in the party. They were all wrong. The roots of social order are in our heads."

These human instincts, as the book showed beautifully, make us more cooperative than authoritarians like Hobbes believed, but not nearly as altruistic as leftists liked to imagine. In Matt's words, "We are not so nasty that we need to be tamed by intrusive government, nor so nice that too much government does not bring out the worst in us."

That was my favorite book until he produced the one we're honoring tonight, The Rational Optimist: How Prosperity Evolves. It's even more ambitious in its scope and more satisfying in its conclusions – and even more fun to read. Who can resist a book that starts with a prologue titled, "When ideas have sex"?

The book challenges the doomsaying of most intellectuals along with their penchant for blaming the doom on selfish merchants. The ancient Phoenicians who sailed the Mediterranean in trading vessels were denounced by Hebrew prophets and Greek poets. The entrepreneurs of the Industrial Revolution were reviled for their "dark Satanic mills," just as today's corporations are accused of exploiting workers and consumers and ecosystems around the world. Again and again, merchants have been dismissed as social parasites – as uncultured Babbitts by contrast with the wise emperors, clever scientists and creative artists supposedly responsible for social progress.

But you will find a very different view of merchants and progress and social parasites in The Rational Optimist. Matt provides a Grand Unified Theory of history and economics from the Stone Age to the year 2100. He offers a fresh explanation of how our species prevailed and what forces have driven advances in culture and revolutions in technology – and why these forces today make our future brighter than ever. Before he explains his theory, I'll give you one advance hint: a certain Austrian economist would have loved it. Ladies and gentlemen, the winner of the 2011 Hayek Prize, Matt Ridley.

How Prosperity Evolves
by Matt Ridley

I am genuinely humbled by the honor of winning the Hayek prize and giving the Hayek lecture. As somebody who came to Friedrich Hayek comparatively late in life – and I can tell you it is possible to go through an entire education to PhD level in the very best schools in the British system without any of your teachers or professors breathing the words "Adam Smith" let alone "Friedrich Hayek" – I am still catching up with him.

Indeed many of the insights that I thought I had discovered in my own readings and writings on the frontier of evolutionary biology and economics, it turns out Hayek had long before me.

But sometimes you have to reach an idea yourself before it really sinks in what others are saying.

It is one of those insights I want to talk about tonight, namely the collective brain.

The idea is really fairly simple, not to say blindingly obvious: that all human achievements come from the networking of our minds, rather than from individual knowledge, talent or skill. Yes, I said "all". Even the most individual of achievements – the works of Shakespeare, the speed of Usain Bolt – are actually attained by teams of different minds. In Bolt's case they are coaches and physiotherapists and nutritionists, in Shakespeare's case they are other writers from Ovid to Spencer and of course his fellow players.

It is even more obviously true of technological achievements. As Leonard Reed famously observed in his Hayekian essay "I, Pencil", nobody on the planet knows how to make a pencil. The knowledge is dispersed among many thousands of graphite miners, lumberjacks, assembly line workers, ferrule designers, salesmen and so on.

This is Hayek's point in his essay of 1945 "The Uses of Knowledge in Society" – namely that central planning cannot work because it is trying to substitute an individual all-knowing intelligence for a distributed and fragmented system of localized but connected knowledge, much of which is tacit.

In Hayek's words, "how valuable an asset in all walks of life is knowledge of people, of local conditions, and of special circumstances…the method by which such knowledge can be made as widely available as possible is precisely the problem to which we have to find an answer." His answer, of course, was the price meachanism.

Call me naïve, but the fact that nobody knows how to make a pencil came as an astounding insight when I read it, and I find it shocks my readers and audiences to this day. It is true of everything that I use in my everyday life, from my laptop to my shirt to this city. Nobody knows how to make it or to run it. Only the cloud knows.

One of the things I have tried to do in my book The Rational Optimist is to take this insight as far back into the past as I can – to try to understand when it first began to be true. When did human beings start to use collective rather than individual intelligence?

In doing so, I find that the entire field of anthropology and archaeology needs Hayek badly. Their debates about what made human beings successful, and what caused the explosive take-off of human culture in the past 100,000 years, simply never include the insight of dispersed knowedge.

They are still looking for a miracle gene, or change in brain organization, that explains, like a deus ex machina, the human revolution. They are still looking inside human heads rather than between them.

Let me give you a couple of quotes to show what I mean:

"I think there was a biological change — a genetic mutation of some kind that promoted the fully modern ability to create and innovate," said the anthropologist Richard Klein in 2003.

And "The sudden expansion of the brain 200,000 years ago was a dramatic spontaneous mutation in the brain …a change in a single gene would have been enough" said the neuroscientist Colin Blakemore in 2010.

Well, sorry, Colin, but there was no sudden change in brain size 200,000 years ago. We Africans had slightly smaller brains than Neanderthals, yet once outside Africa we rapidly displaced them (sexually acquiring 2.5% of our genes from them along the way, interestingly).

And the reason we won the war against the Neanderthals, if war it was, is staring us in the face, though it remains almost completely unrecognized among anthropologists: we exchanged.

At one site in the Caucasus there are Neanderthal and modern remains within a few miles of each other, both from around 30,000 years ago. The Neanderthal tools are all made from local materials. They had very low tool-miles, those Neanderthals. The moderns' tools are made from chert and obsidian some of which originated hundreds of miles away.

That means trade: you only have to observe the way stone axes moved long distances in Australia in recent times, by trade, not by migration, to know that long-distance movement of objects is a telltale sign of trade. We moderns have been doing this since at least 120,000 years ago. That's the date of beads made from marine shells found a hundred miles inland in Algeria.

So trade is ten times as old as agriculture. But it was a peculiarity of Africans.

Think about this for a second. Why would trade give us the edge over Neanderthals in their own continent and their own climate? It's because good ideas can spread through trade. New weapons like spear throwers, new foods, new crafts, new ornaments, new tools. Suddenly you are no longer relying on the inventiveness of your own tribe or the capacity of your own territory. You are drawing upon ideas that occurred to anybody anywhere anytime within your trading network.

That is what trade does. It creates a collective problem-solving brain as big as the trade network itself.

No other animal does this. There is exchange and specialization within families, even huge families like ant colonies, which makes an ant colony a pretty intelligent collective intelligence. But that's among kin. Exchange between strangers is a unique feature of us modern hominids.

As Adam Smith said, "no man ever saw a dog make fair and deliberate exchange of a bone with another dog."

Now let me be clear here what I mean by exchange, because I have terrible trouble getting this across to biologists and even economists. I do not mean reciprocity – you scratch my back, I'll scratch yours. Reciprocity means swapping the same favor at different times. In the case of vampire bats, I'll give you blood tonight because I fed and you didn't, you give me blood when your get a meal and I don't. Exchange means swapping different things at the same time.

There's a reciprocity industry in evolutionary biology these days, exploring models of prisoner's dilemmas to understand how co-operation evolves through mutual back-scratching. I wrote about this in my book The Origins of Virtue – but I now think the reciprocity industry is at least partly barking up the wrong tree.

You see, reciprocity does not lead to specialization and does not feed upon itself. Exchange, by contrast, is a fast breeder, a chain reaction. The more you exchange, the more it pays to specialise, and the more you specialize, the more it pays to exchange. That's basic Ricardian logic. Lots of animals do reciprocity; only we do exchange – between strangers. So only we got explosive technological and cultural evolution.

As Hayek put it, "man has been able to develop that division of labor on which our civilization is based because he happened to stumble upon a method which made it possible."

As you may know, I argue that the invention of exchange had the same impact on human culture as sex had on biological evolution – it made it cumulative.

Plenty of other animals have culture – chimpanzees teach each other how to crack nuts with rocks, maintaining local traditions in the craft. But none shows cumulative, accelerating, dynamic culture like ours. Just as sex enables you to inherit a genetic mutation from anywhere in your species through the recombining of genes, so exchange enables you to inherit an idea from anywhere in your species by recombining ideas.

Indulge me in a little more ancient anthropology before I come back to the modern world. Michelle Kline and Rob Boyd discovered that the sophistication of fishing tackle in the Pacific before western contact depended partly on the amount of trading contact between islands – the more the trade links an island had, the more complex its fishing technology.

Human technological advancement depended not on individual intelligence but on collective idea sharing. The 'cloud' is not a new idea at all. It has been the source of human invention all along.

When you cut people off from exchange networks, their innovation rate collapses. Tasmanians, isolated by rising sea levels about 10,000 years ago, not only failed to share in the advances that came after that time – the boomerang, for example – but actually went backwards in terms of technical virtuosity. They gave up bone tools altogether, for example. In a small island population, good ideas died faster than they could be replaced.

Tierra del Fuego's natives, on a similarly inhospitable and small land, but connected by trading canoes across the much narrower Magellan strait, suffered no such technological regress. They had access to a collective brain the size of South America.

This notion – that human progress waxes and wanes according to the size and integration of the exchanging population – suddenly explains an awful lot of human history. When the Mediterranean is well networked by the trading ships of Phoenicians, Greeks, Arabs or Venetians, culture and prosperity advance rapidly. When the network collapses because of the sea peoples of the second millennium BC, or in the dark ages, or under the Barbary pirates and the Ottoman corsairs, culture and prosperity stagnate or go backwards. What counts is the connectivity of the collective brain.

Which is of course why the internet is such an exciting development. For the first time humanity has not just some big collective brains, but one truly vast one in which almost everybody can share. Moreover, by contrast with the industrial system, the internet allows us to contribute as producers rather than just consumers – of apps, blogs, tweets, restaurant reviews and so on. The internet is to radio as a conversation is to a lecture.

As Hayek would be the first to acknowledge, you can trace this idea of collective intelligence back to Adam Smith and Adam Ferguson, with insights from Ricardo, Darwin, Montesquieu, Bastiat and many others thrown in. But I think it is Hayek who first puts it all together, who sees that the combination of myriad pieces of local knowledge and expertise is what makes society work. Who sees the world from the bottom up, not the top down.

Consider this sentence from Hayek's essay:

"The marvel is that in a case like that of a scarcity of one raw material, without an order being issued, without more than perhaps a handful of people knowing the cause, tens of thousands of people whose identity could not be ascertained by months of investigation, are made to use the material or its products more sparingly"

What strikes an evolutionary biologist like me about this is how Darwinian it is. Compare it with Charles Darwin's description of natural selection:

"Thus, from the war of nature, from famine and death, the most exalted object which we are capable of conceiving, namely, the production of the higher animals, directly follows."

Even though Hayek was perhaps too much influenced by group selection, there is not doubt he got Darwinism. He saw straight to the point that it was a bottom-up, emergent, spontaneous phenomenon and he saw right through the top-down nonsense of social Darwinism to the idea that cultural evolution happens by natural selection among ideas rather than among genes, that in cultural evolution ideas die so that people don't have to.

It's a notion that is only now being revived in rigorous form by anthropologists like Joe Henrich, Rob Boyd and Pete Richerson.

By the way, as somebody who appreciates natural selection as much as free market economics, I long to get more people to see the bottom-up similarities between these two ways of seeing emergent phenomena. It is a source of frustration that so many free-market types, who don't think governments can or should run the world, none the less think that God can and does run evolution. Rick Perry, for instance. And that so many of my evolutionary fellow travellers, who think genomes and species evolved rather than were designed, turn into rampant creationists when they express political views – only with government playing the role of intelligent designer. Richard Dawkins, for instance.

Now for me one of the most fascinating implications of this understanding of the collective brain is how touchy-feely liberal it is. As a champion of both natural selection and free market economics I am quite used to the charge that I am either resigned to, or advocating, human selfishness and individualism. Mention the word Hayek in a meeting of evolutionary biologists and it's as if you've said Voldermort: I tried it once.

Yet here am I and Hayek saying that it is human collaboration that is necessary for society to work; that the individual is not – and had not been for 120,000 years – able to support his lifestyle; that the key feature of trade is that it enables us to work for each other not just for ourselves; that attempts at self sufficiency are the true form of selfishness as well as the quick road to poverty; and that authoritarian, top-down rule is not the source of order or progress.

How exactly is that "right wing"? How exactly is it conservative or reactionary to think human society must works best through egalitarian sharing and mutual service, rather than through state control, hierarchy and planning? Truly something very weird has happened to the world when I am condemned by left-leaning commentators as a right-wing zealot for advocating freedom for people to exchange ideas and serve their fellow human beings thus encouraging social change, while my accusers demand more power for Leviathan to control my life, charge that free trade is bad for the people who freely choose it and muse about the suspension of democracy to advance the greater, greener good.

Politically, I still see myself as a liberal, even a radical one, whose distrust of putting people in charge of other people is born of knowledge that government has been the means by which people have committed unspeakable horrors again and again and again: under Sargon, Rameses, Nero, Attila, Genghis, Tamerlane, Akbar, Charles V, Napoleon, Hitler, Stalin, Mao, Pol Pot, Idi Amin, Kim Jong Il, and Muammar Gaddafi. Not one of them used the market to repress and murder their people; their tool was government.

I was at Auschwitz last month. People often talk about the horrifying "industrialization" of death it represents; what struck me rather was the "nationalization": the bureaucratic central planning and meticulous hierarchical organization of what was actually rather labor-intensive, unmechanised mass murder: it takes a government to do an Auschwitz.

By contrast, free markets have generally produced flowerings of prosperity, invention, cultural experimentation and – yes – peace wherever they have been tried: in Ubaid Mesopotamia, Phoenicia, Ashokan India, ancient Greece, Song China, Fatimid Arabia, Renaissance Italy, seventeenth century Holland, Victorian Britain, modern California and Sir John Cowperthwaite's Hong Kong.

So, I am sorry but I just do not see why trusting people not governments, encouraging collaboration not instruction, embracing innovation not order and allowing collective intelligence rather than central planning is a reactionary philosophy. I think it is a radical one. As my good friend Michael Shermer has written, "the scientific solution to the political problem of oppressive governments is the tried-and-true method of spreading liberal democracy and market capitalism through open exchange of information, products, and services across porous economic borders."

Ladies and gentlemen, we are here today, in world richly furnished with technological and cultural marvels, because we have connected our minds as a collective brain. It was exchange and specialization that enabled us to do so.