The Rational Optimist
How Prosperity Evolves
Matt Ridley

For Matthew and Iris

This division of labour, from which so many advantages are derived, is not originally the effect of any human wisdom, which foresees and intends that general opulence to which it gives occasion. It is the necessary, though very slow and gradual, consequence of a certain propensity in human nature which has in view no such extensive utility; the propensity to truck, barter, and exchange one thing for another.

ADAM SMITH

The Wealth of Nations

Table of Contents

Title Page

Dedication

Epigraph

PROLOGUE When ideas have sex

CHAPTER 1 A better today: the unprecedented present

CHAPTER 2 The collective brain: exchange and specialisation after 200,000 years ago

CHAPTER 3 The manufacture of virtue: barter, trust and rules after 50,000 years ago

CHAPTER 4 The feeding of the nine billion: farming after 10,000 years ago

CHAPTER 5 The triumph of cities: trade after 5,000 years ago

CHAPTER 6 Escaping Malthus’s trap: population after 1200

CHAPTER 7 The release of slaves: energy after 1700

CHAPTER 8 The invention of invention: increasing returns after 1800

CHAPTER 9 Turning points: pessimism after 1900

CHAPTER 10 The two great pessimisms of today: Africa and climate after 2010

CHAPTER 11 The catallaxy: rational optimism about 2100

NOTES AND REFERENCES

INDEX

Acknowledgements

By the same author

Copyright

About the Publisher

PROLOGUE When ideas have sex

In other classes of animals, the individual advances from infancy to age or maturity; and he attains, in the compass of a single life, to all the perfection his nature can reach: but, in the human kind, the species has a progress as well as the individual; they build in every subsequent age on foundations formerly laid.

ADAM FERGUSON

An Essay on the History of Civil Society

On my desk as I write sit two artefacts of roughly the same size and shape: one is a cordless computer mouse; the other a hand axe from the Middle Stone Age, half a million years old. Both are designed to fit the human hand – to obey the constraints of being used by human beings. But they are vastly different. One is a complex confection of many substances with intricate internal design reflecting multiple strands of knowledge. The other is a single substance reflecting the skill of a single individual. The difference between them shows that the human experience of today is vastly different from the human experience of half a million years ago.

This book is about the rapid, continuous and incessant change that human society experiences in a way that no other animal does. To a biologist this is something that needs explaining. In the past two decades I have written four books about how similar human beings are to other animals. This book is about how different they are from other animals. What is it about human beings that enables them to keep changing their lives in this tumultuous way?

It is not as if human nature changes. Just as the hand that held the hand axe was the same shape as the hand that holds the mouse, so people always have and always will seek food, desire sex, care for offspring, compete for status and avoid pain just like any other animal. Many of the idiosyncrasies of the human species are unchanging, too. You can travel to the farthest corner of the earth and still expect to encounter singing, smiling, speech, sexual jealousy and a sense of humour – none of which you would find to be the same in a chimpanzee. You could travel back in time and empathise easily with the motives of Shakespeare, Homer, Confucius and the Buddha. If I could meet the man who painted exquisite images of rhinos on the wall of the Chauvet Cave in southern France 32,000 years ago, I have no doubt that I would find him fully human in every psychological way. There is a great deal of human life that does not change.

Yet to say that life is the same as it was 32,000 years ago would be absurd. In that time my species has multiplied by 100,000 per cent, from perhaps three million to nearly seven billion people. It has given itself comforts and luxuries to a level that no other species can even imagine. It has colonised every habitable corner of the planet and explored almost every uninhabitable one. It has altered the appearance, the genetics and the chemistry of the world and pinched perhaps 23 per cent of the productivity of all land plants for its own purposes. It has surrounded itself with peculiar, non-random arrangements of atoms called technologies, which it invents, reinvents and discards almost coninuously. This is not true for other creatures, not even brainy ones like chimpanzees, bottlenose dolphins, parrots and octopi. They may occasionally use tools, they may occasionally shift their ecological niche, but they do not ‘raise their standard of living’, or experience ‘economic growth’. They do not encounter ‘poverty’ either. They do not progress from one mode of living to another – nor do they deplore doing so. They do not experience agricultural, urban, commercial, industrial and information revolutions, let alone Renaissances, Reformations, Depressions, Demographic Transitions, civil wars, cold wars, culture wars and credit crunches. As I sit here at my desk, I am surrounded by things – telephones, books, computers, photographs, paper clips, coffee mugs – that no monkey has ever come close to making. I am spilling digital information on to a screen in a way that no dolphin has ever managed. I am aware of abstract concepts – the date, the weather forecast, the second law of thermodynamics – that no parrot could begin to grasp. I am definitely different. What is it that makes me so different?

It cannot just be that I have a bigger brain than other animals. After all, late Neanderthals had on average bigger brains than I do, yet did not experience this headlong cultural change. Moreover, big though my brain may be compared with another animal species, I have barely the foggiest inkling how to make coffee cups and paper clips, let alone weather forecasts. The psychologist Daniel Gilbert likes to joke that every member of his profession lives under the obligation at some time in his career to complete a sentence which begins: ‘The human being is the only animal that…’ Language, cognitive reasoning, fire, cooking, tool making, self-awareness, deception, imitation, art, religion, opposable thumbs, throwing weapons, upright stance, grandparental care – the list of features suggested as unique to human beings is long indeed. But then the list of features unique to aardvarks or bare-faced go-away birds is also fairly long. All of these features are indeed uniquely human and are indeed very helpful in enabling modern life. But I will contend that, with the possible exception of language, none of them arrived at the right time, or had the right impact in human history to explain the sudden change from a merely successful ape-man to an ever-expanding progressive moderniser. Most of them came much too early in the story and had no such ecological effect. Having sufficient consciousness to want to paint your body or to reason the answer to a problem is nice, but it does not lead to ecological world conquest.

Clearly, big brains and language may be necessary for human beings to cope with a life of technological modernity. Clearly, human beings are very good at social learning, indeed compared with even chimpanzees humans are almost obsessively interested in faithful imitation. But big brains and imitation and language are not themselves the explanation of prosperity and progress and poverty. They do not themselves deliver a changing standard of living. Neanderthals had all of these: huge brains, probably complex languages, lots of technology. But they never burst out of their niche. It is my contention that in looking inside our heads, we would be looking in the wrong place to explain this extraordinary capacity for change in the species. It was not something that happened within a brain. It was something that happened between brains. It was a collective phenomenon.

Look again at the hand axe and the mouse. They are both ‘man-made’, but one was made by a single person, the other by hundreds of people, maybe even millions. That is what I mean by collective intelligence. No single person knows how to make a computer mouse. The person who assembled it in the factory did not know how to drill the oil well from which the plastic came, or vice versa. At some point, human intelligence became collective and cumulative in a way that happened to no other animal.

Mating minds

To argue that human nature has not changed, but human culture has, does not mean rejecting evolution – quite the reverse. Humanity is experiencing an extraordinary burst of evolutionary change, driven by good old-fashioned Darwinian natural selection. But it is selection among ideas, not among genes. The habitat in which these ideas reside consists of human brains. This notion has been trying to surface in the social sciences for a long time. The French sociologist Gabriel Tarde wrote in 1888: ‘We may call it social evolution when an invention quietly spreads through imitation.’ The Austrian economist Friedrich Hayek wrote in the 1960s that in social evolution the decisive factor is ‘selection by imitation of successful institutions and habits’. The evolutionary biologist Richard Dawkins in 1976 coined the term ‘meme’ for a unit of cultural imitation. The economist Richard Nelson in the 1980s proposed that whole economies evolve by natural selection.

This is what I mean when I talk of cultural evolution: at some point before 100,000 years ago culture itself began to evolve in a way that it never did in any other species – that is, to replicate, mutate, compete, select and accumulate – somewhat as genes had been doing for billions of years. Just like natural selection cumulatively building an eye bit by bit, so cultural evolution in human beings could cumulatively build a culture or a camera. Chimpanzees may teach each other how to spear bushbabies with sharpened sticks, and killer whales may teach each other how to snatch sea lions off beaches, but only human beings have the cumulative culture that goes into the design of a loaf of bread or a concerto.

Yes, but why? Why us and not killer whales? To say that people have cultural evolution is neither very original nor very helpful. Imitation and learning are not themselves enough, however richly and ingeniously they are practised, to explain why human beings began changing in this unique way. Something else is necessary; something that human beings have and killer whales do not. The answer, I believe, is that at some point in human history, ideas began to meet and mate, to have sex with each other.

Let me explain. Sex is what makes biological evolution cumulative, because it brings together the genes of different individuals. A mutation that occurs in one creature can therefore join forces with a mutation that occurs in another. The analogy is most explicit in bacteria, which trade genes without replicating at the same time – hence their ability to acquire immunity to antibiotics from other species. If microbes had not begun swapping genes a few billion years ago, and animals had not continued doing so through sex, all the genes that make eyes could never have got together in one animal; nor the genes to make legs or nerves or brains. Each mutation would have remained isolated in its own lineage, unable to discover the joys of synergy. Think, in cartoon terms, of one fish evolving a nascent lung, another nascent limbs and neither getting out on land. Evolution can happen without sex; but it is far, far slower.

And so it is with culture. If culture consisted simply of learning habits from others, it would soon stagnate. For culture to turn cumulative, ideas needed to meet and mate. The ‘cross-fertilisation of ideas’ is a cliché, but one with unintentional fecundity. ‘To create is to recombine’ said the molecular biologist François Jacob. Imagine if the man who invented the railway and the man who invented the locomotive could never meet or speak to each other, even through third parties. Paper and the printing press, the internet and the mobile phone, coal and turbines, copper and tin, the wheel and steel, software and hardware. I shall argue that there was a point in human prehistory when big-brained, cultural, learning people for the first time began to exchange things with each other, and that once they started doing so, culture suddenly became cumulative, and the great headlong experiment of human economic ‘progress’ began. Exchange is to cultural evolution as sex is to biological evolution.

By exchanging, human beings discovered ‘the division of labour’, the specialisation of efforts and talents for mutual gain. It would at first have seemed an insignificant thing, missed by passing primatologists had they driven their time machines to the moment when it was just starting. It would have seemed much less interesting than the ecology, hierarchy and superstitions of the species. But some ape-men had begun exchanging food or tools with others in such a way that both partners to the exchange were better off, and both were becoming more specialised.

Specialisation encouraged innovation, because it encouraged the investment of time in a tool-making tool. That saved time, and prosperity is simply time saved, which is proportional to the division of labour. The more human beings diversified as consumers and specialised as producers, and the more they then exchanged, the better off they have been, are and will be. And the good news is that there is no inevitable end to this process. The more people are drawn into the global division of labour, the more people can specialise and exchange, the wealthier we will all be. Moreover, along the way there is no reason we cannot solve the problems that beset us, of economic crashes, population explosions, climate change and terrorism, of poverty, AIDS, depression and obesity. It will not be easy, but it is perfectly possible, indeed probable, that in the year 2110, a century after this book is published, humanity will be much, much better off than it is today, and so will the ecology of the planet it inhabits. This book dares the human race to embrace change, to be rationally optimistic and thereby to strive for the betterment of humankind and the world it inhabits.

Some will say that I am merely restating what Adam Smith said in 1776. But much has happened since Adam Smith to change, challenge, adjust and amplify his insight. He did not realise, for instance, that he was living through the early stages of an industrial revolution. I cannot hope to match Smith’s genius as an individual, but I have one great advantage over him – I can read his book. Smith’s own insight has mated with others since his day.

Moreover, I find myself continually surprised by how few people think about the problem of tumultuous cultural change. I find the world is full of people who think that their dependence on others is decreasing, or that they would be better off if they were more self-sufficient, or that technological progress has brought no improvement in the standard of living, or that the world is steadily deteriorating, or that the exchange of things and ideas is a superfluous irrelevance. And I find a deep incuriosity among trained economists – of which I am not one – about defining what prosperity is and why it happened to their species. So I thought I would satisfy my own curiosity by writing this book.

I am writing in times of unprecedented economic pessimism. The world banking system has lurched to the brink of collapse; an enormous bubble of debt has burst; world trade has contracted; unemployment is rising sharply all around the world as output falls. The immediate future looks bleak indeed, and some governments are planning further enormous public debt expansions that could hurt the next generation’s ability to prosper. To my intense regret I played a part in one phase of this disaster as non-executive chairman of Northern Rock, one of many banks that ran short of liquidity during the crisis. This is not a book about that experience (under the terms of my employment there I am not at liberty to write about it). The experience has left me mistrustful of markets in capital and assets, yet passionately in favour of markets in goods and services. Had I only known it, experiments in laboratories by the economist Vernon Smith and his colleagues have long confirmed that markets in goods and services for immediate consumption – haircuts and hamburgers – work so well that it is hard to design them so they fail to deliver efficiency and innovation; while markets in assets are so automatically prone to bubbles and crashes that it is hard to design them so they work at all. Speculation, herd exuberance, irrational optimism, rent-seeking and the temptation of fraud drive asset markets to overshoot and plunge – which is why they need careful regulation, something I always supported. (Markets in goods and services need less regulation.) But what made the bubble of the 2000s so much worse than most was government housing and monetary policy, especially in the United States, which sluiced artificially cheap money towards bad risks as a matter of policy and thus also towards the middlemen of the capital markets. The crisis has at least as much political as economic causation, which is why I also mistrust too much government.

(In the interests of full disclosure, I here note that as well as banking I have over the years worked in or profited directly from scientific research, species conservation, journalism, farming, coal mining, venture capital and commercial property, among other things: experience may have influenced, and has certainly informed, my views of these sectors in the pages that follow. But I have never been paid to promulgate a particular view.)

Rational optimism holds that the world will pull out of the current crisis because of the way that markets in goods, services and ideas allow human beings to exchange and specialise honestly for the betterment of all. So this is not a book of unthinking praise or condemnation of all markets, but it is an inquiry into how the market process of exchange and specialisation is older and fairer than many think and gives a vast reason for optimism about the future of the human race. Above all, it is a book about the benefits of change. I find that my disagreement is mostly with reactionaries of all political colours: blue ones who dislike cultural change, red ones who dislike economic change and green ones who dislike technological change.

I am a rational optimist: rational, because I have arrived at optimism not through temperament or instinct, but by looking at the evidence. In the pages that follow I hope to make you a rational optimist too. First, I need to convince you that human progress has, on balance, been a good thing, and that, despite the constant temptation to moan, the world is as good a place to live as it has ever been for the average human being – even now in a deep recession. That it is richer, healthier, and kinder too, as much because of commerce as despite it. Then I intend to explain why and how it got that way. And finally, I intend to see whether it can go on getting better.

CHAPTER 1 A better today: the unprecedented present

On what principle is it, that when we see nothing but improvement behind us, we are to expect nothing but deterioration before us?

THOMAS BABINGTON MACAULAY

Review of Southey’s Colloquies on Society

By the middle of this century the human race will have expanded in ten thousand years from less than ten million to nearly ten billion people. Some of the billions alive today still live in misery and dearth even worse than the worst experienced in the Stone Age. Some are worse off than they were just a few months or years before. But 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. The availability of almost everything a person could want or need has been going rapidly upwards for 200 years and erratically upwards for 10,000 years before that: years of lifespan, mouthfuls of clean water, lungfuls of clean air, hours of privacy, means of travelling faster than you can run, ways of communicating farther than you can shout. Even allowing for the hundreds of millions who still live in abject poverty, disease and want, this generation of human beings has access to more calories, watts, lumen-hours, square feet, gigabytes, megahertz, light-years, nanometres, bushels per acre, miles per gallon, food miles, air miles, and of course dollars than any that went before. They have more Velcro, vaccines, vitamins, shoes, singers, soap operas, mango slicers, sexual partners, tennis rackets, guided missiles and anything else they could even imagine needing. By one estimate, the number of different products that you can buy in New York or London tops ten billion.

This should not need saying, but it does. There are people today who think life was better in the past. They argue that there was not only a simplicity, tranquillity, sociability and spirituality about life in the distant past that has been lost, but a virtue too. This rose-tinted nostalgia, please note, is generally confined to the wealthy. It is easier to wax elegiac for the life of a peasant when you do not have to use a long-drop toilet. Imagine that it is 1800, somewhere in Western Europe or eastern North America. The family is gathering around the hearth in the simple timber-framed house. Father reads aloud from the Bible while mother prepares to dish out a stew of beef and onions. The baby boy is being comforted by one of his sisters and the eldest lad is pouring water from a pitcher into the earthenware mugs on the table. His elder sister is feeding the horse in the stable. Outside there is no noise of traffic, there are no drug dealers and neither dioxins nor radioactive fall-out have been found in the cow’s milk. All is tranquil; a bird sings outside the window.

Oh please! Though this is one of the better-off families in the village, father’s Scripture reading is interrupted by a bronchitic cough that presages the pneumonia that will kill him at 53 – not helped by the wood smoke of the fire. (He is lucky: life expectancy even in England was less than 40 in 1800.) The baby will die of the smallpox that is now causing him to cry; his sister will soon be the chattel of a drunken husband. The water the son is pouring tastes of the cows that drink from the brook. Toothache tortures the mother. The neighbour’s lodger is getting the other girl pregnant in the hayshed even now and her child will be sent to an orphanage. The stew is grey and gristly yet meat is a rare change from gruel; there is no fruit or salad at this season. It is eaten with a wooden spoon from a wooden bowl. Candles cost too much, so firelight is all there is to see by. Nobody in the family has ever seen a play, painted a picture or heard a piano. School is a few years of dull Latin taught by a bigoted martinet at the vicarage. Father visited the city once, but the travel cost him a week’s wages and the others have never travelled more than fifteen miles from home. Each daughter owns two wool dresses, two linen shirts and one pair of shoes. Father’s jacket cost him a month’s wages but is now infested with lice. The children sleep two to a bed on straw mattresses on the floor. As for the bird outside the window, tomorrow it will be trapped and eaten by the boy.

If my fictional family is not to your taste, perhaps you prefer statistics. Since 1800, the population of the world has multiplied six times, yet average life expectancy has more than doubled and real income has risen more than nine times. Taking a shorter perspective, in 2005, compared with 1955, the average human being on Planet Earth earned nearly three times as much money (corrected for inflation), ate one-third more calories of food, buried one-third as many of her children and could expect to live one-third longer. She was less likely to die as a result of war, murder, childbirth, accidents, tornadoes, flooding, famine, whooping cough, tuberculosis, malaria, diphtheria, typhus, typhoid, measles, smallpox, scurvy or polio. She was less likely, at any given age, to get cancer, heart disease or stroke. She was more likely to be literate and to have finished school. She was more likely to own a telephone, a flush toilet, a refrigerator and a bicycle. All this during a half-century when the world population has more than doubled, so that far from being rationed by population pressure, the goods and services available to the people of the world have expanded. It is, by any standard, an astonishing human achievement.

Averages conceal a lot. But even if you break down the world into bits, it is hard to find any region that was worse off in 2005 than it was in 1955. Over that half-century, real income per head ended a little lower in only six countries (Afghanistan, Haiti, Congo, Liberia, Sierra Leone and Somalia), life expectancy in three (Russia, Swaziland and Zimbabwe), and infant survival in none. In the rest they have rocketed upward. Africa’s rate of improvement has been distressingly slow and patchy compared with the rest of the world, and many southern African countries saw life expectancy plunge in the 1990s as the AIDS epidemic took hold (before recovering in recent years). There were also moments in the half-century when you could have caught countries in episodes of dreadful deterioration of living standards or life chances – China in the 1960s, Cambodia in the 1970s, Ethiopia in the 1980s, Rwanda in the 1990s, Congo in the 2000s, North Korea throughout. Argentina had a disappointingly stagnant twentieth century. But overall, after fifty years, the outcome for the world is remarkably, astonishingly, dramatically positive. The average South Korean lives twenty-six more years and earns fifteen times as much income each year as he did in 1955 (and earns fifteen times as much as his North Korean counterpart). The average Mexican lives longer now than the average Briton did in 1955. The average Botswanan earns more than the average Finn did in 1955. Infant mortality is lower today in Nepal than it was in Italy in 1951. The proportion of Vietnamese living on less than $2 a day has dropped from 90 per cent to 30 per cent in twenty years.

The rich have got richer, but the poor have done even better. The poor in the developing world grew their consumption twice as fast as the world as a whole between 1980 and 2000. The Chinese are ten times as rich, one-third as fecund and twenty-eight years longer-lived than they were fifty years ago. Even Nigerians are twice as rich, 25 per cent less fecund and nine years longer-lived than they were in 1955. Despite a doubling of the world population, even the raw number of people living in absolute poverty (defined as less than a 1985 dollar a day) has fallen since the 1950s. The percentage living in such absolute poverty has dropped by more than half – to less than 18 per cent. That number is, of course, still all too horribly high, but the trend is hardly a cause for despair: at the current rate of decline, it would hit zero around 2035 – though it probably won’t. The United Nations estimates that poverty was reduced more in the last fifty years than in the previous 500.

Affluence for all

Nor was 1955 a time of deprivation. It was in itself a record – a moment when the world was richer, more populous and more comfortable than it had ever been, despite the recent efforts of Hitler, Stalin and Mao (who was then just starting to starve his people so that he could use their grain to buy nuclear weapons from Russia). The 1950s were a decade of extraordinary abundance and luxury compared with any preceding age. Infant mortality in India was already lower than it had been in France and Germany in 1900. Japanese children had almost twice as many years in education in 1950 as at the turn of the century. World income per head had almost doubled in the first half of the twentieth century. In 1958 J.K. Galbraith declared that the ‘affluent society’ had reached such a pitch that many unnecessary goods were now being ‘overprovided’ to consumers by persuasive advertisers.

He was right that Americans were especially well off compared with others: they were three inches taller in 1950 than they had been at the turn of the century and spent twice as much on medicine as funerals – the reverse of the ratio in 1900. Roughly eight out of ten American households had running water, central heating, electric light, washing machines and refrigerators by 1955. Almost none had these luxuries in 1900. In his 1890 classic How the Other Half Lives, Jacob Riis encountered a family of nine in New York living in a ten-foot-square room plus a tiny kitchen, and women earning 60 cents a day for sixteen hours’ work in sweatshops and unable to afford more than one meal a day. This would have been unthinkable by mid-century.

Yet looking back now, another fifty years later, the middle class of 1955, luxuriating in their cars, comforts and gadgets, would today be described as ‘below the poverty line’. The average British working man in 1957, when Harold Macmillan told him he had ‘never had it so good’, was earning less in real terms than his modern equivalent could now get in state benefit if unemployed with three children. Today, of Americans officially designated as ‘poor’, 99 per cent have electricity, running water, flush toilets, and a refrigerator; 95 per cent have a television, 88 per cent a telephone, 71 per cent a car and 70 per cent air conditioning. Cornelius Vanderbilt had none of these. Even in 1970 only 36 per cent of all Americans had air conditioning: in 2005 79 per cent of poor households did. Even in urban China 90 per cent of people now have electric light, refrigerators and running water. Many of them also have mobile phones, internet access and satellite television, not to mention all sorts of improved and cheaper versions of everything from cars and toys to vaccines and restaurants.

Well all right, says the pessimist, but at what cost? The environment is surely deteriorating. In somewhere like Beijing, maybe. But in many other places, no. In Europe and America rivers, lakes, seas and the air are getting cleaner all the time. The Thames has less sewage and more fish. Lake Erie’s water snakes, on the brink of extinction in the 1960s, are now abundant. Bald eagles have boomed. Pasadena has few smogs. Swedish birds’ eggs have 75 per cent fewer pollutants in them than in the 1960s. American carbon monoxide emissions from transport are down 75 per cent in twenty-five years. Today, a car emits less pollution travelling at full speed than a parked car did in 1970 from leaks.

Meanwhile, average life expectancy in the longest-lived country (Sweden in 1850, New Zealand in 1920, Japan today) continues to march upwards at a steady rate of a quarter of a year per year, a rate of change that has altered little in 200 years. It still shows no sign of reaching a limit, though surely it must one day. In the 1920s demographers confidently asserted that average life span would peak at 65 ‘without intervention of radical innovations or fantastic evolutionary change in our physiological make-up’. In 1990 they predicted life expectancy ‘should not exceed…35 years at age 50 unless major breakthroughs occur in controlling the fundamental rate of ageing’. Within just five years both predictions were proved wrong in at least one country.

Consequently the number of years of retirement is rocketing upwards. Starting from 1901, it took sixty-eight years for the mortality of British men between 65 and 74 to fall by 20 per cent. Subsequent 20 per cent falls took seventeen years, ten years and six years – the improvement has accelerated. That is all very well, say pessimists, but what about quality of life in old age? Sure, people live longer, but only by having years of suffering and disability added to their lives. Not so. In one American study, disability rates in people over 65 fell from 26.2 per cent to 19.7 per cent between 1982 and 1999 – at twice the pace of the decrease in the mortality rate. Chronic illness before death is if anything shortening slightly, not lengthening, despite better diagnosis and more treatments – ‘the compression of morbidity’ is the technical term. People are not only spending a longer time living, but a shorter time dying.

Take stroke, a big cause of disability in old age. Deaths from stroke fell by 70 per cent between 1950 and 2000 in America and Europe. In the early 1980s a study of stroke victims in Oxford concluded that the incidence of stroke would increase by nearly 30 per cent over the next two decades, mainly because stroke incidence increases with age and people were predicted to live longer. They did live longer but the incidence of stroke in fact fell by 30 per cent. (The age-related increase is still present, but it is coming later and later.) The same is true of cancer, heart disease and respiratory disease: they all still increase with age, but they do so later and later, by about ten years since the 1950s.

Even inequality is declining worldwide. It is true that in Britain and America income equality, which had been improving for most of the past two centuries (British aristocrats were six inches taller than the average in 1800; today they are less than two inches taller), has stalled since the 1970s. The reasons for this are many, but they are not all causes for regret. For example, high earners now marry each other more than they used to (which concentrates income), immigration has increased, trade has been freed, cartels have been opened up to entrepreneurial competition and the skill premium has grown in the work place. All these are inequality-boosting, but they stem from liberalising trends. Besides, by a strange statistical paradox, while inequality has increased within some countries, globally it has been falling. The recent enrichment of China and India has increased inequality within those countries by making the income of the rich grow faster than that of the poor – an income gap is an inevitable consequence of an expanding economy. Yet the global effect of the growth of China and India has been to reduce the difference between rich and poor worldwide. As Hayek put it, ‘once the rise in the position of the lower classes gathers speed, catering to the rich ceases to be the main source of great gain and gives place to efforts directed towards the needs of the masses. Those forces which at first make inequality self-accentuating thus later tend to diminish it.’

In another respect, too, inequality has been retreating. The spread of IQ scores has been shrinking steadily – because the low scores have been catching up with the high ones. This explains the steady, progressive and ubiquitous improvement in the average IQ scores people achieve at a given age – at a rate of 3 per cent per decade. In two Spanish studies, IQ proved to be 9.7 points higher after thirty years, most of it among the least intelligent half of the group. Known as the Flynn effect, after James Flynn who first drew attention to it, this phenomenon was at first dismissed as an artefact of changes in tests, or a simple reflection of longer or better schooling. But the facts do not fit such explanations because the effect is consistently weakest in the cleverest children and in the tests that relate most to educational content. It is a levelling-up caused by an equalisation of nutrition, stimulation or diversity of childhood experience. You can, of course, argue that IQ may not be truly representative of intelligence, but you cannot argue that something is getting better – and more equal at the same time.

Even justice has improved thanks to new technology exposing false convictions and identifying true criminals. To date 234 innocent Americans have been freed as a result of DNA fingerprinting after serving an average of twelve years in prison; seventeen of them were on death row. The very first forensic use of DNA in 1986 exonerated an innocent man and then helped to catch the real murderer, a pattern that has been repeated many times since.

Cheap light

These richer, healthier, taller, cleverer, longer-lived, freer people – you lot – have been enjoying such abundance that most of the things they need have been getting steadily cheaper. The four most basic human needs – food, clothing, fuel and shelter – have grown markedly cheaper during the past two centuries. Food and clothing especially so (a brief rise in food prices in 2008 notwithstanding), fuel more erratically and even housing has probably got cheaper too: surprising as it may seem, the average family house probably costs slightly less today than it did in 1900 or even 1700, despite including far more modern conveniences like electricity, telephone and plumbing. If basic needs have got cheaper, then there is more disposable income to spend on luxuries. Artificial light lies on the border between necessity and luxury. In monetary terms, the same amount of artificial lighting cost 20,000 times as much in England in the year 1300 as it does today.

Enormous as that difference is, in labour terms the change is even more dramatic and the improvement is even more recent. Ask how much artificial light you can earn with an hour of work at the average wage. The amount has increased from twenty-four lumen-hours in 1750 BC (sesame oil lamp) to 186 in 1800 (tallow candle) to 4,400 in 1880 (kerosene lamp) to 531,000 in 1950 (incandescent light bulb) to 8.4 million lumen-hours today (compact fluorescent bulb). Put it another way, an hour of work today earns you 300 days’ worth of reading light; an hour of work in 1800 earned you ten minutes of reading light. Or turn it round and ask how long you would have to work to earn an hour of reading light – say, the light of an 18-watt compact-fluorescent light bulb burning for an hour. Today it will have cost you less than half a second of your working time if you are on the average wage: half a second of work for an hour of light. In 1950, with a conventional filament lamp and the then wage, you would have had to work for eight seconds to get the same amount of light. Had you been using a kerosene lamp in the 1880s, you would have had to work for about fifteen minutes to get the same amount of light. A tallow candle in the 1800s: over six hours’ work. And to get that much light from a sesame-oil lamp in Babylon in 1750 bc would have cost you more than fifty hours’ of work. From six hours to half a second – a 43,200-fold improvement – for an hour of lighting: that is how much better off you are than your ancestor was in 1800, using the currency that counts, your time. Do you see why my fictional family ate by firelight?

Much of this improvement is not included in the cost-of-living calculations, which struggle to compare like with unlike. The economist Don Boudreaux imagined the average American time-travelling back to 1967 with his modern income. He might be the richest person in town, but no amount of money could buy him the delights of eBay, Amazon, Starbucks, Wal-Mart, Prozac, Google or BlackBerry. The lighting numbers cited above do not even take into account the greater convenience and cleanliness of modern electric light compared with candles or kerosene – its simple switching, its lack of smoke, smell and flicker, its lesser fire hazard. Nor is the improvement in lighting finished yet. Compact fluorescent bulbs may be three times as efficient as filament bulbs in turning electrons’ energy into photons’ energy, but light-emitting diodes (LEDs) are rapidly overtaking them (as of this writing LEDs with ten times the efficiency of incandescent bulbs have been demonstrated) and have the added benefit of working at a portable scale. A cheap LED flashlight, powered by a solar-charged battery, will surely soon transform the life of some of the 1.6 billion people who do not have mains electricity, African peasants prominent among them. Admittedly, LEDs are still far too expensive to replace most light bulbs, but that might change.

Think what these improvements in lighting efficiency mean. You can either have a lot more light, or do a lot less work, or acquire something else. Devoting less of your working week to earning your lighting means devoting more of it to doing something else. That something else can mean employment for somebody else. The improved technology of lighting has liberated you to make or buy another product or service, or do a charitable act. That is what economic growth means.

Saving time

Time: that is the key. Forget dollars, cowrie shells or gold. The true measure of something’s worth is the hours it takes to acquire it. If you have to acquire it for yourself, it usually takes longer than if you get it ready-made by other people. And if you can get it made efficiently by others, then you can afford more of it. As light became cheaper so people used more of it. The average Briton today consumes roughly 40,000 times as much artificial light as he did in 1750. He consumes fifty times as much power and 250 times as much transport (measured in passenger-miles travelled), too.

This is what prosperity is: the increase in the amount of goods or services you can earn with the same amount of work. As late as the mid-1800s, a stagecoach journey from Paris to Bordeaux cost the equivalent of a clerk’s monthly wages; today the journey costs a day or so and is fifty times as fast. A half-gallon of milk cost the average American ten minutes of work in 1970, but only seven minutes in 1997. A three-minute phone call from New York to Los Angeles cost ninety hours of work at the average wage in 1910; today it costs less than two minutes. A kilowatt-hour of electricity cost an hour of work in 1900 and five minutes today. In the 1950s it took thirty minutes work to earn the price of a McDonald’s cheeseburger; today it takes three minutes. Healthcare and education are among the few things that cost more in terms of hours worked now than they did in the 1950s.

Even the most notorious of capitalists, the robber barons of the late nineteenth century, usually got rich by making things cheaper. Cornelius Vanderbilt is the man for whom the New York Times first used the word ‘robber baron’. He is the very epitome of the phrase. Yet observe what Harper’s Weekly had to say about his railways in 1859:

The results in every case of the establishment of opposition lines by Vanderbilt has been the permanent reduction of fares. Wherever he ‘laid on’ an opposition line, the fares were instantly reduced, and however the contest terminated, whether he bought out his opponents, as he often did, or they bought him out, the fares were never again raised to the old standard. This great boon – cheap travel – this community owes mainly to Cornelius Vanderbilt.

Rail freight charges fell by 90 per cent between 1870 and 1900. There is little doubt that Vanderbilt sometime bribed and bullied his way to success, and that he sometimes paid his workers lower wages than others – I am not trying to make him into a saint – but there is also no doubt that along the way he delivered to consumers an enormous benefit that would otherwise have eluded them – affordable transport. Likewise, Andrew Carnegie, while enormously enriching himself, cut the price of a steel rail by 75 per cent in the same period; John D. Rockefeller cut the price of oil by 80 per cent. During those thirty years, the per capita GDP of Americans rose by 66 per cent. They were enricher-barons, too.

Henry Ford got rich by making cars cheap. His first Model T sold for $825, unprecedentedly cheap at the time, and four years later he had cut the price to $575. It took about 4,700 hours of work to afford a Model T in 1908. It takes about 1,000 hours today to afford an ordinary car – though one that is brimming with features that Model Ts never had. The price of aluminium fell from $545 a pound in the 1880s to 20 cents a pound in the 1930s, thanks to the innovations of Charles Martin Hall and his successors at Alcoa. (Alcoa’s reward for this price cut was to be sued by the government on 140 counts of criminal monopoly: the rapid decrease in the price of its product being used as evidence of a determination to deter competition. Microsoft suffered the same allegation later in the century.) When Juan Trippe sold cheap tourist-class seats on his Pan Am airline in 1945, the other airlines were so insulted that they petitioned their governments to ban Pan Am: Britain, shamefully, agreed, so Pan Am flew to Ireland instead. The price of computing power fell so fast in the last quarter of the twentieth century that the capacity of a tiny pocket calculator in 2000 would have cost you a lifetime’s wages in 1975. The price of a DVD player in Britain fell from £400 in 1999 to £40 just five years later, a decline that exactly matched the earlier one of the video recorder, but happened much faster.

Falling consumer prices is what enriches people (deflation of asset prices can ruin them, but that is because they are using asset prices to get them the wherewithal to purchase consumer items). And, once again, notice that the true metric of prosperity is time. If Cornelius Vanderbilt or Henry Ford not only moves you faster to where you want to go, but requires you to work fewer hours to earn the ticket price, then he has enriched you by granting you a dollop of free time. If you choose to spend that spare time consuming somebody else’s production then you can enrich him in turn; if you choose to spend it producing for his consumption then you have also further enriched yourself.

Housing, too, is itching to get cheaper, but for confused reasons governments go to great lengths to prevent it. Where it took sixteen weeks to earn the price of 100 square feet of housing in 1956, now it takes fourteen weeks and the housing is of better quality. But given the ease with which modern machinery can assemble a house, the price should have come down much faster than that. Governments prevent this by, first, using planning or zoning laws to restrict supply (especially in Britain); second, using the tax system to encourage mortgage borrowing (in the United States at least – no longer in Britain); and third, doing all they can to stop property prices falling after a bubble. The effect of these measures is to make life harder for those who do not yet have a house and massively reward those who do. To remedy this, governments then have to enforce the building of more affordable housing, or subsidise mortgage lending to the poor.

Happiness

As necessities and luxuries get cheaper, do people get happier? A small cottage industry grew up at the turn of the twenty-first century devoted to the subject of the economics of happiness. It started with the paradox that richer people are not necessarily happier people. Beyond a certain level of per capita income ($15,000 a year, according to Richard Layard), money did not seem to buy subjective well-being. As books and papers cascaded out of the academy, Schadenfreude set in on a grand scale among commentators happy to see the unhappiness of the rich confirmed. Politicians latched on and governments from Thailand to Britain began to think about how to maximise gross national happiness instead of gross national product. British government departments now have ‘well-being divisions’ as a result. King Jigme Singye Wangchuck of Bhutan is credited with having been the first to get there in 1972 when he declared economic growth a secondary goal to national well-being. If economic growth does not produce happiness, said the new wisdom, then there was no point in striving for prosperity and the world economy should be brought to a soft landing at a reasonable level of income. Or, as one economist put it: ‘The hippies were right all along’.

If true, this rather punctures the rational optimist’s balloon. What is the point of celebrating the continuing defeat of death, dearth, disease and drudgery, if it does not make people happier? But it is not true. The debate began with a study by Richard Easterlin in 1974, which found that although within a country rich people were generally happier than poor people, richer countries did not have happier citizens than poor countries. Since then the ‘Easterlin paradox’ has become the central dogma of the debate. Trouble is, it is wrong. Two papers were published in 2008 analysing all the data, and the unambiguous conclusion of both is that the Easterlin paradox does not exist. Rich people are happier than poor people; rich countries have happier people than poor countries; and people get happier as they get richer. The earlier study simply had samples too small to find significant differences. In all three categories of comparison – within countries, between countries and between times – extra income does indeed buy general well-being. That is to say, on average, across the board, on the whole, other things being equal, more money does make you happier. In the words of one of the studies, ‘All told, our time-series comparisons, as well as evidence from repeated international cross-sections, appear to point to an important relationship between economic growth and growth in subjective well-being’.

There are some exceptions. Americans currently show no trend towards increasing happiness. Is this because the rich had got richer but ordinary Americans had not prospered much in recent years? Or because America continually draws in poor (unhappy) immigrants, which keeps the happiness quotient low? Who knows? It was not because the Americans are too rich to get any happier: Japanese and Europeans grew steadily happier as they grew richer despite being often just as rich as Americans. Moreover, surprisingly, American women have become less happy in recent decades despite getting richer.

Of course, it is possible to be rich and unhappy, as many a celebrity gloriously reminds us. Of course, it is possible to get rich and find that you are unhappy not to be richer still, if only because the neighbour – or the people on television – are richer than you are. Economists call this the ‘hedonic treadmill’; the rest of us call it ‘keeping up with the Joneses’. And it is probably true that the rich do lots of unnecessary damage to the planet as they go on striving to get richer long after the point where it is having much effect on their happiness – they are after all endowed with instincts for ‘rivalrous competition’ descended from hunter-gatherers whose relative, not absolute, status determined their sexual rewards. For this reason a tax on consumption to encourage saving for investment instead is not necessarily a bad idea. However, this does not mean that anybody would be necessarily happier if poorer – to be well off and unhappy is surely better than to be poor and unhappy. Of course, some people will be unhappy however rich they are, while others manage to bounce back cheerful even in poverty: psychologists find people to have fairly constant levels of happiness to which they return after elation or disaster. Besides, a million years of natural selection shaped human nature to be ambitious to rear successful children, not to settle for contentment: people are programmed to desire, not to appreciate.

Getting richer is not the only or even the best way of getting happier. Social and political liberation is far more effective, says the political scientist Ronald Ingleheart: the big gains in happiness come from living in a society that frees you to make choices about your lifestyle – about where to live, who to marry, how to express your sexuality and so on. It is the increase in free choice since 1981 that has been responsible for the increase in happiness recorded since then in forty-five out of fifty-two countries. Ruut Veenhoven finds that ‘the more individualized the nation, the more citizens enjoy their life.’

Crunch

And yet, good as life is, today life is not good. Happy statistics of recent improvement sound as hollow to a laid-off car worker in Detroit or an evicted house owner in Reykjavik as they would to a cholera victim in Zimbabwe or a genocide refugee in Congo. War, disease, corruption and hate still disfigure the lives of millions; nuclear terrorism, rising sea levels and pandemic flu may yet make the twenty-first century a dreadful place. True, but assuming the worst will not avert these fates; striving to continue improving the human lot may. It is precisely because so much human betterment has been shown to be possible in recent centuries that the continuing imperfection of the world places a moral duty on humanity to allow economic evolution to continue. To prevent change, innovation and growth is to stand in the way of potential compassion. Let it never be forgotten that, by propagating excessive caution about genetically modified food aid, some pressure groups may have exacerbated real hunger in Zambia in the early 2000s. The precautionary principle – better safe than sorry – condemns itself: in a sorry world there is no safety to be found in standing still.

More immediately, the financial crash of 2008 has caused a deep and painful recession that will generate mass unemployment and real hardship in many parts of the world. The reality of rising living standards feels to many today to be a trick, a pyramid scheme achieved by borrowing from the future.

Until he was rumbled in 2008, Bernard Madoff offered his investors high and steady returns of more than 1 per cent a month on their money for thirty years. He did so by paying new investors’ capital out to old investors as revenue, a chain-letter con trick that could not last. When the music stopped, $65 billion of investors’ funds had been looted. It was roughly what John Law did in Paris with the Mississippi Company in 1719, what John Blunt did in London with the South Sea company in 1720, what Charles Ponzi did in Boston in 1920 with reply coupons for postage stamps, what Ken Lay did with Enron’s stock in 2001.

Is it possible that not just the recent credit boom, but the entire postwar rise in living standards was a Ponzi scheme, made possible by the gradual expansion of credit? That we have in effect grown rich by borrowing the means from our children and that a day of reckoning is now at hand? It is certainly true that your mortgage is borrowed (via a saver somewhere else, perhaps in China) from your future self, who will pay it off. It is also true on both sides of the Atlantic that your state pension will be funded by your children’s taxes, not by your payroll contributions as so many think.

But there is nothing unnatural about this. In fact, it is a very typical human pattern. By the age of 15 chimpanzees have produced about 40 per cent and consumed about 40 per cent of the calories they will need during their entire lives. By the same age, human hunter-gatherers have consumed about 20 per cent of their lifetime calories, but produced just 4 per cent. More than any other animal, human beings borrow against their future capabilities by depending on others in their early years. A big reason for this is that hunter-gatherers have always specialised in foods that need extraction and processing – roots that need to be dug and cooked, clams that need to be opened, nuts that need to be cracked, carcasses that need to be butchered – whereas chimpanzees eat things that simply need to be found and gathered, like fruit or termites. Learning to do this extraction and processing takes time, practice and a big brain, but once a human being has learnt, he or she can produce a huge surplus of calories to share with the children. Intriguingly, this pattern of production over the lifespan in hunter-gatherers is more like the modern Western lifestyle than it is like the farming, feudal or early industrial lifestyles. That is to say, the notion of children taking twenty years even to start to bring in more than they consume, and then having forty years of very high productivity, is common to hunter-gatherers and modern societies, but was less true in the period in between, when children could and did go to work to support their own consumption.

The difference today is that intergenerational transfers take a more collective form – income tax on all productive people in their prime pays for education for all, for example. In that sense, the economy (like a chain letter, but unlike a shark, actually) must keep moving forward or it collapses. The banking system makes it possible for people to borrow and consume when they are young and to save and lend when they are old, smoothing their family living standards over the decades. Posterity can pay for its ancestors’ lives because posterity can be richer through innovation. If somebody somewhere takes out a mortgage, which he will repay in three decades’ time, to invest in a business that invents a gadget that saves his customers time, then that money, brought forward from the future, will enrich both him and those customers to the point where the loan can be repaid to posterity. That is growth. If, on the other hand, somebody takes out a loan just to support his luxury lifestyle, or to speculate on asset markets by buying a second home, then posterity will be the loser. That is what, it is now clear, far too many people and businesses did in the 2000s – they borrowed more from posterity than their innovation rate would support. They misallocated the resources to unproductive ends. Most past bursts of human prosperity have come to naught because they allocated too little money to innovation and too much to asset price inflation or to war, corruption, luxury and theft.

In the Spain of Charles V and Philip II, the gigantic wealth of the Peruvian silver mines was wasted. The same ‘curse of resources’ has afflicted countries with windfalls ever since, especially those with oil (Russia, Venezuela, Iraq, Nigeria) that end up run by rent-seeking autocrats. Despite their windfalls, such countries experience lower economic growth than countries that entirely lack resources but get busy trading and selling – Holland, Japan, Hong Kong, Singapore, Taiwan, South Korea. Even the Dutch, those epitomes of seventeenth-century enterprise, fell under the curse of resources in the late twentieth century when they found too much natural gas: the Dutch disease, they called it, as their inflated currency hurt their exporters. Japan spent the first half of the twentieth century jealously seeking to grab resources and ended up in ruins; it spent the second half of the century trading and selling without resources and ended up topping the lifespan league. In the 2000s the West misspent much of the cheap windfall of Chinese savings that the United States Federal Reserve sluiced our way.

So long as somebody allocates sufficient capital to innovation, then the credit crunch will not in the long run prevent the relentless upward march of human living standards. If you look at a graph of world per capita GDP, the Great Depression of the 1930s is just a dip in the slope. By 1939 even the worst-affected countries, America and Germany, were richer than they were in 1930. All sorts of new products and industries were born during the Depression: by 1937, 40 per cent of DuPont’s sales came from products that had not even existed before 1929, such as rayon, enamels and cellulose film. So growth will resume – unless prevented by the wrong policies. Somebody, somewhere, is still tweaking a piece of software, testing a new material, or transferring a gene that will make your and my life easier in the future. I cannot know who or where he is for sure, but let me give you a candidate. In the week I wrote this paragraph, a small company called Arcadia Biosciences in northern California signed an agreement with a charity working in Africa to license, royalty-free to smallholders, new varieties of rice that can be grown with less nitrogen fertiliser for the same yield, thanks to the over-expression in the roots of a version of a gene called alanine aminotransferase borrowed from barley. Assuming the varieties work in Africa as well as they do in California, some African will one day grow and sell more food (for less pollution), which in turn means that he will have more money to spend, earning the cost of, say, a mobile phone, which he will buy from a Western company, and which will help him find a better market for his rice. An employee of that Western company will get a pay rise, which she will spend on a new pair of jeans, which were made from cotton woven in a factory that employs the smallholder’s neighbour. And so on.

As long as new ideas can breed in this way, then human economic progress can continue. It may be only a year or two till world growth resumes after the current crisis, or it may for some countries be a lost decade. It may even be that parts of the world will be convulsed by a descent into autarky, authoritarianism and violence, as happened in the 1930s, and that a depression will cause a great war. But so long as somewhere somebody is incentivised to invent ways of serving others’ needs better, then the rational optimist must conclude that the betterment of human lives will eventually resume.

The declaration of interdependence

Imagine you are a deer. You have essentially only four things to do during the day: sleep, eat, avoid being eaten and socialise (by which I mean mark a territory, pursue a member of the opposite sex, nurse a fawn, whatever). There is no real need to do much else. Now imagine you are a human being. Even if you only count the basic things, you have rather more than four things to do: sleep, eat, cook, dress, keep house, travel, wash, shop, work…the list is virtually endless. Deer should therefore have more free time than human beings, yet it is people, not deer, who find the time to read, write, invent, sing and surf the net. Where does all this free time come from? It comes from exchange and specialisation and from the resulting division of labour. A deer must gather its own food. A human being gets somebody else to do it for him, while he or she is doing something for them – and both win time that way.

Self-sufficiency is therefore not the route to prosperity. ‘Which would have advanced the most at the end of a month,’ Henry David Thoreau asked: ‘the boy who had made his own jack-knife from the ore which he had dug and smelted, reading as much as would be necessary for this – or the boy who had attended the lectures on metallurgy at the Institute in the meanwhile, and had received a Rodgers’ penknife from his father?’ Contra Thoreau, it is the latter, by a mile, because he has far more spare time to learn other things. Imagine if you had to be completely self-sufficient (not just pretending, like Thoreau). Every day you must get up in the morning and supply yourself entirely from your own resources. How would you spend your day? The top four priorities would be food, fuel, clothing and shelter. Dig the garden, feed the pig, fetch water from the brook, gather wood from the forest, wash some potatoes, light a fire (no matches), cook lunch, repair the roof, fetch fresh bracken for clean bedding, whittle a needle, spin some thread, sew leather for shoes, wash in the stream, fashion a pot out of clay, catch and cook a chicken for dinner. No candle or book for reading. No time for smelting metal, drilling oil, or travel. By definition, you are at subsistence level and frankly, though at first you mutter, Thoreau-like, ‘how marvellous to get away from all the appalling hustle and bustle’, after a few days the routine is pretty grim. If you wish to have even the most minimal improvement in your life – say metal tools, toothpaste or lighting – you are going to have to get some of your chores done by somebody else, because there just is not time to do them yourself. So one way to raise your standard of living would be to lower somebody else’s: buy a slave. That was indeed how people got rich for thousands of years.

Yet, though you have no slaves, today when you got out of bed you knew that somebody would provide you with food, fibre and fuel in a most convenient form. In 1900, the average American spent $76 of every $100 on food, clothing and shelter. Today he spends $37. If you are on an average wage you knew that it would take you a matter of tens of minutes to earn the cash to pay for your food, some more tens of minutes to earn the cash to buy whatever new clothing you need and maybe an hour or two to earn the cash to pay for the gas, electricity and oil you might need today. Earning the rent or mortgage payment that ensures you have a roof over your head might take rather more time. But still, by lunchtime, you could relax in the knowledge that food, fuel, fibre and shelter were taken care of for the day. So it was time to earn something more interesting: the satellite television subscription, the mobile phone bill, the holiday deposit, the cost of new toys for the children, the income tax. ‘To produce implies that the producer desires to consume’ said John Stuart Mill; ‘why else should he give himself useless labour?’

In 2009, an artist named Thomas Thwaites set out to make his own toaster, of the sort that he could buy from a shop for about £4. He needed only a few raw materials: iron, copper, nickel, plastic and mica (an insulating mineral around which the heating elements are wrapped). But even to get these he found almost impossible. Iron is made from iron ore, which he could probably mine, but how was he to build a sufficiently hot furnace without electric bellows? (He cheated and used a microwave oven.) Plastic is made from oil, which he could not easily drill for himself, let alone refine. And so on. More to the point, the project took months, cost a lot of money and resulted in an inferior product. Yet to buy a £4 toaster would cost him less than an hour’s work at the minimum wage. To Thwaites this illustrated his helplessness as a consumer so divorced from self-sufficiency. It also illustrates the magic of specialisation and exchange: thousands of people, none of them motivated by the desire to do Thwaites a favour, have come together to make it possible for him to acquire a toaster for a trivial sum of money. In the same vein, Kelly Cobb of Drexel University set out to make a man’s suit entirely from materials produced within 100 miles of her home. It took twenty artisans a total of 500 man-hours to achieve it and even then they had to get 8 per cent of the materials from outside the 100-mile radius. If they worked for another year, they could get it all from within the limit, argued Cobb. To put it plainly, local sourcing multiplied the cost of a cheap suit roughly a hundred-fold.

As I write this, it is nine o’clock in the morning. In the two hours since I got out of bed I have showered in water heated by North Sea gas, shaved using an American razor running on electricity made from British coal, eaten a slice of bread made from French wheat, spread with New Zealand butter and Spanish marmalade, then brewed a cup of tea using leaves grown in Sri Lanka, dressed myself in clothes of Indian cotton and Australian wool, with shoes of Chinese leather and Malaysian rubber, and read a newspaper made from Finnish wood pulp and Chinese ink. I am now sitting at a desk typing on a Thai plastic keyboard (which perhaps began life in an Arab oil well) in order to move electrons through a Korean silicon chip and some wires of Chilean copper to display text on a computer designed and manufactured by an American firm. I have consumed goods and services from dozens of countries already this morning. Actually, I am guessing at the nationalities of some of these items, because it is almost impossible to define some of them as coming from any country, so diverse are their sources.

More to the point, I have also consumed minuscule fractions of the productive labour of many dozens of people. Somebody had to drill the gas well, install the plumbing, design the razor, grow the cotton, write the software. They were all, though they did not know it, working for me. In exchange for some fraction of my spending, each supplied me with some fraction of their work. They gave me what I wanted just when I wanted it – as if I were the Roi Soleil, Louis XIV, at Versailles in 1700.

The Sun King had dinner each night alone. He chose from forty dishes, served on gold and silver plate. It took a staggering 498 people to prepare each meal. He was rich because he consumed the work of other people, mainly in the form of their services. He was rich because other people did things for him. At that time, the average French family would have prepared and consumed its own meals as well as paid tax to support his servants in the palace. So it is not hard to conclude that Louis XIV was rich because others were poor.

But what about today? Consider that you are an average person, say a woman of 35, living in, for the sake of argument, Paris and earning the median wage, with a working husband and two children. You are far from poor, but in relative terms, you are immeasurably poorer than Louis was. Where he was the richest of the rich in the world’s richest city, you have no servants, no palace, no carriage, no kingdom. As you toil home from work on the crowded Metro, stopping at the shop on the way to buy a ready meal for four, you might be thinking that Louis XIV’s dining arrangements were way beyond your reach. And yet consider this. The cornucopia that greets you as you enter the supermarket dwarfs anything that Louis XIV ever experienced (and it is probably less likely to contain salmonella). You can buy a fresh, frozen, tinned, smoked or pre-prepared meal made with beef, chicken, pork, lamb, fish, prawns, scallops, eggs, potatoes, beans, carrots, cabbage, aubergine, kumquats, celeriac, okra, seven kinds of lettuce, cooked in olive, walnut, sunflower or peanut oil and flavoured with cilantro, turmeric, basil or rosemary…You may have no chefs, but you can decide on a whim to choose between scores of nearby bistros, or Italian, Chinese, Japanese or Indian restaurants, in each of which a team of skilled chefs is waiting to serve your family at less than an hour’s notice. Think of this: never before this generation has the average person been able to afford to have somebody else prepare his meals.

You employ no tailor, but you can browse the internet and instantly order from an almost infinite range of excellent, affordable clothes of cotton, silk, linen, wool and nylon made up for you in factories all over Asia. You have no carriage, but you can buy a ticket which will summon the services of a skilled pilot of a budget airline to fly you to one of hundreds of destinations that Louis never dreamed of seeing. You have no woodcutters to bring you logs for the fire, but the operators of gas rigs in Russia are clamouring to bring you clean central heating. You have no wick-trimming footman, but your light switch gives you the instant and brilliant produce of hardworking people at a grid of distant nuclear power stations. You have no runner to send messages, but even now a repairman is climbing a mobile-phone mast somewhere in the world to make sure it is working properly just in case you need to call that cell. You have no private apothecary, but your local pharmacy supplies you with the handiwork of many thousands of chemists, engineers and logistics experts. You have no government ministers, but diligent reporters are even now standing ready to tell you about a film star’s divorce if you will only switch to their channel or log on to their blogs.

My point is that you have far, far more than 498 servants at your immediate beck and call. Of course, unlike the Sun King’s servants, these people work for many other people too, but from your perspective what is the difference? That is the magic that exchange and specialisation have wrought for the human species. ‘In civilized society,’ wrote Adam Smith, an individual ‘stands at all times in need of the co-operation and assistance of great multitudes, while his whole life is scarce sufficient to gain the friendship of a few persons.’ In Leonard Read’s classic 1958 essay ‘I, Pencil’, an ordinary pencil describes how it came to be made by millions of people, from loggers in Oregon and graphite miners in Sri Lanka to coffee bean growers in Brazil (who supplied the coffee drunk by the loggers). ‘There isn’t a single person in all these millions,’ the pencil concludes, ‘including the president of the pencil company, who contributes more than a tiny, infinitesimal bit of know-how.’ The pencil stands amazed at ‘the absence of a master mind, of anyone dictating or forcibly directing these countless actions which bring me into being.’

This is what I mean by the collective brain. As Friedrich Hayek first clearly saw, knowledge ‘never exists in concentrated or integrated form but solely as the dispersed bits of incomplete and frequently contradictory knowledge which all the separate individuals possess’.

The multiplication of labour

You are not just consuming the labour and resources of others. You are consuming others’ inventions, too. A thousand entrepreneurs and scientists devised the intricate dance of photons and electrons by which your television works. The cotton you wear was spun and woven by machines of a type whose original inventors are long-dead heroes of the industrial revolution. The bread you eat was first cross-bred by a Neolithic Mesopotamian and baked in a way that was first invented by a Mesolithic hunter-gatherer. Their knowledge is enduringly embodied in machines, recipes and programmes from which you benefit. Unlike Louis, you number among your servants John Logie Baird, Alexander Graham Bell, Sir Tim Berners-Lee, Thomas Crapper, Jonas Salk and myriad assorted other inventors. For you get the benefit of their labours, too, whether they are dead or alive.

The point of all this cooperation is to make (Adam Smith again) ‘a smaller quantity of labour produce a greater quantity of work’. It is a curious fact that in return for this cornucopia of service, you produce only one thing. That is to say, having consumed the labour and embodied discoveries of thousands of people, you then produce and sell whatever it is you do at work – haircuts, ball bearings, insurance advice, nursing, dog walking. But each of those thousands of people who work ‘for’ you is equally monotonously employed. Each produces one thing. That is what the word ‘job’ means: it refers to the simplified, singular production to which you devote your working hours. Even those who have several paying jobs – say, freelance short-story writer/neuroscientist, or computer executive/photographer – have only two or three different occupations at most. But they each consume hundreds, thousands, of things. This is the diagnostic feature of modern life, the very definition of a high standard of living: diverse consumption, simplified production. Make one thing, use lots. The self-sufficient gardener, or his self-sufficient peasant or hunter-gatherer predecessor (who is, I shall argue, partly a myth in any case), is in contrast defined by his multiple production and simple consumption. He makes not just one thing, but many – his food, his shelter, his clothing, his entertainment. Because he only consumes what he produces, he cannot consume very much. Not for him the avocado, Tarantino or Manolo Blahnik. He is his own brand.

In the year 2005, if you were the average consumer you would have spent your after-tax income in roughly the following way:

 20 per cent on a roof over your head

 18 per cent on cars, planes, fuel and all other forms of transport

 16 per cent on household stuff: chairs, refrigerators, telephones, electricity, water

 14 per cent on food, drink, restaurants etc

 6 per cent on health care

 5 per cent on movies, music and all entertainment

 4 per cent on clothing of all kinds

 2 per cent on education

 1 per cent on soap, lipstick, haircuts, and such like

 11 per cent on life insurance and pensions (i.e., saved to secure future spending)

 and, alas from my point of view, only 0.3 per cent on reading

An English farm labourer in the 1790s spent his wages roughly as follows:

 75 per cent on food

 10 per cent on clothing and bedding

 6 per cent on housing

 5 per cent on heating

 4 per cent on light and soap

A rural peasant woman in modern Malawi spends her time roughly as follows:

 35 per cent farming food

 33 per cent cooking, doing laundry and cleaning

 17 per cent fetching water

 5 per cent collecting firewood

 9 per cent other kinds of work, including paid employment

Imagine next time you turn on the tap, what it must be like to walk a mile or more to the Shire River in Machinga province, hope you are not grabbed by a crocodile when filling your bucket (the UN estimates three crocodile deaths a month in the Machinga province, many of them of women fetching water), hope you have not picked up a cholera dose in your bucket, then walk back carrying the 20 litres that will have to last your family all day. I am not trying to make you feel guilty: I am trying to tease out what it is that makes you well off. It is having the hard work of living made easy by markets and machines and other people. There is probably nothing to stop you fetching free water from the nearest river in your home town, but you would rather pay something from your earnings to get it delivered clean and convenient from your tap.

So this is what poverty means. You are poor to the extent that you cannot afford to sell your time for sufficient price to buy the services you need, and rich to the extent that you can afford to buy not just the services you need but also those you crave. Prosperity, or growth, has been synonymous with moving from self-sufficiency to interdependence, transforming the family from a unit of laborious, slow and diverse production to a unit of easy, fast and diverse consumption paid for by a burst of specialised production.

Self-sufficiency is poverty

It is fashionable these days to decry ‘food miles’. The longer food has spent travelling to your plate, the more oil has been burnt and the more peace has been shattered along the way. But why single out food? Should we not protest against T-shirt miles, too, and laptop miles? After all, fruit and vegetables account for more than 20 per cent of all exports from poor countries, whereas most laptops come from rich countries, so singling out food imports for special discrimination means singling out poor countries for sanctions. Two economists recently concluded, after studying the issue, that the entire concept of food miles is ‘a profoundly flawed sustainability indicator’. Getting food from the farmer to the shop causes just 4 per cent of all its lifetime emissions. Ten times as much carbon is emitted in refrigerating British food as in air-freighting it from abroad, and fifty times as much is emitted by the customer travelling to the shops. A New Zealand lamb, shipped to England, requires one-quarter as much carbon to get on to a London plate as a Welsh lamb; a Dutch rose, grown in a heated greenhouse and sold in London, has six times the carbon footprint of a Kenyan rose grown under the sun using water recycled through a fish farm, using geothermal electricity and providing employment to Kenyan women.

In truth, far from being unsustainable, the interdependence of the world through trade is the very thing that makes modern life as sustainable as it is. Suppose your local laptop manufacturer tells you that he already has three orders and then he is off on his holiday so he cannot make you one before the winter. You will have to wait. Or suppose your local wheat farmer tells you that last year’s rains means he will have to cut his flour delivery in half this year. You will have to go hungry. Instead, you benefit from a global laptop and wheat market in which somebody somewhere has something to sell you so there are rarely shortages, only modest price fluctuations.

For example, the price of wheat approximately trebled in 2006–8, just as it did in Europe in 1315–18. At the earlier date, Europe was less densely populated, farming was entirely organic and food miles were short. Yet in 2008, nobody ate a baby or pulled a corpse from a gibbet for food. Right up until the railways came, it was cheaper for people to turn into refugees than to pay the exorbitant costs of importing food into a hungry district. Interdependence spreads risk.

The decline in agricultural employment caused consternation among early economists. 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.

Arcadia redux

Yet, surely, long ago, before trade, technology and farming, human beings lived simple, organic lives in harmony with nature. That was not poverty: that was ‘the original affluent society’. Take a snapshot of the life of hunter-gathering human beings in their heyday, say at 15,000 years ago well after the taming of the dog and the extermination of the woolly rhinoceros but just before the colonisation of the Americas. People had spear throwers, bows and arrows, boats, needles, adzes, nets. They painted exquisite art on rocks, decorated their bodies, traded foods, shells, raw materials and ideas. They sang songs, danced rituals, told stories, prepared herbal remedies for illnesses. They lived into old age far more frequently than their ancestors had done.

They had a way of life that was sufficiently adaptable to work in almost any habitat or climate. Where every other species needed its niche, the hunter-gatherer could make a niche out of anything: seaside or desert, arctic or tropical, forest or steppe.

A Rousseauesque idyll? The hunter-gatherers certainly looked like noble savages: tall, fit, healthy, and (having replaced stabbing spears with thrown ones) with fewer broken bones than Neanderthals. They ate plenty of protein, not much fat and ample vitamins. In Europe, with the help of increasing cold, they had largely wiped out the lions and hyenas that had both competed with and preyed upon their predecessors, so they had little to fear from wild animals. No wonder nostalgia for the Pleistocene runs through many of today’s polemics against consumerism. Geoffrey Miller, for example, in his excellent book Spent, asks his readers to imagine a Cro-Magnon mother of 30,000 years ago living ‘in a close-knit clan of family and friends…gathering organic fruits and vegetables…grooming, dancing, drumming and singing with people she knows, likes and trusts…the sun rising over the six thousand acres of verdant French Riviera coast that her clan holds.’

Life was good. Or was it? There was a serpent in the hunter-gatherer Eden – a savage in the noble savage. Maybe it was not a lifelong camping holiday after all. For violence was a chronic and ever-present threat. It had to be, because – in the absence of serious carnivore predation upon human beings – war kept the population density below the levels that brought on starvation. ‘Homo homini lupus’, said Plautus. ‘Man is a wolf to man.’ If hunter-gatherers appeared lithe and healthy it was because the fat and slow had all been shot in the back at dawn.

Here is the data. From the !Kung in the Kalahari to the Inuit in the Arctic, two-thirds of modern hunter-gatherers have proved to be in a state of almost constant tribal warfare, and 87 per cent to experience annual war. War is a big word for dawn raids, skirmishes and lots of posturing, but because these happen so often, death rates are high – usually around 30 per cent of adult males dying from homicide. The warfare death rate of 0.5 per cent of the population per year that was typical of many hunter-gatherer societies would equate to two billion people dying during the twentieth century (instead of 100 million). At a cemetery uncovered at Jebel Sahaba, in Egypt, dating from 14,000 years ago, twenty-four of the fifty-nine bodies had died from unhealed wounds caused by spears, darts and arrows. Forty of these bodies were women or children. Women and children generally do not take part in warfare – but they are frequently the object of the fighting. To be abducted as a sexual prize and see your children killed was almost certainly not a rare female fate in hunter-gatherer society. After Jebel Sahaba, forget the Garden of Eden; think Mad Max.

It was not just warfare that limited population growth. Hunter-gatherers are often vulnerable to famines. Even when food is abundant, it might take so much travelling and trouble to collect enough food that women would not maintain a sufficient surplus to keep themselves fully fertile for more than a few prime years. Infanticide was a common resort in bad times. Nor was disease ever far away: gangrene, tetanus and many kinds of parasite would have been big killers. Did I mention slavery? Common in the Pacific north-west. Wife beating? Routine in Tierra del Fuego. The lack of soap, hot water, bread, books, films, metal, paper, cloth? When you meet one of those people who go so far as to say they would rather have lived in some supposedly more delightful past age, just remind them of the toilet facilities of the Pleistocene, the transport options of Roman emperors or the lice of Versailles.

The call of the new

None the less, you do not have to be starry-eyed about the Stone Age to find aspects of modern consumer society obscenely wasteful. Why, asks Geoffrey Miller, ‘would the world’s most intelligent primate buy a Hummer H1 Alpha sport-utility vehicle’, which seats four, gets ten miles to the gallon, takes 13.5 seconds to reach 60 mph, and sells for $139,771? Because, he answers, 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. It was allegedly a young Chinese imperial concubine in 2600 bc who thought up the following recipe for rearranging beta pleated sheets of glycine-rich polypeptides into fine fabrics: take a moth caterpillar, feed it mulberry leaves for a month, let it spin a cocoon, heat it to kill it, put the cocoon in water to unstick the silk threads, carefully draw out the single kilometre-long thread from which the cocoon is made by reeling it on to a wheel, spin the thread and weave a fabric. Then dye, cut and sew, advertise and sell for cash. Rough guide on quantities: it takes about ten pounds of mulberry leaves to make 100 silkworm cocoons to make one necktie.

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. Forget wars, religions, famines and poems for the moment. This is history’s greatest theme: the metastasis of exchange, specialisation and the invention it has called forth, the ‘creation’ of time. The rational optimist invites you to stand back and look at your species differently, to see the grand enterprise of humanity that has progressed – with frequent setbacks – for 100,000 years. And then, when you have seen that, consider whether that enterprise is finished or if, as the optimist claims, it still has centuries and millennia to run. If, in fact, it might be about to accelerate to an unprecedented rate.

If prosperity is exchange and specialisation – more like the multiplication of labour than the division of labour – then when and how did that habit begin? Why is it such a peculiar attribute of the human species?

CHAPTER 2 The collective brain: exchange and specialisation after 200,000 years ago

He steps under the shower, a forceful cascade pumped down from the third floor. When this civilisation falls, when the Romans, whoever they are this time round, have finally left and the new dark ages begin, this will be one of the first luxuries to go. The old folk crouching by their peat fires will tell their disbelieving grandchildren of standing naked mid-winter under jet streams of hot clean water, of lozenges of scented soaps and of viscous amber and vermilion liquids they rubbed into their hair to make it glossy and more voluminous than it really was, and of thick white towels as big as togas, waiting on warming racks.

IAN MCEWAN

Saturday

One day a little less than 500,000 years ago, near what is now the village of Boxgrove in southern England, six or seven two-legged creatures sat down around the carcass of a wild horse they had just killed, probably with wooden spears. Each took up a block of flint and began to fashion it into a hand axe, skilfully using hammers of stone, bone or antler to chip off flakes until all that remained was a symmetrical, sharp-edged, teardrop-shaped object in size and thickness somewhere between an i-phone and a computer mouse. The debris they left that day is still there, leaving eerie shadows of their own legs as they sat and worked. You can tell that they were right-handed. Notice: each person made his own tools.

The hand axes they made to butcher that horse are fine examples of ‘Acheulean bifaces’. They are thin, symmetrical and razor-sharp along the edge, ideal for slicing through thick hide, severing the ligaments of joints and scraping meat from bones. The Acheulean biface is the stereotype of the Stone Age tool, the iconic flattened teardrop of the Palaeolithic. Because the species that made it has long been extinct we may never quite know how it was used. But one thing we do know. The creatures that made this thing were very content with it. By the time of the Boxgrove horse butchers, their ancestors had been making it to roughly the same design – hand-sized, sharp, double-sided, rounded – for about a million years. Their descendants would continue to make it for hundreds of thousands more years. That’s the same technology for more than a thousand millennia, ten thousand centuries, thirty thousand generations – an almost unimaginable length of time.

Not only that; they made roughly the same tools in south and north Africa and everywhere in between. They took the design with them to the Near East and to the far north-west of Europe (though not to East Asia) and still it did not change. A million years across three continents making the same one tool. During those million years their brains grew in size by about one-third. Here’s the startling thing. The bodies and brains of the creatures that made Acheulean hand axes changed faster than their tools.

To us, this is an absurd state of affairs. How could people have been so unimaginative, so slavish, as to make the same technology for so long? How could there have been so little innovation, regional variation, progress, or even regress?

Actually, this is not quite true, but the detailed truth reinforces the problem rather than resolves it. There is a single twitch of progress in biface hand-axe history: around 600,000 years ago, the design suddenly becomes a little more symmetrical. This coincides with the appearance of a new species of hominid which replaces its ancestor throughout Eurasia and Africa. Called Homo heidelbergensis, this creature has a much bigger brain, possibly 25 per cent bigger than late Homo erectus. Its brain was almost as big as a modern person’s. Yet not only did it go on making hand axes and very little else; the hand-axe design sank back into stagnation for another half a million years. We are used to thinking that technology and innovation go together, yet here is strong evidence that when human beings became tool makers, they did not experience anything remotely resembling cultural progress. They just did what they did very well. They did not change.

Bizarre as this may sound, in evolutionary terms it is quite normal. 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. That different sport sometimes then spreads to conquer a broader ecological empire, perhaps even returning to replace the ancestral species – to topple the dynasty from which it sprang. There is constant ferment of change within the species’ genes as it adapts to its parasites and they to it. But there is little progressive alteration of the organism. Evolutionary change happens largely by the replacement of species by daughter species, not by the changing of habits in species. What is surprising about the human story is not the mind-bogglingly tedious stasis of the Acheulean hand axe, but that the stasis came to an end.

The Boxgrove hominids of 500,000 years ago (who were members of Homo heidelbergensis) had their ecological niche. They had a way of getting food and shelter in their preferred habitat, of seducing mates and rearing babies. They walked on two feet, had huge brains, made spears and hand axes, taught each other traditions, perhaps spoke or signalled to each other grammatically, almost certainly lit fires and cooked their food, and undoubtedly killed big animals. If the sun shone, the herds of game were plentiful, the spears were sharp and diseases kept at bay, they may have sometimes thrived and populated new land. At other times, when food was scarce, the local population just died out. They could not change their ways much; it was not in their natures. Once they had spread all across Africa and Eurasia, their populations never really grew. On average death rates matched birth rates. Starvation, hyenas, exposure, fights and accidents claimed most of their lives before they were elderly enough to get chronically ill. Crucially, they did not expand or shift their niche. They remained trapped within it. Nobody woke up one day and said ‘I’m going to make my living a different way.’

Think of it this way. You don’t expect to get better and better at walking in each successive generation – or breathing, or laughing, or chewing. For Palaeolithic hominids, hand-axe making was like walking, something you grew good at through practice and never thought about again. It was almost a bodily function. It was no doubt passed on partly by imitation and learning, but unlike modern cultural traditions it showed little regional and local variation. It was part of what Richard Dawkins called ‘the extended phenotype’ of the erectus hominid species, the external expression of its genes. It was instinct, as inherent to the human behavioural repertoire as a certain design of nest is to a certain species of bird. A song thrush lines its nest with mud, a European robin lines its nest with hair and a chaffinch lines its nest with feathers – they always have and they always will. It’s innate for them to do so. Making a teardrop-shaped sharp-edged stone tool takes no more skill than making a bird’s nest and was probably just as instinctive: it was a natural expression of human development.

Indeed, the analogy with a bodily function is quite appropriate. There is now little doubt that hominids spent much of those million and a half years eating a lot of fresh meat. Some time after two million years ago, ape-men had become more carnivorous. With their feeble teeth and with finger nails where they should have had claws, they needed sharp tools to cut the skins of their kills. Because of their sharp tools they could tackle even the pachydermatous rhinos and elephants. Biface axes were like external canine teeth. The rich meat diet also enabled erectus hominids to grow a larger brain, an organ that burns energy at nine times the rate of the rest of the body. Meat enabled them to cut down on the huge gut that their ancestors had found necessary to digest raw vegetation and raw meat, and thus to grow a bigger brain instead. Fire and cooking in turn then released the brain to grow bigger still by making food more digestible with an even smaller gut – once cooked, starch gelatinises and protein denatures, releasing far more calories for less input of energy. As a result, 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.

Erectus hominids, in other words, had almost everything we might call human: two legs, two hands, a big brain, opposable thumbs, fire, cooking, tools, technology, cooperation, long childhoods, kindly demeanour. And yet there was no sign of cultural take-off, little progress in technology, little expansion of range or niche.

Homo dynamicus

Then there appeared upon the earth a new kind of hominid, which refused to play by the rules. Without any changes in its body, and without any succession of species, it just kept changing its habits. For the first time its technology changed faster than its anatomy. This was an evolutionary novelty, and you are it.

When this new animal appeared is hard to discern, and its entrance was low-key. Some anthropologists argue that in east Africa and Ethiopia the toolkit was showing signs of change as early as 285,000 years ago. Certainly, by at least 160,000 years ago a new, small-faced ‘sapiens’ skull was being worn on the top of the spine in Ethiopia. Around the same time at Pinnacle Point in South Africa, people – yes, I shall call them people for the first time – were cooking mussels and other shellfish in a cave close to the sea as well as making primitive ‘bladelets’, small flakes of sharp stone, probably for hafting on to spears. They were also using red ochre, perhaps for decoration, implying thoroughly modern symbolic minds.

This was during the ice age before last, when Africa was mostly a desert. And yet apparently nothing much came of this experiment. Consistent evidence of smart behaviour and a fancy toolkit peters out again. Genetic evidence suggests human beings were still rare even in Africa, eking out a precarious existence in pockets of savannah woodland when it was dry, or possibly on the margins of lakes and seas. In the Eemian interglacial period of 130,000–115,000 years ago, the climate grew warmer and much wetter and sea level rose. Some skulls from what is now Israel suggest that a few slender-headed Africans did begin to colonise the Middle East towards the end of the Eemian, before a combination of cold weather and Neanderthals drove them back again. It was during this mild spell that a fancy new toolkit first appeared in caves in what is now Morocco: flakes, toothed scrapers and retouched points. One of the most extraordinary clues comes in the form of a simple estuarine snail shell called Nassarius. This little winkle keeps popping up in archaeological sites, with unnatural holes in its shells. The oldest certain Nassarius find is at Grottes des Pigeons near Taforalt in Morocco, where forty-seven perforated shells, some smeared with red ochre, date from certainly more than 82,000 years ago and perhaps as much as 120,000 years ago. Similar shells, harder to date, have been found at Oued Djebanna in Algeria and Skhul in Israel, and perforated shells of the same genus but a different species are found at Blombos cave in South Africa from about 72,000 years ago along with the earliest bone awls. These shells were surely beads, probably worn on a string. Not only do they hint at a very modern attitude to personal ornament, symbolism or perhaps even money; they also speak eloquently of trade. Taforalt is 25 miles and Oued Djebanna 125 miles from the nearest coast. The beads probably travelled hand to hand by exchange. Likewise, there are hints from east Africa and Ethiopia that the volcanic glass known as obsidian may have begun to move over long distances around this time too, or even earlier, presumably by trade, but the dates and sources are still uncertain.

Just across the strait of Gibraltar from where these bead-wearing, flake-making people lived were the ancestors of Neanderthals, whose brains were just as big but who showed no signs of making beads or flake tools, let alone doing long-distance trade. There was clearly something different about the Africans. Over the next few tens of millennia there were sporadic improvements, but no great explosion. There may have been a collapse of human populations. The African continent was plagued by ‘megadroughts’ at this time, during which desiccating winds blew the dust of extensive deserts into Lake Malawi, whose level dropped 600 metres. Only well after 80,000 years ago, so genetic evidence attests, does something big start to happen again. This time the evidence comes from genomes, not artefacts. According to DNA scripture, it was then that one quite small group of people began to populate the entire African continent, starting either in East or South Africa and spreading north and rather more slowly west. Their genes, marked by the L3 mitochondrial type, suddenly expanded and displaced most others in Africa, except the ancestors of the Khoisan and pygmy people. Yet even now there was no hint of what was to come, no clue that this was anything but another evolutionary avatar of a precariously successful predatory ape. The new African form, with its fancy tools, ochre paint and shell-bead ornaments, might have displaced its neighbours, but it would now settle down to enjoy its million years in the sun before gracefully giving way to something new. This time, however, some of the L3 people promptly spilled out of Africa and exploded into global dominion. The rest, as they say, is history.

Starting to barter

Anthropologists advance two theories to explain the appearance in Africa of these new technologies and people. The first is that it was driven by climate. The volatility of the African weather, sucking human beings into deserts in wet decades and pushing them out again in dry ones, would have placed a premium on adaptability, which in turn selected for new capabilities. The trouble with this theory is first that climate had been volatile for a very long time without producing a technologically adept ape, and second that it applies to lots of other African species too: if human beings, why not elephants and hyenas? There is no evidence from the whole of the rest of biology that desperate survival during unpredictable weather selects intelligence or cultural flexibility. Rather the reverse: living in large social groups on a plentiful diet both encourages and allows brain growth.

The second theory is that a fortuitous genetic mutation triggered a change in human behaviour by subtly altering the way human brains were built. This made people fully capable of imagination, planning, or some other higher function for the first time, which in turn gave them the capacity to make better tools and devise better ways of making a living. For a while, it even looked as if two candidate mutations of the right age had appeared – in the gene called FOXP2, which is essential to speech and language in both people and songbirds. Adding these two mutations to mice does indeed seem to change the flexibility of wiring in their brain in a way that may be necessary for the rapid flicker of tongue and lung that is called speech, and perhaps coincidentally the mutations even change the way mice pups squeak without changing almost anything else about them. But recent evidence confirms that Neanderthals share the very same two mutations, which suggests that the common ancestor of Neanderthals and modern people, living about 400,000 years ago, may have already been using pretty sophisticated language. If language is the key to cultural evolution, and Neanderthals had language, then why did the Neanderthal toolkit show so little cultural change?

Moreover, genes would undoubtedly have changed during the human revolution after 200,000 years ago, but more in response to new habits than as causes of them. At an earlier date, cooking selected mutations for smaller guts and mouths, rather than vice versa. At a later date, milk drinking selected for mutations for retaining lactose digestion into adulthood in people of western European and East African descent. The cultural horse comes before the genetic cart. The appeal to a genetic change driving evolution gets gene-culture co-evolution backwards: it is a top-down explanation for a bottom-up process.

Besides, there is a more fundamental objection. If a genetic change triggered novel human habits, why do its effects appear gradually and erratically in different places at different times but then accelerate once established? How could the new gene have a slower effect in Australia than in Europe? Whatever the explanation for the modernisation of human technology after 200,000 years ago, it must be something that gathers pace by feeding upon itself, something that is auto-catalytic.

As you can tell, I like neither theory. I am going to argue that the answer lies not in climate, nor genetics, nor in archaeology, nor even entirely in ‘culture’, but in economics. Human beings had started to do something to and with each other that in effect began to build a collective intelligence. They had started, for the very first time, to exchange things between unrelated, unmarried individuals; to share, swap, barter and trade. Hence the Nassarius shells moving inland from the Mediterranean. The effect of this was to cause specialisation, which in turn caused technological innovation, which in turn encouraged more specialisation, which led to more exchange – and ‘progress’ was born, by which I mean technology and habits changing faster than anatomy. They had stumbled on what Friedrich Hayek called the catallaxy: the ever-expanding possibility generated by a growing division of labour. This is something that amplifies itself once begun.

Exchange needed to be invented. It does not come naturally to most animals. There is strikingly little use of barter in any other animal species. There is sharing within families, and there is food-for-sex exchange in many animals including insects and apes, but there are no cases in which one animal gives an unrelated animal one thing in exchange for a different thing. ‘No man ever saw a dog make fair and deliberate exchange of a bone with another dog,’ said Adam Smith.

I need to digress here: bear with me. I am not talking about swapping favours – any old primate can do that. There is plenty of ‘reciprocity’ in monkeys and apes: you scratch my back and I scratch yours. Or, as Leda Cosmides and John Tooby put it, ‘One party helps another at one point in time, in order to increase the probability that when their situations are reversed at some (usually) unspecified time in the future, the act will be reciprocated.’ Such reciprocity is an important human social glue, a source of cooperation and a habit inherited from the animal past that undoubtedly prepared human beings for exchange. But it is not the same thing as exchange. Reciprocity means giving each other the same thing (usually) at different times. Exchange – call it barter or trade if you like – means giving each other different things (usually) at the same time: simultaneously swapping two different objects. In Adam Smith’s words, ‘Give me that which I want, and you shall have this which you want.’

Barter is a lot more portentous than reciprocity. After all, delousing aside, how many activities are there in life where it pays to do the same thing to each other in turn? ‘If I sew you a hide tunic today, you can sew me one tomorrow’ brings limited rewards and diminishing returns. ‘If I make the clothes, you catch the food’ brings increasing returns. Indeed, it has the beautiful property that it does not even need to be fair. For barter to work, two individuals do not need to offer things of equal value. Trade is often unequal, but still benefits both sides. This is a point that nearly everybody seems to miss. In the grasslands of Cameroon, for example, in past centuries the palm-oil producers, who lived on the periphery of the region on the poorest soils, worked hard to produce a low-value product that they exchanged for cereal, livestock and iron with their neighbours. On average it took them thirty days to afford the price of an iron hoe that had cost its makers just seven person-days of work. Yet palm oil was still the most profitable product they could make on their own land and with their own resources. The cheapest way for them to get an iron hoe was to make more palm oil. Or imagine a Trobriand island tribe on the coast that has ample fish and an inland tribe that has ample fruit: as long as two people are living in different habitats, they will value what each other has more than what they have themselves, and trade will pay them both. And the more they trade, the more it will pay them to specialise.

Evolutionary psychologists have assumed that it is rare for conditions to exist in which two people simultaneously have value to offer to each other. But this is just not true, because people can value highly what they do not have access to. And the more they rely on exchange, the more they specialise, which makes exchange still more attractive. Exchange is therefore a thing of explosive possibility, a thing that breeds, explodes, grows, auto-catalyses. It may have built upon an older animal instinct of reciprocity, and it may have been greatly and uniquely facilitated by language – I am not arguing that these were not vital ingredients of human nature that allowed the habit to get started. But I am saying that barter – the simultaneous exchange of different objects – was itself a human breakthrough, perhaps even the chief thing that led to the ecological dominance and burgeoning material prosperity of the species. Fundamentally, other animals do not do barter.

I still don’t quite know why, but I have a lot of trouble getting this point across to both economists and biologists. Economists see barter as just one example of a bigger human habit of general reciprocity. Biologists talk about the role that reciprocity played in social evolution, meaning ‘do unto others as they do unto you’. Neither seems to be interested in the distinction that I think is vital, so let me repeat it here once more: at some point, after millions of years of indulging in reciprocal back-scratching of gradually increasing intensity, one species, and one alone, stumbled upon an entirely different trick. Adam gave Oz an object in exchange for a different object. This is not the same as Adam scratching Oz’s back now and Oz scratching Adam’s back later, or Adam giving Oz some spare food now and Oz giving Adam some spare food tomorrow. The extraordinary promise of this event was that Adam potentially now had access to objects he did not know how to make or find; and so did Oz. And the more they did it, the more valuable it became. For whatever reason, no other animal species ever stumbled upon this trick – at least between unrelated individuals.

Do not take my word for it. The primatologist Sarah Brosnan tried to teach two different groups of chimpanzees about barter and found it very problematic. Her chimps preferred grapes to apples to cucumbers to carrots (which they liked least of all). They were prepared sometimes to give up carrots for grapes, but they almost never bartered apples for grapes (or vice versa), however advantageous the bargain. They could not see the point of giving up food they liked for food they liked even more. Chimpanzees and monkeys can be taught to exchange tokens for food, but this is a long way from spontaneously exchanging one thing for another: the tokens have no value to the chimpanzees, so they are happy to give them up. True barter requires that you give up something you value in exchange for something else you value slightly more.

This is reflected in the ecology of wild chimpanzees. Whereas in human beings, each sex eats ‘not only from the food items they have collected themselves, but from their partners’ finds,’ says Richard Wrangham, ‘not even a hint of this complementarity is found among nonhuman primates.’ It is true that male chimps hunt monkeys more than females do and that having killed a monkey, a male sometimes allows others to share it if they beg to, especially a fertile female or a close partner to whom he owes a favour. But the one thing you do not see is trade of one food for another. There is never barter of meat for nuts. The contrast with human beings, who show an almost obsessive interest not just in sharing food with each other from an early age, but in swapping one item for another, is striking. Birute Galdikas reared a young orang-utan in her home alongside her daughter Binti, and was struck by the contrasting attitudes to food sharing of the two infants. ‘Sharing food seemed to give Binti great pleasure,’ she wrote. ‘In contrast, Princess, like any orang-utan would beg, steal and gobble food at every opportunity’.

My argument is that this habit of exchanging, this appetite for barter, had somehow appeared in our African ancestors some time before 100,000 years ago. Why did human beings acquire a taste for barter as other animals did not? Perhaps it has something to do with cooking. Richard Wrangham makes a persuasive case that control of fire had a far-reaching effect on human evolution. Beyond making it safe to live on the ground, beyond liberating human ancestors to grow big brains on high-energy diets, cooking also predisposed human beings to swapping different kinds of food. And that maybe got them bartering.

Hunting for gathering

As the economist Haim Ofek has argued, fire itself is hard to start, but easy to share; likewise cooked food is hard to make but easy to share. The time spent in cooking is subtracted from the time spent in chewing: wild chimpanzees spend six hours or more each day just masticating their food. Carnivores might not chew their meat (they are often in a hurry to eat before it is stolen), but they spend hours grinding it in muscular stomachs, which comes to much the same thing. So cooking adds value: the great advantage of cooked food is that though it takes longer to prepare than raw food, it takes just minutes to eat, and this means that somebody else can eat as well as the person who prepares it. A mother can feed her children for many years. Or a woman can feed a man.

In most hunter-gatherers, women spend long hours gathering, preparing and cooking staple foods while men are out hunting for delicacies. There is, incidentally, no hunter-gatherer society that dispenses with cooking. Cooking is the most female-biased of all activities, the only exceptions being when men prepare some ritual feasts or grill a few snacks while out on the hunt. (Does this ring any modern bells? Fancy chefs and barbecuing are the two most masculine forms of cooking today.) On average, across the world, each sex contributes similar quantities of calories, though the pattern varies from tribe to tribe: in Inuits, for example, most food is obtained by men, whereas in the Kalahari Khoisan people, most is gathered by women. But – and here is the crucial point – throughout the human race, males and females specialise and then share food.

In other words, cooking encourages specialisation by sex. The first and deepest division of labour is the sexual one. It is an iron rule documented in virtually all foraging people that ‘men hunt, women and children gather’. The two sexes move ‘through the same habitat, making strikingly different decisions about how to obtain resources within that habitat, and often returning to a central location with the results of their labour.’ So, for example, while Hiwi women in Venezuela travel by foot to dig roots, pound palm starch, pick legumes and collect honey, their menfolk go hunting, fishing or collecting oranges by canoe; while Ache men in Paraguay hunt pigs, deer and armadillos for up to seven hours a day, the women follow them collecting fruit, digging for roots, gathering insects or pounding starch – and sometimes catching armadillos, too; while Hadza women in Tanzania collect tubers, fruit and nuts, men hunt antelope; while Greenland Inuit men hunt seals, women make stews, tools and clothing from the animals. And so on, through example after example. Even the apparent exceptions to the rule, where women do hunt, are instructive, because there is still a division of labour. Agta women in the Philippines hunt with dogs; men hunt with bows. Martu women in western Australia hunt goanna lizards; men hunt bustards and kangaroos. As one anthropologist put it after living with the Khoisan, ‘Women demand meat as their social right, and they get it – otherwise they leave their husbands, marry elsewhere or make love to other men.’

What is true of extant hunter-gatherers was equally true of extinct ways of life, as far as can be ascertained. Cree Indian women hunted hares; men hunted moose. Chumash women in California gathered shellfish; men harpooned sea lions. Yahgan Indians (in Tierra del Fuego) hunted otters and sea lions; women fished. In the Mersey estuary near Liverpool are preserved dozens of 8,000-year-old footprints: the women and children appear to have been collecting razor clams and shrimps; the men’s prints are moving fast and paralleling those of red and roe deer.

An evolutionary bargain seems to have been struck: in exchange for sexual exclusivity, the man brings meat and protects the fire from thieves and bullies; in exchange for help rearing the children, the woman brings veg and does much of the cooking. This may explain why human beings are the only great apes with long pair bonds.

Just to be clear, this argument has nothing to do with the notion that ‘a woman’s place is in the home’ while men go out to work. Women work hard in hunter-gatherer societies, often harder than men. Neither gathering nor hunting is especially good evolutionary preparation for sitting at a desk answering the telephone. Anthropologists used to argue that the sexual division of labour came about because of the long, helpless childhood of human beings. Because women could not abandon their babies, they could not hunt game, so they stayed near the home and gathered and cooked food of the kind that was compatible with caring for children. With a baby strapped to your back and a toddler giggling at your feet, it is undoubtedly easier to gather fruit and dig roots than it is to ambush an antelope. The anthropologists have been revising the view that the division of labour by sex is all about childcare constraints, though. They have found that even when hunter-gatherer women do not face a hard choice between child care and hunting, they still seek out different kinds of food from their menfolk. In the Alyawarre aborigines of Australia, while young women care for children, older women go out looking for goanna lizards, not for the kangaroos and emus that their menfolk hunt. A sexual division of labour would exist even without childcare constraints.

When did this specialisation begin? There is a neat economic explanation for the sexual division of labour in hunter-gatherers. In terms of nutrition, women generally collect dependable, staple carbohydrates whereas men fetch precious protein. Combine the two – predictable calories from women and occasional protein from men – and you get the best of both worlds. At the cost of some extra work, women get to eat some good protein without having to chase it; men get to know where the next meal is coming from if they fail to kill a deer. That very fact makes it easier for them to spend more time chasing deer and so makes it more likely they will catch one. Everybody gains – gains from trade. It is as if the species now has two brains and two stores of knowledge instead of one – a brain that learns about hunting and a brain that learns about gathering.

Neat, as I say. There are untidy complications to the story, including that men seem to strive to catch big game to feed the whole band – in exchange for both status and the occasional seduction – while women feed the family. This can lead to men being economically less productive than they might be. Hadza men spend weeks trying to catch a huge eland antelope when they could be snaring a spring-hare each day instead; men on the island of Mer in the Torres Strait stand with spears at the fringe of the reef hoping to harpoon giant trevally while their women gather twice as much food by collecting shellfish. Yet even allowing for such conspicuous generosity or social parasitism – depends on how you view it – the economic benefits of food sharing and specialised sex roles are real. They are also unique to human beings. There are a few birds in which the sexes have slightly different feeding habits – in the extinct Huia of New Zealand male and female even had different beak shapes – but collecting different foods and sharing them is something no other species does. It is a habit that put an end to self-sufficiency long ago and that got our ancestors into the habit of exchange.

When was the sexual division of labour invented? The cooking theory points to half a million years ago or much more, but two archaeologists argue otherwise. Steven Kuhn and Mary Stiner think that modern, African-origin Homo sapiens had a sexual division of labour and Neanderthals did not, and that this was the former’s crucial ecological advantage over the latter when they came head-to-head in Eurasia 40,000 years ago. In advancing this notion they are contradicting a long-held tenet of their science, first advocated by Glyn Isaac in 1978 – that different sex roles started with food sharing millions of years ago. They point out that there is just no sign of the kind of food normally brought by gatherer women in Neanderthal debris, nor of the elaborate clothing and shelters that Inuit women make while their men are hunting. There are occasional shellfish, tortoises, eggshells and the like – foods easily picked up while hunting – but no grindstones and no sign of nuts and roots. This is not to deny that Neanderthals cooperated, and cooked. But it is to challenge the notion that the sexes had different foraging strategies and swapped the results. Either the Neanderthal women sat around doing nothing, or, since they were as butch as most modern men, they went out hunting with the men. That seems more likely.

This is a startling shift of view. Instead of talking about ‘hunter-gathering’ as the natural state of humanity effectively since forever, as they are apt to do, scientists must begin to consider the possibility that it is a comparatively recent phase, an innovation of the last 200,000 years or so. Is the sexual division of labour a possible explanation of what made a small race of Africans so much better at surviving in a time of megadroughts and volatile climate change than all other hominids on the planet?

Perhaps. Remember how few are the remains from Neanderthal sites. But at least the burden of proof has shifted a bit. Even if the habit is more ancient, it may have been the predisposing factor that then conditioned the African race to the whole notion of specialisation and exchange. Having trained themselves to specialise and exchange between the sexes, having got into the habit of exchanging labour with others, the thoroughly modern Africans had then begun to extend the idea a little bit further and tentatively try a new and still more portentous trick, of specialising within the band and then between bands. This latter step was very hard to take, because of the homicidal relationships between tribes. Famously, no other species of ape can encounter strangers without trying to kill them, and the instinct still lurks in the human breast. But by 82,000 years ago, human beings had overcome this problem sufficiently to be able to pass Nassarius shells hand to hand 125 miles inland. Barter had begun.

Beachcombing east

Barter was the trick that changed the world. To paraphrase H.G. Wells, ‘We had struck our camp forever, and were out upon the roads.’ Having conquered much of Africa by about 80,000 years ago, the modern people did not stop there. Genes tell an almost incredible story. The pattern of variation in the DNA of both mitochondrial and Y chromosomes in all people of non-African origin attests that some time around 65,000 years ago, or not much later, a group of people, numbering just a few hundred in all, left Africa. They probably crossed the narrow southern end of the Red Sea, a channel much narrower then than it is now. They then spread along the south coast of Arabia, hopping over a largely dry Persian Gulf, skirting round India and a then-connected Sri Lanka, moving gradually down through Burma, Malaya and along the coast of a landmass called Sunda in which most of the Indonesian islands were then embedded, until they came to a strait somewhere near Bali. But they did not stop there either. They paddled across at least eight straits, the largest at least forty miles wide, presumably on canoes or rafts, working their way through an archipelago to land, probably around 45,000 years ago, on the continent of Sahul, in which Australia and New Guinea were conjoined.

This great movement from Africa to Australia was not a migration, but an expansion. As bands of people feasted on the coconuts, clams, turtles, fish and birds on one part of the coast and grew fat and numerous, so they would send out pioneers (or exile troublemakers?) to the east in search of new camp sites. Sometimes these emigrants would have to leapfrog others already in possession of the coast by trekking inland or taking to canoes.

Along the way they left tribes of hunter-gatherer descendants, a few of whom survive to this day genetically unmixed with other races. On the Malay Peninsula, forest hunter-gatherers called the Orang Asli (‘original people’) look ‘negrito’ in appearance and prove to have mitochondrial genes that branched off from the African tree about 60,000 years ago. In New Guinea and Australia, too, the genetics tell an unambiguous story of almost complete isolation since the first migration. Most remarkable of all, the native people of the Andaman islands, black-skinned, curly-haired and speaking a language unrelated to any other, have Y-chromosome and mitochondrial genes that diverged from the common ancestor with the rest of humankind 65,000 years ago. At least this is true of the Jarawa tribe on Great Andaman. The North Sentinelese, on the nearby island of North Sentinel, have not volunteered to give blood – at least not their own. As the only hunter-gatherers who still resist ‘contact’, these fine-looking people – strong, slim, fit and stark naked except for a small plant-fibre belt round the waist – usually greet visitors with showers of arrows. Good luck to them.

To reach the Andaman islands (then closer to the Burmese coast, but still out of sight) and Sahul, however, the migrants of 65,000 years ago must have been proficient canoeists. It was in the early 1990s that the African-born zoologist Jonathan Kingdon first suggested that the black skin of many Africans, Australians, Melanesians and ‘negrito’ Asians hinted at a maritime past. For a hunter-gatherer on the African savannah, a very black skin is not needed, as the relatively pale Khoisan and pygmies prove. But out on an exposed reef or beach, or in a fishing canoe, maximum sunscreen is called for. Kingdon believed that the ‘Banda strandlopers’, as he called them, had returned to conquer Africa from Asia, rather than the other way round, but he was ahead of the genetic evidence in coining the idea of an essentially maritime Palaeolithic race.

This remarkable expansion of the human race along the shore of Asia, now known as the ‘beachcomber express’, has left few archaeological traces, but that is because the then coastline is now 200 feet under water. It was a cool, dry time with vast ice sheets in high latitudes and big glaciers on mountain ranges. The interior of many of the continents was inhospitably dry, windy and cold. But the low-lying coasts were dotted with oases of freshwater springs. The low sea level not only exposed more springs, but increased the relative pressure on underground aquifers to discharge near the coast. All along the coast of Asia, the beachcombers would have found fresh water bubbling up and flowing into streams that meandered down to the ocean. The coast is also rich in food if you have the ingenuity to find it, even on desert shores. It made sense to stick to the beach.

The evidence of DNA attests that some of these beachcombers, on reaching India and apparently not before, must have eventually moved inland, because by 40,000 years ago ‘modern’ people were pressing west into Europe and east into what is now China. Abandoning the crowded coast, they resumed their old African ways of hunting game and gathering fruits and roots, becoming gradually more dependent on hunting once more as they inched north into the steppes grazed by herds of mammoths, horses and rhinoceroses. Soon they came across their distant cousins, the descendants of Homo erectus, with whom they last shared an ancestor half a million years before. They got close enough to acquire the latter’s lice to add to their own, so louse genes suggest, and conceivably even close enough to acquire a smattering of their cousins’ genes by interbreeding. But inexorably they rolled back the territory of these Eurasian erectus hominids till the last survivor, of the European cold-adapted sort known as Neanderthal, died with his back to the Strait of Gibraltar about 28,000 years ago. Another 15,000 years saw some of them spilling into the Americas from north-east Asia.

They were very good at wiping out not only their distant cousins, but also much of their prey, something previous hominid species had not managed. The earliest of the great cave painters, working at Chauvet in southern France 32,000 years ago, was almost obsessed with rhinoceroses. A more recent artist, working at Lascaux 15,000 years later, depicted mostly bisons, bulls and horses – rhinoceroses were rare or extinct in Europe by then. At first, modern human beings around the Mediterranean relied mostly on large mammals for meat. They ate small game only if it was slow-moving – tortoises and limpets were popular. Then, gradually and inexorably, starting in the Middle East, they switched their attention to smaller animals, and especially to fast-breeding species, such as rabbits, hares, partridges and smaller gazelles. They gradually stopped eating tortoises. The archaeological record tells this same story at sites in Israel, Turkey and Italy.

The reason for this shift, say Mary Stiner and Steven Kuhn, was that human population densities were growing too high for the slower-reproducing prey such as tortoises, horses and elephants. Only the fast-breeding rabbits, hares and partridges, and for a while gazelles and deer, could cope with such hunting pressure. This trend accelerated about 15,000 years ago as large game and tortoises disappeared from the Mediterranean diet altogether – driven to the brink of extinction by human predation. (A modern parallel: in the Mojave Desert of California, ravens occasionally kill tortoises for food. But only when landfills provided the ravens with ample alternative food and boosted – subsidised – their numbers did the tortoise numbers start to collapse from raven predation. So modern people, subsidised by hare meat, could extinguish mammoths.)

It is rare for a predator to wipe out its prey altogether. In times of prey scarcity, erectus hominids, like other predators, had simply suffered local depopulation; that in turn would have saved the prey from extinction and the hominid numbers could recover in time. But these new people could innovate their way out of trouble; they could shift their niche, so they continued to thrive even as they extinguished their old prey. The last mammoth to be eaten on the Asian plain was probably thought a rare delicacy, a nice change from hare and gazelle stew. As they adjusted their tactics to catch smaller and faster prey, so the moderns developed better weapons, which in turn enabled them to survive at high densities, though at the expense of extinguishing more of the larger and slower-breeding prey. This pattern of shifting from big prey to small as the former were wiped out was characteristic of the new ex-Africans wherever they went. In Australia, almost all larger animal species, from diprotodons to giant kangaroos, became extinct soon after human beings arrived. In the Americas, human arrival coincided with a sudden extinction of the largest, slowest-breeding beasts. Much later in Madagascar and New Zealand mass extinctions of large animals also followed with human colonisation. (Incidentally, given the obsession of ‘show-off’ male hunters with catching the largest beasts with which to buy prestige in the tribe, it is worth reflecting that these mass extinctions owe something to sexual selection.)

Shall we trade?

Meanwhile, the stream of new technologies gathered pace. From around 45,000 years ago, the people of western Eurasia had progressively revolutionised their toolkit. They struck slim, sharp blades from cylindrical rock ‘cores’ – a trick that produces ten times as much cutting edge as the old way of working, but is far harder to pull off. By 34,000 years ago they were making bone points for spears, and by 26,000 they were making needles. Bone spear throwers, or atlatls – which greatly increase the velocity of javelins – appear by 18,000 years ago. Bows and arrows came soon afterwards. ‘Microburin’ borers were used for drilling the holes in needles and beads. Of course, stone tools would have been only a tiny tip of a technological iceberg, dominated by wood, which has long since rotted away. Antler, ivory and bone were just as important. String, made from plant fibres or leather, was almost certainly in use by then to catch fish and rabbits in nets or snares, and to make bags for carrying things in.

Nor was this virtuosity confined to practicalities. As well as bone and ivory, shells, fossil coral, steatite, jet, lignite, hematite, and pyrite were used to make ornaments and objects. A flute made from the bone of a vulture dates from 35,000 years ago at Hohle Fels and a tiny horse, carved from mammoth ivory and worn smooth by being used as a pendant, dates from 32,000 years ago at Vogelherd – both in Germany. By the time of Sungir, an open-air settlement from 28,000 years ago at a spot near the city of Vladimir, north-east of Moscow, people were being buried in clothes decorated with thousands of laboriously carved ivory beads, and even little wheel-shaped bone ornaments had appeared. At Mezherich, in what is now Ukraine, 18,000 years ago, jewellery made of shells from the Black Sea and amber from the Baltic implied trade over hundreds of miles.

This is in striking contrast to the Neanderthals, whose stone tools were virtually always made from raw material available within an hour’s walk of where the tool was used. To me this is a vital clue to why the Neanderthals were still making hand axes, while their African-origin competitors were making ever more types of tool. Without trade, innovation just does not happen. Exchange is to technology as sex is to evolution. It stimulates novelty. The remarkable thing about the moderns of west Asia is not so much the diversity of artefacts as the continual innovation. There is more invention between 80,000 and 20,000 years ago than there had been in the previous million. By today’s standards, it was very slow, but by the standards of Homo erectus it was lightning-fast. And the next ten millennia would see still more innovations: fish hooks, all sorts of implements, domesticated wolves, wheat, figs, sheep, money.

If you are not self-sufficient, but are working for other people, too, then it pays you to spend some time and effort to improve your technology and it pays you to specialise. Suppose, for example, that Adam lives in a grassy steppe where there are herds of reindeer in winter, but some days’ walk away is a coast, where there are fish in summer. He could spend winter hunting, then migrate to the coast to go fishing. But that way he would not only waste time travelling, and probably run a huge risk crossing the territory of another tribe. He would also have to get good at two quite different things.

If, instead, Adam sticks to hunting and then gives some dried meat and reindeer antlers – ideal for fashioning hooks from – to Oz, a coastal fisherman, in exchange for fish, he has achieved the goal of varying his diet in a less tiring or dangerous way. He has also bought an insurance policy. And Oz would be better off, because he could now catch (and spare) more fish. Next Adam realises that instead of giving Oz raw antlers, he can give him pieces of antler already fashioned into hooks. These are easier to transport and fetch a better price in fish. He got the idea when he once went to the trading point and noticed others selling antlers that had already been cut up into easy segments. One day, Oz asks him to make barbed hooks. And Adam suggests that Oz dries or smokes his fish so it lasts longer. Soon Oz brings shells, too, which Adam buys to make jewellery for a young woman he fancies. After a while, depressed by the low price fetched by hooks of even high quality, Adam hits on the idea of tanning some extra hides and bringing those to the trading point, too. Now he finds he is better at making hides than hooks, so he specialises in hides, giving his antlers to somebody from his own tribe in exchange for his hides. And so on, and on and on.

Fanciful, maybe. And no doubt wrong in all sorts of details. But the point is how easy it is to envisage both opportunities for trade among hunter-gatherers – meat for plants, fish for leather, wood for stone, antler for shells – and how easy it is for Stone Age people to discover mutual gains from trade and then to enhance that effect by further specialising and further dividing labour. The extraordinary thing about exchange is that it breeds: the more of it you do, the more of it you can do. And it calls forth innovation.

Which only raises another question: why did economic progress not accelerate towards an industrial revolution there and then? Why was progress so agonisingly slow for so many millennia? The answer, I suspect, lies in the fissile nature of human culture. Human beings have a deep capacity for isolationism, for fragmenting into groups that diverge from each other. In New Guinea, for instance, there are more than 800 languages, some spoken in areas just a few miles across yet as unintelligible to those on either side as French and English. There are still 7,000 languages spoken on earth and the people who speak each one are remarkably resistant to borrowing words, traditions, rituals or tastes from their neighbours. ‘Whereas vertical transmission of cultural traits goes largely unnoticed, horizontal transmission is far more likely to be regarded with suspicion or even indignation,’ say the evolutionary biologists Mark Pagel and Ruth Mace. ‘Cultures, it seems, like to shoot messengers.’ People do their utmost to cut themselves off from the free flow of ideas, technologies and habits, limiting the impact of specialisation and exchange.

Ricardo’s magic trick

Divisions of labour beyond the pair bond had probably been invented in the Upper Palaeolithic. Commenting on the ten thousand mammoth-ivory beads with which the clothing of two 28,000-year-old child corpses at Sungir in Russia were decorated, the anthropologist Ian Tattersall remarks: ‘It’s hardly probable that these young people had made their richly adorned vestments themselves. It’s much more likely that the sheer diversity of material production in their society was the result of the specialisation of individuals in different activities.’ The carvers of mammoth beads at Sungir, the painter of rhinoceroses at Chauvet, the striker of blades from rock cores, the maker of rabbit nets – perhaps these were all specialists, exchanging their labour for that of others. Perhaps there had been different roles within each band of human beings ever since the first emergence of modern people over 100,000 years ago.

It is such a human thing to do, and so obvious an explanation of the thing that needs explaining: the capacity for innovation. Specialisation would lead to expertise, and expertise would lead to improvement. Specialisation would also give the specialist an excuse for investing time in developing a laborious new technique. If you have a single fishing harpoon to make, there’s no sense in building a clever tool for making harpoons first, but if you have to make harpoons for five fishermen, then maybe there is sense and time-saving in first making the harpoon-making tool.

Specialisation would therefore create and increase the opportunities for gains from trade. The more Oz goes fishing, the better he gets at it, so the less time it takes him to catch each fish. The more hooks Adam the reindeer hunter makes, the better he gets at it, so the less time he takes to make each one. So it pays Oz to spend his day fishing and buy his hooks off Adam by giving him some fish. And it pays Adam to spend his day making hooks and get his fish delivered by Oz.

And, wonderfully, this is true even if Oz is better at hook-making than Adam. Suppose Adam is a clumsy fool, who breaks half his hooks, but he is an even clumsier fisherman who cannot throw a line to save his life. Oz, meanwhile, is one of those irritating paragons who can whittle a bone hook with little trouble and always catches lots of fish. Yet it still pays Oz to get his hooks made for him by clumsy Adam. Why? Because with practise Adam has at least become better at making hooks than he is at fishing. It takes him three hours to make a hook, but four hours to catch a fish. Oz takes only an hour to catch a fish, but good as he is he still needs two hours to make a hook. So if each is self-sufficient, then Oz works for three hours (two to make the hook and one to catch the fish), while Adam works for seven hours (three to make the hook and four to catch a fish). If Oz catches two fish and swaps one for a hook from Adam, he only has to work two hours. If Adam makes two hooks and uses one to buy a fish from Oz, he only works for six hours. Both are better off than when they were self-sufficient. Both have gained an hour of leisure time.

I have done nothing here but retell, in Stone Age terms, the notion of comparative advantage as defined by the stockbroker David Ricardo in 1817. He used the example of England trading cloth for Portuguese wine, but the argument is the same:

England may be so circumstanced, that to produce the cloth may require the labour of 100 men for one year; and if she attempted to make the wine, it might require the labour of 120 men for the same time. England would therefore find it in her interest to import wine, and to purchase it by the exportation of cloth. To produce the wine in Portugal, might require only the labour of 80 men for one year, and to produce the cloth in the same country, might require the labour of 90 men for the same time. It would therefore be advantageous for her to export wine in exchange for cloth. This exchange might even take place, notwithstanding that the commodity imported by Portugal could be produced there with less labour than in England.

Ricardo’s law has been called the only proposition in the whole of the social sciences that is both true and surprising. It is such an elegant idea that it is hard to believe that Palaeolithic people took so long to stumble upon it (or economists to define it); hard to understand why other species do not make use of it, too. It is rather baffling that we appear to be the only species that routinely exploits it. Of course, that is not quite right. Evolution has discovered Ricardo’s law and applied it to symbioses, such as the collaboration between alga and fungus that is a lichen plant or the collaboration between a cow and a bacterium in a rumen. Within species, too, there are clear gains from trade between cells of a body, polyps of a coral colony, ants of an ant colony, or mole-rats of a mole-rat colony. The great success of ants and termites – between them they may comprise one-third of all the animal biomass of land animals – is undoubtedly down to their division of labour. Insect social life is built not on increases in the complexity of individual behaviour, ‘but instead on specialization among individuals’. In the leafcutter ants of the Amazon rainforest, colonies may number millions, and workers grow into one of four distinct castes: minors, medias, majors and supermajor. In one species a supermajor (or soldier) may weigh the same as 500 minors.

But the big difference is that in every other species than human beings, the colonies consist of close relatives – even a city of a million ants is really just a huge family. Yet reproduction is the one task that people never delegate to a specialist, let alone a queen. What gave people the chance to exploit gains from trade, without waiting for Mother Nature’s tedious evolutionary crawl, was technology. Equipped with the right tool, a human being can become a soldier or a worker (maybe not a queen), and he can switch between the roles. The more you do something, the better you get at it. A band of hunter-gatherers in west Eurasia, 15,000 years ago, dividing labour not just by gender but by individual as well, would have been formidably more efficient than an undifferentiated band. Imagine, say, 100 people in the band. Some of them make tools, others make clothes, others hunt, others gather. One tiresome bloke insists on prancing around in a deer skull chanting spells and prayers, adding little to the general well-being, but then maybe he is in charge of the lunar calendar so he can tell people when the tides will be lowest for limpet-picking expeditions.

True, there is not much specialisation in modern hunter-gatherers. In the Kalahari or the Australian desert, apart from the gathering women, the hunting men and maybe the shaman, there are not too many distinct occupations in each band. But these are the simple societies left in the harsh habitats. In the relatively fertile lands of west Eurasia after 40,000 years ago, when bands of people were larger and lines of work were diverse, specialisation had probably grown up within each band. The Chauvet rhino painter was so good at his job (and yes, archaeologists think it was mainly one artist) that he must surely have had plenty of time off hunting duties to practise. The Sungir bead maker must have been working for a wage of some kind, because he cannot surely have had time to hunt for himself. Even Charles Darwin reckoned that ‘primeval man practised a division of labour; each man did not manufacture his own tools or rude pottery, but certain individuals appear to have devoted themselves to such work, no doubt receiving in exchange the produce of the chase.’

Innovation networks

According to the anthropologist Joe Henrich, human beings learn skills from each other by copying prestigious individuals, and they innovate by making mistakes that are very occasionally improvements – that is how culture evolves. The bigger the connected population, the more skilled the teacher, and the bigger the probability of a productive mistake. Conversely, the smaller the connected population, the greater the steady deterioration of the skill as it was passed on. Because they depended on wild resources, hunter-gatherers could rarely live in bands larger than a few hundred and could never achieve modern population densities. This had an important consequence. It meant that there was a limit to what they could invent. A band of a hundred people cannot sustain more than a certain number of tools, for the simple reason that both the production and the consumption of tools require a minimum size of market. People will only learn a limited set of skills and if there are not enough experts to learn one rare skill from, they will lose that skill. A good idea, manifest in bone, stone or string, needs to be kept alive by numbers. Progress can easily falter and turn into regress.

Where modern hunter-gatherers have been deprived of access to a large population of trading partners – in sparsely populated Australia, especially Tasmania, and on the Andaman islands, for example – their technological virtuosity was stunted and barely progressed beyond those of Neanderthals. There was nothing special about the brains of the moderns; it was their trade networks that made the difference – their collective brains.

The most striking case of technological regress is Tasmania. Isolated on an island at the end of the world, a population of less than 5,000 hunter-gatherers divided into nine tribes did not just stagnate, or fail to progress. They fell steadily and gradually back into a simpler toolkit and lifestyle, purely because they lacked the numbers to sustain their existing technology. Human beings reached Tasmania at least 35,000 years ago while it was still connected to Australia. It remained connected – on and off – until about 10,000 years ago, when the rising seas filled the Bass Strait. Thereafter the Tasmanians were isolated. By the time Europeans first encountered Tasmanian natives, they found them not only to lack many of the skills and tools of their mainland cousins, but to lack many technologies that their own ancestors had once possessed. They had no bone tools of any kind, such as needles and awls, no cold-weather clothing, no fish hooks, no hafted tools, no barbed spears, no fish traps, no spear throwers, no boomerangs. A few of these had been invented on the mainland after the Tasmanians had been isolated from it – the boomerang, for instance – but most had been made and used by the very first Tasmanians. Steadily and inexorably, so the archaeological history tells, these tools and tricks were abandoned. Bone tools, for example, grew simpler and simpler until they were dropped altogether about 3,800 years ago. Without bone tools it became impossible to sew skins into clothes, so even in the bitter winter, the Tasmanians went nearly naked but for seal-fat grease smeared on their skin and wallaby pelts over their shoulders. The first Tasmanians caught and ate plenty of fish, but by the time of Western contact they not only ate no fish and had eaten none for 3,000 years, but they were disgusted to be offered it (though they happily ate shellfish).

The story is not quite that simple, because the Tasmanians did invent a few new things during their isolation. Around 4,000 years ago they came up with a horribly unreliable form of canoe-raft, made of bundles of rushes and either paddled by men or pushed by swimming women (!), which enabled them to reach offshore islets to harvest birds and seals. The raft would become waterlogged and disintegrate or sink after a few hours, so it was no good for re-establishing contact with the mainland. As far as innovation goes, it was so unsatisfactory that it almost counts as an exception to prove the rule. The women also learnt to dive up to twelve feet below the water to prise clams off the rocks with wooden wedges and to grab lobsters. This was dangerous and exhausting work, which they were very skilled at: the men did not take part. So it was not that there was no innovation; it was that regress overwhelmed progress.

The archaeologist who first described the Tasmanian regress, Rhys Jones, called it a case of the ‘slow strangulation of the mind’, which perhaps understandably enraged some of his academic colleagues. There was nothing wrong with individual Tasmanian brains; there was something wrong with their collective brains. Isolation – self-sufficiency – caused the shrivelling of their technology. Earlier I wrote that division of labour was made possible by technology. But it is more interesting than that. Technology was made possible by division of labour: market exchange calls forth innovation.

Now, at last, it becomes clear why the erectus hominids saw such slow technological progress. They, and their descendants the Neanderthals, lived without trade (recall how Neanderthal stone tools were sourced within an hour’s walk of their use). So in effect each erectus hominid tribe occupied a virtual Tasmania, cut off from the collective brain of the wider population. Tasmania is about the size of the Irish Republic. By the time Abel Tasman pitched up in 1642 it held probably about 4,000 hunter-gatherers divided into nine tribes, and they lived mainly off seals, seabirds and wallabies, which they killed with wooden clubs and spears. That means that there were only a few hundred young adults on the entire island who were learning new skills at any one time. If, as seems to be the case everywhere, culture works by faithful imitation with a bias towards imitating prestigious individuals (in other words, copy the expert, not the parent or the person closest to hand), then all it would take for certain skills to be lost would be a handful of unlucky accidents in which the most prestigious individual had forgotten or mislearned a crucial step or even gone to his grave without teaching an apprentice. Suppose, for example, that an abundance of seabirds led one group to eschew fishing for a number of years until the last maker of fishing tackle had died. Or that the best barbed-spear maker on the island fell off a cliff one day leaving no apprentice. His barbs went on being used for some years, but once they had all broken, suddenly there was nobody who could make them. Acquiring a skill costs a lot of time and effort; nobody could afford to learn barb-making from scratch. People concentrated on learning the skills that they could watch first-hand.

Bit by bit, Tasmanian technology simplified. The most difficult tools and complex skills were lost first, because they were the hardest to master without a master to learn from. Tools are in effect a measure of the extent of the division of labour and, as Adam Smith argued, the division of labour is limited by the extent of the market. The Tasmanian market was too small to sustain many specialised skills. Imagine if 4,000 people from your home town were plonked on an island and left in total isolation for ten millennia. How many skills and tools do you think they could preserve? Wireless telephony? Double-entry book-keeping? Suppose one of the people in your town was an accountant. He could teach double-entry book-keeping to a youth, but would the youth or the youth’s youth pass it on – for ever?

On other Australian islands much the same thing happened as on Tasmania. On Kangaroo Island and Flinders Island, human occupation petered out, probably by extinction, a few thousand years after isolation. Flinders is a fertile island that should be a paradise. But the hundred or so people it could support were far too small a human population to sustain the technology of hunter-gathering. The Tiwi people, isolated on two islands north of Darwin for 5,500 years, also reversed the ratchet of accumulating skills and slipped back to a simpler tool set. The Torres islanders lost the art of canoe making, causing the anthropologist W.H.R. Rivers to puzzle over the ‘disappearance of the useful arts’. It seems the hunter-gathering lifestyle was doomed if too isolated. The Australian mainland, by contrast, experienced steady technological progress. Where Tasmanian spears merely had fire-hardened wood points, on the mainland spears acquired detachable tips, stone barbs and ‘woomera’ spear throwers. It is no coincidence that the mainland had long-range trade, so that inventions and luxuries could be sourced from distant parts of the land. Shell beads had been moving long distances across Australia since at least 30,000 years ago. Pearl and baler shell pendants from the north coast moved through at least eight tribal areas to reach the far south more than a thousand miles from where they had been harvested, growing in sacredness as they went. ‘Pitchera’ – a tobacco-like plant – moved west from Queensland. The best stone axes travelled up to 500 miles from where they were mined.

In contrast to Tasmania, Tierra del Fuego – an island not much bigger than Tasmania, home to not many more people and generally rather colder and less hospitable – possessed a race of people who, when Charles Darwin met them in 1834, set bait for fish, nets for seals and snares for birds, used hooks and harpoons, bows and arrows, canoes and clothing – all made with specialised tools and skills. The difference is that the Fuegians were in fairly frequent contact with other people across the Strait of Magellan so that they could relearn lost skills or import new tools from time to time. All it took was an occasional incomer from the mainland to keep technology from regressing.

Networking in the near-east

The lesson is stark. Self-sufficiency was dead tens of thousand years ago. Even the relatively simple lifestyle of a hunter-gatherer cannot exist without a large population exchanging ideas and skills. The importance of this notion cannot be emphasised too strongly. The success of human beings depends crucially, but precariously, on numbers and connections. A few hundred people cannot sustain a sophisticated technology: trade is a vital part of the story.

Vast though it is, Australia itself may have suffered from this isolation effect. Recall that it was colonised 45,000 years ago by pioneering beachcombers spreading east from Africa along the shore of Asia. The vanguard of such a migration must have been small in number and must have travelled comparatively light. The chances are they had only a sample of the technology available to their relatives back at the Red Sea crossing. This may explain why Australian aboriginal technology, although it developed and elaborated steadily over the ensuing millennia, was lacking in so many features of the Old World – elastic weapons, for example, such as bows and catapults, were unknown, as were ovens. It was not that they were ‘primitive’ or that they had mentally regressed: it was that they had arrived with only a subset of technologies and did not have a dense enough population and therefore a large enough collective brain to develop them much further.

The ‘Tasmanian effect’ may also explain why technological progress had been so slow and erratic in Africa after 160,000 years ago. It explains the periodic bursts of modern tools found at South African sites like Pinnacle Point, Blombos Cave and Klasies River. Despite the invention of exchange, the continent was like a patchwork of virtual Tasmanias. As Steve Shennan and his colleagues have calculated, whenever the right combination of (say) seafood, freshwater and fertile savannahs produced local population explosions, technology would have grown sophisticated in proportion to the number of people networked by exchange to sustain and develop it – in proportion to the scale of the collective intelligence. But when a river dried up or deserts advanced and human populations collapsed or shrank, technology would simplify again. Human cultural progress is a collective enterprise and it needs a dense collective brain.

Thus the extraordinary change in technology and cultural tradition that seems to have flourished more than 30,000 years ago in western Asia and the Near East – the so-called Upper Palaeolithic Revolution – may be explained by a dense population. Fed by an increasingly intensive and vegetarian hunter-gathering lifestyle, and with close contact between tribes, the people of south-west Asia were in a position to accumulate more and more skills and technologies than any previous human populations. A large, interconnected population meant faster cumulative invention – a surprising truth even to this day, as Hong Kong and Manhattan islands demonstrate. As the economist Julian Simon put it, ‘population growth leading to diminishing returns is fiction; the induced increase in productivity is scientific fact’. And one of those inventions was farming, which is the subject of the next chapter.

It is right to end the hunter-gatherer chapter, though, by remembering what happened to the Tasmanians. In the early 1800s, white sealers began to arrive along the island’s coasts and it was not long before the Tasmanians were eagerly meeting the sealers to trade with them, proving that 10,000 years of limited exchange had done nothing to dampen their innate enthusiasm for barter. The sealers’ dogs were especially sought after, being deerhounds that could easily run down kangaroos. In exchange, sad to relate, Tasmanians sold women to the sealers as concubines. Once white farmers arrived, relations between the two peoples deteriorated and eventually the whites sent bounty hunters to kill the natives, then rounded up the survivors and exiled them to Flinders Island, where they eked out their last days in misery.

CHAPTER 3 The manufacture of virtue: barter, trust and rules after 50,000 years ago

Money is not metal. It is trust inscribed.

NIALL FERGUSON

The Ascent of Money

There is a scene in the film The Maltese Falcon in which Humphrey Bogart is about to be given $1,000 by Sydney Greenstreet and will have to share some of it with Mary Astor. Greenstreet whispers to Bogart that he’d like to give him a word of advice: that he assumes that Bogart is going to give her some of the money, but that if he does not give her as much as she thinks she ought to have, he should be careful. The scene prefigures a game, invented by Werner Guth in the late 1970s and much loved by economists, called the Ultimatum Game, which opens a little window into the human spirit. The first player is given some money and told to divide it with the second player. The second player is told he can accept or refuse the offer, but not change it. If he accepts, he receives the money; if he refuses, neither he nor the first player gets a penny. The question is, how much money should the first player offer the second player? Rationally, he should tender almost nothing, and the second player should accept it, because however small the sum, refusal will only make the second player worse off than acceptance. But in practice, people usually offer close to half the money. Generosity seems to come naturally, or rather, ungenerous behaviour is irrationally foolish, because the second player will – and does – consider a derisory offer worth rejecting, if only to punish the selfishness of the first player.

The lesson of the ultimatum game and hundreds like it is that again and again people emerge from such experiments as nicer than you think. But the even more surprising lesson is that the more people are immersed in the collective brain of the modern commercial world, the more generous they are. As the economist Herb Gintis puts it, ‘societies that use markets extensively develop a culture of co-operation, fairness and respect for the individual’. His evidence comes from a fascinating study in which people in fifteen mostly small-scale tribal societies were enticed to play the Ultimatum Game. Those societies with the least experience of dealing with outsiders were the most hard-hearted, ungenerous and narrowly ‘rational’. Machiguenga slash-and-burn farmers from the Amazon most often offered just 15 per cent of the sum to their co-subjects, and in all but one cases, the second player accepted. Likewise, a Hadza hunter-gatherer from Tanzania usually makes a very small offer and experiences few rejections. On the other hand, players from those societies that are most integrated into modern markets, such as the Orma nomads of Kenya or the Achuar subsistence gardeners of Ecuador, will usually offer half the money just as a Western undergraduate would. The whale-hunting Lamalera of the island of Lembata in Indonesia, who need to coordinate large teams of strangers on hunts, offer on average 58 per cent – as if investing the windfall in acquiring new obligations. Much the same happens in two New Guinea tribes, the Au and Gnau, whose members often make ‘hyper-fair’ offers and yet see them rejected: in such cultures, gifts can be a burden to the receiver because they carry an obligation to reciprocate.

The lesson of this study is that, on the whole, having to deal with strangers teaches you to be polite to them, and that in order for such generosity to emerge, costly punishment of selfishness may be necessary. Rejecting the offer is costly for the second player, but he reckons it is worth it to teach the first player a lesson. The argument is not that exchange teaches people to be kind; it is that exchange teaches people to recognise their enlightened self-interest lies in seeking cooperation. Here, then, lies a clue to the unique human attribute of being able to deal with strangers, to extend the division of labour to include even your enemies.

Cooperation, exchange and specialisation within a family group are routine throughout the animal kingdom: among chimpanzees and dolphins, among wolves and lions, among individuals of almost any social species. A meerkat or a scrub jay trusts its relative on sentry duty to sound the alarm if an eagle appears and shares the duty. A worker ant divides labour with its queen, with soldiers and with its sisters in other castes of worker. All these societies are just large families. Collaboration between unrelated strangers seems to be a uniquely human achievement. In no other species can two individuals that have never before met exchange goods or services to the benefit of each other, as happens routinely each time you visit a shop or a restaurant or a website. Indeed, in other group-living species, such as ants or chimpanzees, the interactions between members of different groups are almost always violent. Yet human beings can treat strangers as honorary friends.

Taking the first step to proffer the hand of cooperation to a homicidal enemy must have been momentous and almost impossibly difficult, which is perhaps why it is such a rare trick in the animal kingdom. It took primatologists such as Sarah Hrdy and Frans de Waal to notice just how peculiar this is: how inconceivable it would be for an orderly queue of stranger chimpanzees to board an aeroplane, or sit down in a restaurant, without turning violently on each other. And generally speaking the more cooperative a species is within groups, the more hostility there is between groups. As a highly ‘groupish’ species ourselves, still given to mutual aid within groups and mutual violence between groups, it is an extraordinary thing that people can overcome their instincts enough to have social commerce with strangers.

I think the first overtures may have been ventured first by human females. After all, homicidal raids against neighbouring groups are – in human beings and in most other primates – conducted always by males. So encounters between strange females are not necessarily going to turn violent. Moreover, in all apes females are the sex that leaves the group into which they were born when they mate; in monkeys, curiously, it is males that leave. Assuming human beings follow the ape pattern – as they do to this day in most human societies – then women would have had close relations in other groups in the shape of their mothers, fathers and brothers with whom to build relationships. There is even a curious, much later echo of such a female-centred pattern in the trading patterns of south-east Asia before the arrival of Westerners. The traders of Malaysia, Indonesia and the Philippines were often women, who were taught to calculate and to account from an early age.

Again and again throughout history, trust has to start with relatives before it can be extended to strangers; sending relatives abroad as agents has a long history. The trading ports of Asia each had their own communities of Gujaratis, Fujianese, Persians, Armenians, Jews and Arabs, just as the ports of Europe had their separate communities of Genoese, Florentine, Dutch, English and Hanseatic merchants, keeping the trust within the family as their diasporas spread. The financing of Wellington’s armies in Spain in 1809–12 was made possible because the British government trusted a Jewish lender named Nathan Rothschild to trust his brothers on the continent to buy bullion with British paper.

Finding a trade buddy

In 2004, a series of volunteer undergraduates sat down at computer screens at George Mason University in Virginia to play games for money. In the game each person found himself in a virtual village with his own house and field in which he could produce and consume red and blue virtual ‘units’ during brief sessions of the game. In each case, he knew that the more he acquired and the closer he got to a certain ratio of blue and red units (e.g., 3:1) the more real money he went home with. But unknown to him, he was either an ‘odd’ player, who was programmed to be faster at making red units, or an ‘even’ player, faster at making blue units. On his screen each player could see what other players (two, four or eight in total) were up to and he could chat with them on-screen during each run and in the 100-second gaps between runs. On one run of the game, in session six, two players had the following exchange:

‘wonder if u can give me objects’

‘oh yeah.’

‘heyyy, i make blues faster, what color do u make faster?’

‘red’

‘lol ok’

‘LOL’

‘so ill make all blues and u make all reds’

‘then drop them to each other’s houses?’

‘yea do it’

‘ok 100% red’

‘100% blue’

The purpose of the experiment, run by Bart Wilson, Vernon Smith and their colleagues, was of course to see if people discovered exchange and specialisation for themselves with no rules or instructions. In the game, specialising is risky because the pay-off for ending up with units of only one colour is zero, but specialisation with exchange allows three times the pay-off of self-sufficiency. Yet there were no clues that trading was even possible. Though some players remained stuck in low-yielding self-sufficiency, most eventually discovered gains from trade. ‘Prior to exchange,’ comment the experimenters, ‘near-autarky prevails, and once the “power of exchanging” is discovered, specialisation gradually evolves.’ Intriguingly, the players began by trading bilaterally and personally – that is, each player developed a trading relationship with another player and only later extended the invitation to others.

That trade began as a bilateral and personal affair seems plausible. In the nineteenth century among the Yir Yoront aborigines, in northern Australia, each man’s family camp had at least one highly valued stone axe. The axes all came from a quarry jealously guarded and systematically worked by the Kalkadoon tribe at Mount Isa, 400 miles to the south, far beyond the Yir Yoront lands, and they passed through the hands of many trading partners to reach the tribe. Each older man had a trading partner to the south whom he met once a year in the dry season at a ceremonial gathering. In exchange for a dozen sting-ray barbs, to be used as spear tips, he received an axe. In turn he had obtained some of the barbs from his other trading partner to the north – to whom he gave an axe in return. Another 150 miles to the south, the exchange rate was different: one axe for one barb. There were arbitrage profits all along the chain.

So perhaps the first steps to trade with strangers began as individual friendships. A woman could trust her daughter who had married into an allied band within the same tribal grouping. Then perhaps the woman’s husband could learn to trust his son-in-law. The alliance between the bands in the face of a common enemy allowed the barrier of suspicion to be breached long enough for one to discover that the other had a surplus of stone for making axes, or of sting-ray barbs for making spear tips. Gradually, step by step, the habit of trade began to grow alongside the habit of xenophobia, complicating the ambitions of men and women.

Most people assume that long-distance trade among strangers and the very concept of the market was a comparatively late development in human history, coming long after agriculture. But, as the Australian aborigines suggest, this is bunk. There is no known human tribe that does not trade. Western explorers, from Christopher Columbus to Captain Cook, ran into many confusions and misunderstandings when they made first contact with isolated peoples. But the principle of trading was not one of them, because the people they met in every case already had a notion of swapping things. Within hours or days of meeting a new tribe, every explorer is bartering. In 1834 in Tierra del Fuego a young naturalist named Charles Darwin came face to face with some hunter-gatherers: ‘Some of the Fuegians plainly showed that they had a fair notion of barter. I gave one man a large nail (a most valuable present) without making any signs for a return; but he immediately picked out two fish, and handed them up on the point of his spear.’ Darwin and his new friend needed no common language to understand the bargain they were agreeing. Likewise, New Guinea highlanders, when first contacted by Michael Leahy and his fellow prospectors in 1933, gave them bananas in exchange for cowrie shells. Pre-contact, the New Guineans had been trading stone axes over large distances for a very long time. In Australia, baler shells and stone axes had been crossing the entire continent by trade for untold generations. The people of the Pacific coast of North America were sending seashells hundreds of miles inland, and importing obsidian from even farther afield. In Europe and Asia in the Old Stone Age, amber, obsidian, flint and seashells were travelling farther than individual people could possibly have carried them. In Africa, obsidian, shells and ochre were being traded long distances by 100,000 years ago. Trade is prehistoric and ubiquitous.

Moreover, some ancient hunter-gatherer societies reached such a pitch of trade and prosperity as to live in dense, sophisticated hierarchical societies with much specialisation. Where the sea produced a rich bounty, it was possible to achieve a density of the kind that normally requires agriculture to support it – complete with chiefs, priests, merchants and conspicuous consumption. The Kwakiutl Americans, living off the salmon runs of the Pacific North West, had family property rights to streams and fishing spots, had enormous buildings richly decorated with sculptures and textiles, and engaged in bizarre rituals of conspicuous consumption such as the giving of rich copper gifts to each other, or the burning of candlefish oil, just for the prestige of being seen to be philanthropic. They also employed slaves. Yet they were strictly speaking hunter-gatherers. The Chumash of the Californian channel islands, well fed on sea food and seal meat, included specialist craftsmen who fashioned beads from abalone shells to use as currency in a sophisticated and long-range canoe trade. Trade with strangers, and the trust that underpins it, was a very early habit of modern human beings.

The trust juice

But is trade made possible by the milk of human kindness, or the acid of human self-interest? There was once a German philosophical conundrum known as Das Adam Smith Problem, which professed to find a contradiction between Adam Smith’s two books. In one he said that people were endowed with instinctive sympathy and goodness; in the other, that people were driven largely by self-interest. ‘How selfish soever man may be supposed, there are evidently some principles in his nature, which interest him in the fortunes of others, and render their happiness necessary to him, though he derives nothing from it, except the pleasure of seeing it,’ he wrote in Theory of Moral Sentiments. ‘Man has almost constant occasion for the help of his brethren, and it is in vain for him to expect it from their benevolence only. He will be more likely to prevail if he can interest their self-love in his favour,’ he wrote in The Wealth of Nations.

Smith’s resolution of the conundrum is that benevolence and friendship are necessary but not sufficient for society to function, because man ‘stands at all times in need of the cooperation and assistance of great multitudes, while his whole life is scarce sufficient to gain the friendship of a few persons’. In other words, people go beyond friendship and achieve common interest with strangers: they turn strangers into honorary friends, to use Paul Seabright’s term. Smith brilliantly confused the distinction between altruism and selfishness: if sympathy allows you to please yourself by pleasing others, are you being selfish or altruistic? As the philosopher Robert Solomon put it, ‘What I want for myself is your approval, and to get it I will most likely do what you think I should do.’

This ability to transact with strangers as if they were friends is made possible by an intrinsic, instinctive human capacity for trust. Often the very first thing you do when you meet a stranger and begin to transact with him or her, say a waiter in a restaurant, is to smile – a small, instinctive gesture of trust. The human smile, the glowing embodiment of Smith’s innate sentiment of sympathy, can reach right into the brain of another person and influence her thoughts. In the extreme case, a baby smiling causes particular circuits in its mother’s brain to fire and make her feel good. No other animal smiles in this way. But even among adults, a touch, a massage, or, as experiments have shown, a simple act of financial generosity, can cause the release of the hormone oxytocin in the brain of the recipient, and oxytocin is the chemical that evolution uses to make mammals feel good about each other – whether parents about their babies, lovers about their mates or friends about their friends. It works the other way, too: squirting oxytocin up the noses of students will cause them to trust strangers with their money more readily than those who receive a placebo squirted up their noses. ‘Oxytocin is a physiologic signature of empathy,’ says the neuro-economist Paul Zak, who conducts these experiments, ‘and appears to induce a temporary attachment to others.’

In 2004 Zak, together with Ernst Fehr and other colleagues, conducted one of the most revealing experiments in the history of economics, which showed just how specific the trusting effect of oxytocin is. They recruited 194 male students from Zurich (the experiment must not be done with females, because if one happens to be pregnant without knowing it, oxytocin might trigger labour) and made them play one of two games. In the first game, the trust game, a player called the investor is given twelve monetary units and told that if he hands some of it over to another player, the trustee, that amount will be quadrupled by the experimenter. Thus if he hands over all twelve units, the trustee will receive forty-eight. The trustee may pay some of it back to the investor, but has absolutely no obligation to do so. So the investor risks losing all his money, but if he can trust the trustee to be generous, he might stand to make a good profit. The question is: how much will the investor hand over?

The results were remarkable. Investors who receive a squirt of oxytocin up their noses before the experiment begins hand over 17 per cent more money than those who receive a squirt of inert saline solution up their noses, and the median transfer is ten units rather than eight. The oxytocin investors are more than twice as likely to hand over the full twelve units as the controls. Yet oxytocin has no such effect on the back transfers offered by the trustees, who are just as generous without oxytocin as with. So – as animal experiments have suggested – oxytocin does not affect reciprocity, just the tendency to take a social risk, to go out on a limb. Moreover, a second game, identical to the first except that the generosity of the trustees is randomly decided, shows no effect of oxytocin on the investors. So oxytocin specifically increases trusting, rather than general risk-taking. As with lovers and mothers, the hormone enables animals to take the risk of approaching other members of the species – it ‘links the overcoming of social avoidance with the activation of brain circuits implicated in reward’. It does this partly by suppressing the activity of the amygdala, the organ that expresses fear. If human economic progress has included a crucial moment when human beings learned to treat strangers as trading partners, rather than enemies, then oxytocin undoubtedly played a vital role.

People are surprisingly good at guessing who to trust. Robert Frank and his colleagues set up an experiment in which the volunteer subjects had conversations in groups of three for half an hour. After that, they were sent to separate rooms to play, with their conversation partners, the prisoner’s dilemma game (in which each player must decide whether to cooperate in the hope of a mutual gain or defect in the hope of a selfish gain if the other player cooperates). First, though, each player filled in a form not only saying how she would play with each partner, but also predicting what strategy each partner would adopt. As so often in this game, three-quarters of subjects said they would cooperate, reinforcing Smith’s point that people are innately nice (economics students, who have been taught the self-interested nature of human beings, are twice as likely to defect!). Remarkably, the subjects were very good at predicting who would cooperate and who would defect: people who were predicted to cooperate did so 81 per cent of the time, compared with 74 per cent for the group as a whole. People who were predicted to defect did so 57 per cent of the time, compared with 26 per cent for the group as a whole. Most people, says the economist Robert Frank, can think of an unrelated friend who they would trust to return to them a wallet that had been lost in a crowded concert. Conversely, people acutely remember the faces of those who cheat them.

Thus, the entire edifice of human cooperation and exchange, upon which prosperity and progress are built, depends on a fortunate biological fact. Human beings are capable of empathy, and are discerning trusters. Is that it, then? That human beings can build complicated societies and experience prosperity is down to the fact that they have a biological instinct that encourages cooperation? If only it were that simple. If only the arguments of Hobbes and Locke, of Rousseau and Voltaire, of Hume and Smith, of Kant and Rawls, could be brought to such a neat and reductionist conclusion. However, the biology is only the start. It is something that makes prosperity possible, but it is not the whole explanation.

Besides, there is still no evidence that any of this biology is uniquely developed in human beings. Capuchin monkeys and chimpanzees are just as resentful of unfair treatment as human beings are and just as capable of helpful acts towards kin or group members. The more you look at altruism and cooperation, the less uniquely human it appears. Oxytocin is common to all mammals, and is used for mother-love in sheep and lover-love in voles, so the chances are that it is available to underpin trust in almost any social mammal. It is necessary, but not sufficient to explain the human propensity to exchange. On the other hand, it is highly likely that during the past 100,000 years human beings have developed peculiarly sensitive oxytocin systems, much more ready to fire with sympathy, as a result of natural selection in a trading species. That is to say, just as the genes for digesting milk as an adult have changed in response to the invention of dairying, so the genes for flushing your brain with oxytocin have probably changed in response to population growth, urbanisation and trading – people have become oxytocin-junkies far more than many other animals.

Moreover, finding the underlying physiology of trust does little to explain why some human societies are much better at generating trust than others. 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. This can be measured by a combination of questionnaires and experiments – leaving a wallet on the street and seeing if it is returned, for instance. Or asking people, in their native tongue, ‘generally speaking, would you say that most people can be trusted, or that you cannot be too careful in dealing with people?’ By these measures, 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.’ This is most unlikely to be because Norwegians have more oxytocin receptors in their brains than Peruvians, but it does suggest that Norwegian society is better designed to elicit the trust systems than Peruvian.

It is not at all clear what comes first: the trust instinct or trade. It is most unlikely that the oxytocin system fortuitously mutated into a sensitive form, which then enabled human beings to develop trading. Much more plausibly, human beings began tentatively to trade, capturing the benefits of comparative advantage and collective brains, which in turn encouraged natural selection to favour mutant forms of the human mind that were especially capable of trust and empathy – and even then to do so cautiously and suspiciously. I shall be amazed if the genetics of the oxytocin system do not show evidence of having changed rapidly and recently in response to the invention of trade, by gene-culture co-evolution.

The shadow of the future

A trillion generations of unbroken parental generosity stand behind a bargain with your mother. A hundred good experiences stand behind your reliance on a friend. The long shadow of the future hangs over any transaction with your local shopkeeper. He surely knows that in making a quick buck now by ripping you off he risks losing all future purchases you might make. What is miraculous is that in modern society you can trust and be trusted by a shopkeeper you do not know. Almost invisible, the guarantors of trust lurk beneath every modern market transaction: the sealed packaging, the warranty, the customer feedback form, the consumer legislation, the brand itself, the credit card, the ‘promise to pay the bearer’ on the money. When I go into a well-known supermarket and pick up a tube of toothpaste of a well-known brand, I do not need to open the package and squirt a little toothpaste on to my finger to test that the tube is not filled with water; I do not even need to know that the shop is subject to laws that would prosecute it for selling false goods. I just need to know that this big retailing company, and the big company that made the toothpaste, are both keen to keep me coming back year after year, that the shadow of reputational risk hangs over this simple transaction, ensuring that I can trust this toothpaste seller without a moment’s thought.

There is a vast history behind the trustworthiness of a tube of toothpaste, a long path of building trust inch by inch. Once that path is trodden, though, trust can be borrowed for new products and new media with surprising ease. The remarkable thing about the early days of the internet was not how hard it proved to enable people to trust each other in the anonymous reaches of the ether, but how easy. All it took was for eBay to solicit feedback from customers after each transaction and post the comments of buyers about the sellers. Suddenly every deal lay under the shadow of the future; suddenly, every eBay user felt the hot breath of reputation on his neck as surely as a Stone Age reindeer hide salesman returning to a trading place after selling a rotten hide the year before. When Pierre Omidyar founded eBay, few believed as he did that trust between anonymous strangers would prove easy to create in the new medium. But by 2001, fewer than 0.01 per cent of all transactions on the site were fraud attempts. John Clippinger draws an optimistic conclusion: ‘The success of trust-based peer organizations such as eBay, Wikipedia, and the open-source movement, indicates that trust is a highly expandable network property.’ Perhaps the internet has returned us to a world a bit like the Stone Age in which there is no place for a fraudster to hide.

That response would be naïve. There is plenty of innovative and destructive cyber-crime to come. None the less, the internet is a place where the problem of trust between strangers is solved daily. Viruses can be avoided, spam filters can work, Nigerian emails that con people into divulging their bank account details can be marginalised, and as for the question of trust between buyer and seller, companies like eBay have enabled their customers to police each other’s reputations by the simple practice of feedback. The internet, in other words, may be the best forum for crime, but it is also the best forum for free and fair exchange the world has ever seen.

My point is simply this: with frequent setbacks, trust has gradually and progressively grown, spread and deepened during human history, because of exchange. Exchange breeds trust as much as vice versa. You may think you are living in a suspicious and dishonest world, but you are actually the beneficiary of immense draughts of trust. Without that trust the swapping of fractions of labour that goes to make people richer could not happen. Trust matters, said J.P. Morgan to a congressional hearing in 1912, ‘before money or anything else. Money cannot buy it…because a man I do not trust could not get money from me on all the bonds in Christendom.’ Google’s code of conduct echoes Morgan: ‘Trust is the foundation upon which our success and prosperity rest, and it must be re-earned every day, in every way, by every one of us.’ (And, yes, one day people will probably look back on Google’s founders as robber barons, too.) If people trust each other well, then mutual service can evolve with low transactional friction; if they do not, then prosperity will seep away. That is, of course, a large part of the story of the banking crisis of 2008. Banks found themselves holding bits of paper that told lies – that said they were worth far more than they were. Transactions collapsed.

If trust makes markets work, can markets generate trust?

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. Like Portia’s mercy in The Merchant of Venice, exchange is ‘twice blest: it blesseth him that gives and him that takes.’ That’s the Indian rope trick by which the world gets rich. Yet it takes only a few sidelong glances at your fellow human beings to realise that remarkably few people think this way. Zero-sum thinking dominates the popular discourse, whether in debates about trade or in complaints about service providers. You just don’t hear people coming out of shops saying, ‘I got a great bargain, but don’t worry, I paid enough to be sure that the shopkeeper feeds his family, too.’ Michael Shermer thinks that is because most of the Stone Age transactions rarely benefited both sides: ‘during our evolutionary tenure, we lived in a zero-sum (win-lose world), in which one person’s gain meant another person’s loss’.

This is a shame, because the zero-sum mistake was what made so many -isms of past centuries so wrong. Mercantilism said that exports made you rich and imports made you poor, a fallacy mocked by Adam Smith when he pointed out that Britain selling durable hardware to France in exchange for perishable wine was a missed opportunity to achieve the ‘incredible augmentation of the pots and pans of the country’. Marxism said that capitalists got rich because workers got poor, another fallacy. In the film Wall Street, the fictional Gordon Gekko not only says that greed is good; he also adds that it’s a zero-sum game where somebody wins and somebody loses. He is not necessarily wrong about some speculative markets in capital and in assets, but he is about markets in goods and services. The notion of synergy, of both sides benefiting, just does not seem to come naturally to people. If sympathy is instinctive, synergy is not.

For most people, therefore, the market does not feel like a virtuous place. It feels like an arena in which the consumer does battle with the producer to see who can win. Long before the credit crunch of 2008 most people saw capitalism (and therefore the market) as necessary evils, rather than inherent goods. It is almost an axiom of modern debate that free exchange encourages and demands selfishness, whereas people were kinder and gentler before their lives were commercialised, that putting a price on everything has fragmented society and cheapened souls. Perhaps this lies behind the extraordinarily widespread view that commerce is immoral, lucre filthy and that modern people are good despite being enmeshed in markets rather than because of it – a view that can be heard from almost any Anglican pulpit at any time. ‘Marx long ago observed the way in which unbridled capitalism became a kind of mythology, ascribing reality, power and agency to things that had no life in themselves,’ said the Archbishop of Canterbury in 2008.

Like biological evolution, the market is a bottom-up world with nobody in charge. As the Australian economist Peter Saunders argues, ‘Nobody planned the global capitalist system, nobody runs it, and nobody really comprehends it. This particularly offends intellectuals, for capitalism renders them redundant. It gets on perfectly well without them.’ There is nothing new about this. The intelligentsia has disdained commerce throughout Western history. Homer and Isaiah despised traders. St Paul, St Thomas Aquinas and Martin Luther all considered usury a sin. Shakespeare could not bring himself to make the persecuted Shylock a hero. Of 1900, Brink Lindsey writes: ‘Many of the brightest minds of the age mistook the engine of eventual mass deliverance – the competitive market system – for the chief bulwark of domination and oppression.’ Economists like Thorstein Veblen longed to replace the profit motive with a combination of public-spiritedness and centralised government decision-taking. In the 1880s Arnold Toynbee, lecturing working men on the English industrial revolution which had so enriched them, castigated free enterprise capitalism as a ‘world of gold-seeking animals, stripped of every human affection’ and ‘less real than the island of Lilliput’. In 2009 Adam Phillips and Barbara Taylor argued that ‘capitalism is no system for the kind-hearted. Even its devotees acknowledge this while insisting that, however tawdry capitalist motives may be, the results are socially beneficial.’ As the British politician Lord Taverne puts it, speaking of himself: ‘a classical education teaches you to despise the wealth it prevents you from earning.’

But both the premise and the conclusion are wrong. The notion that the market is a necessary evil, which allows people to be wealthy enough to offset its corrosive drawbacks, is wide of the mark. In market societies, if you get a reputation for unfairness, people will not deal with you. In places where traditional, honour-based feudal societies gave way to commercial, prudence-based economies – say, Italy in 1400, Scotland in 1700, Japan in 1945 – the effect is civilising, not coarsening. When John Padgett at the University of Chicago compiled data on the commercial revolution in fourteenth-century Florence, he found that far from self-interest increasing, it withered, as a system of ‘reciprocal credit’ emerged in which business partners gradually extended more and more trust and support to each other. There was a ‘trust explosion’. ‘Wherever the ways of man are gentle, there is commerce, and wherever there is commerce, the ways of men are gentle,’ observed Charles, Baron de Montesquieu. Voltaire pointed out that people who would otherwise have tried to kill each other for worshipping the wrong god were civil when they met on the floor of the Exchange in London. David Hume thought commerce ‘rather favourable to liberty, and has a natural tendency to preserve, if not produce a free government’ and that ‘nothing is more favourable to the rise of politeness and learning, than a number of neighbouring and independent states, connected together by commerce and policy’. It dawned on Victorians such as John Stuart Mill that a rule of Rothschilds and Barings was proving rather more pleasant than one of Bonapartes and Habsburgs, that prudence might be a less bloody virtue than courage or honour or faith. (Courage, honour and faith will always make better fiction.) True, there was always a Rousseau or a Marx to carp, and a Ruskin or a Goethe to scoff, but it was possible to wonder, with Voltaire and Hume, if commercial behaviour might make people more moral.

Coercion is the opposite of freedom

Perhaps Adam Smith was right, that in turning strangers into honorary friends, exchange can transmute base self-interest into general benevolence. The rapid commercialisation of lives since 1800 has coincided with an extraordinary improvement in human sensibility compared with previous centuries, and the process began in the most commercial nations, Holland and England. Unimaginable cruelty was commonplace in the precommercial world: execution was a spectator sport, mutilation a routine punishment, human sacrifice a futile tragedy and animal torture a popular entertainment. The nineteenth century, when industrial capitalism drew so many people into dependence on the market, was a time when slavery, child labour and pastimes like fox tossing and cock fighting became unacceptable. The late twentieth century, when life became still more commercialised, was a time when racism, sexism and child molesting became unacceptable. In between, when capitalism gave way to various forms of state-directed totalitarianism and their pale imitators, such virtues were noticeable by their retreat – while faith and courage revived. The twenty-first century, when commercialisation has so far continued to spread, is already a time when battery farming and unilaterally declaring war have just about become unacceptable. Random violence makes the news precisely because it is so rare; routine kindness does not make the news precisely because it is so commonplace. Charitable giving has been growing faster than the economy as a whole in recent decades. The internet reverberates with people sharing tips for free.

Of course, these trends could be nothing more than coincidence: we happen to be becoming nicer as we become more irretrievably dependent on markets and free enterprise. But I do not think so. It was the ‘nation of shopkeepers’ that first worried about abolishing slave trading, emancipating Catholics and feeding the poor. Just as it was the nouveau riche merchants, with names like Wedgwood and Wilberforce, who financed and led the anti-slavery movement before and after 1800, while the old county money looked on with indifference, so today it is the new money of entrepreneurs and actors that funds compassion for people, pets and planets. There is a direct link between commerce and virtue. ‘Far from being a vice,’ says Eamonn Butler, ‘the market system makes self interest into something thoroughly virtuous.’ This is the extraordinary feature of markets: just as they can turn many individually irrational individuals into a collectively rational outcome, so they can turn many individually selfish motives into a collectively kind result.

For instance, as evolutionary psychologists confirm, sometimes the motivation behind conspicuous displays of virtue by the very rich are far from pure. When shown a photograph of an attractive man and asked to write a story about an ideal date with him, a woman will say she is prepared to spend time on conspicuous pro-social volunteering. By contrast, a woman shown a photograph of a street scene and asked to write about ideal weather for being there, shows no such sudden urge to philanthropy. (A man in the same ‘mating-primed’ condition will want to spend more on conspicuous luxuries, or on heroic acts.) That Charles Darwin’s wealthy spinster aunt Sarah Wedgwood’s funding of the anti-slavery movement (she was the movement’s biggest donor) may have a hint of unconscious sexual motives, is a charming surprise. But it does not detract from the good she did, or from the fact that commerce paid for that good.

This applies among the poor as well as the rich. The working poor give a much higher proportion of their income to good causes than the rich do, and crucially they give three times as much as people on welfare do. As Michael Shermer comments, ‘Poverty is not a barrier to charity, but welfare is.’ Those of libertarian bent often prove more generous than those of a socialist persuasion: where the socialist feels that it is government’s job to look after the poor using taxes, libertarians think it is their duty. I am not saying that the market is the only source of charity. Clearly not: religion and community provide much motivation to philanthropy too. But the idea that the market destroys charity by teaching selfishness is plainly wide of the mark. When the market economy booms so does philanthropy. Ask Warren Buffett and Bill Gates.

It is not just cruelty and indifference to the disadvantaged that have retreated with the spread of the collective brain. So has illiteracy and ill health. So has crime: your chances of being murdered have fallen steadily since the seventeenth century in every European country, but once again beginning with the trade-mad Holland and England. Murder was ten times as common before the industrial revolution in Europe, per head of population, as it is today. The fall in crime rates turned into a plummet at the turn of the twenty-first century – and use of illegal drugs fell too. So has pollution, which was far worse under communist regimes than in the free-market, democratic West. There is now a pretty well established rule of thumb (known as the environmental Kuznets curve) that when per capita income reaches about $4,000, people demand a clean-up of their local streams and air. Universal access to education came about during a time when Western societies were unusually devoted to free enterprise. Flexible working hours, occupational pensions, safety at work – all of these improved in the postwar West because people were enriching themselves and demanding higher standards, as much as because higher standards were imposed on recalcitrant firms by saintly politicians; the decline in workplace accidents was just as steep before the occupational safety and health act as after it. Again, some of these trends might have happened anyway, without the commercialisation of life, but don’t bet on it. The taxes that paid for sewers were generated by commerce.

Commerce is good for minorities, too. If you don’t like the outcome of an election you have to lump it; if you don’t like your hairdresser, you can find another. Political decisions are by definition monopolistic, disenfranchising and despotically majoritarian; markets are good at supplying minority needs. The other day I bought a device for attaching a fly-fishing rod to my car. How long would I have had to wait in 1970s Leningrad before some central planner had the bright idea of supplying such a trivial need? The market found it. Moreover, thanks to the internet, the economy is getting better and better at meeting the desires of minorities. Because the very few people in the world who need fishing rod attachments or books on fourteenth-century suicide can now find suppliers on the web, niches are thriving. The ‘long tail’ of the distribution – the very many products that are each wanted by very few, rather than vice versa – can be serviced more and more easily.

Freedom itself owes much to commerce. The great drive to universal suffrage, religious tolerance and female emancipation began with pragmatic enthusiasts for free enterprise, like Ben Franklin, and was pressed forward by the urban bourgeoisie as a response to economic growth. Right into the twentieth century tsars and general secretaries found it an awful lot easier to dictate a tyranny of peasants than a demos of bourgeois consumers. Parliamentary reform began in Britain in the 1830s because of the grotesque under-representation of the growing manufacturing towns. Even Marx was subsidised by Engels’s father’s textile mill. It was the now-unfashionable philosopher Herbert Spencer who insisted that freedom would increase along with commerce. ‘My aim,’ he wrote in 1842 (anticipating John Stuart Mill by nine years), ‘is the liberty of each limited alone by the like liberty of all.’ Yet he foresaw that the battle to persuade leaders not to believe in coercion was far from over: ‘Though we no longer coerce men for their spiritual good, we still think ourselves called upon to coerce them for their material good: not seeing that the one is as unwarrantable as the other.’ The inherent illiberalism of the bureaucracy, not to mention its tendency to corruption and extravagance, was a threat Spencer warned against in vain.

A century later, the gradual dismantling of apartheid and segregation was helped by commercialisation, too. The American civil rights movement drew its strength partly from a great economic migration. More African-Americans left the South between 1940 and 1970 than Poles, Jews, Italians or Irish had arrived in America as immigrants during their great migrations. Lured by better jobs or displaced by mechanical cotton pickers, black share-croppers came to the cities of the industrial North and began to discover their economic and political voice. They then began to challenge the system of prejudice and discrimination they had left behind. The first victory along that road was an exercise in consumer power – the Montgomery bus boycott of 1955–6.

The sexual and political liberation of women in the 1960s followed directly their domestic liberation from the kitchen by labour-saving electrical machinery. Lower-class women had always worked for wages – tilling in fields, sewing in sweatshops, serving in parlours. Among the upper-middle classes, though, it was a badge of rank, handed down from the feudal past, to be or to have a non-working (or at least housekeeping) wife. In the 1950s many suburban men, returning from war, found they too could afford such an accessory, and many women were pressured into giving their battleship-welding jobs back to men. In the absence of economic change, that is probably how it would have stayed, but soon the opportunities to work outside the home grew as the time spent on increasingly mechanised housework dwindled, and it was this, as much as any political awakening, that enabled the feminist movement to gain traction in the 1960s.

The lesson of the last two centuries is that liberty and welfare march hand in hand with prosperity and trade. Countries that lose their liberty to tyrants today, through military coups, are generally experiencing falling per capita income at an average rate of 1.4 per cent at the time – just as it was falling per capita income that helped turn Russia, Germany and Japan into dictatorships between the two world wars. One of the great puzzles of history is why this did not happen in America in the 1930s, where on the whole pluralism and tolerance not only survived the severe economic shocks of the 1930s, but thrived. Perhaps it nearly did happen: Father Coughlin tried, and had Roosevelt been more ambitious or the constitution weaker, who knows where the New Deal might have led? Perhaps some democracies were just strong enough for their values to survive. Today there is much argument about whether democracy is necessary for growth, China seeming to prove that it is not. But there can be little doubt that China would – indeed may yet – see either more revolution or more repression if its growth rate were to fall to nothing.

I am happy to cheer, with Deirdre McCloskey: ‘Hurrah for late twentieth-century enrichment and democratisation. Hurrah for birth control and the civil rights movement. Arise ye wretched of the earth’. Interdependence through the market made these things possible. Politically, as Brink Lindsey has diagnosed, the coincidence of wealth with toleration has led to the bizarre paradox of a conservative movement that embraces economic change but hates its social consequences and a liberal movement that loves the social consequences but hates the economic source from which they come. ‘One side denounced capitalism but gobbled up its fruits; the other cursed the fruits while defending the system that bore them.’

Contrary to the cartoon, it was commerce that freed people from narrow materialism, that gave them the chance to be different. Much as the intelligentsia continued to despise the suburbs, it was there that tolerance and community and voluntary organisation and peace between the classes flourished; it was there that the refugees from cramped tenements and tedious farms became rights-conscious consumers – and parents of hippies. For it was in the suburbs that the young, seizing their economic independence, did something other than meekly follow father and mother’s advice. By the late 1950s, teenagers were earning as much as whole families had in the early 1940s. It was this prosperity that made Presley, Ginsberg, Kerouac, Brando and Dean resonate. It was the mass affluence of the 1960s (and the trust funds it generated) that made possible the dream of free-love communes. Just as material progress subverts the economic order, so it also subverts the social order – ask Osama bin Laden, the ultimate spoilt rich kid.

The corporate monster

Yet for all the liberating effects of commerce, most modern commentators see a far greater threat to human freedom from the power of corporations that free markets inevitably throw up. The fashionable cultural critic sees himself or herself as David slinging stones at vast, corrupt and dehumanising Goliath-like corporations that punish, pollute and profiteer with impunity. To my knowledge, no large company has yet featured in a Hollywood movie without its boss embarking on a sinister plot to kill people (in the latest one I watched, Tilda Swinton somewhat predictably tried to kill George Clooney for exposing her company’s poisoning of people with pesticides). I hold no brief for large corporations, whose inefficiencies, complacencies and anti-competitive tendencies often drive me as crazy as the next man. Like Milton Friedman, I notice that ‘business corporations in general are not defenders of free enterprise. On the contrary, they are one of the chief sources of danger.’ They are addicted to corporate welfare, they love regulations that erect barriers to entry to their small competitors, they yearn for monopoly and they grow flabby and inefficient with age.

But I detect that the criticism is increasingly out of date, and that large corporations are ever more vulnerable to their nimbler competitors in the modern world – or would be if they were not granted special privileges by the state. Most big firms are actually becoming frail, fragile and frightened – of the press, of pressure groups, of government, of their customers. So they should be. Given how frequently they vanish – by take-over or bankruptcy – this is hardly surprising. Coca-Cola may wish its customers were ‘serfs under feudal brandlords’, in the words of one critic, but look what happened to New Coke. Shell may have tried to dump an oil-storage device in the deep sea in 1995, but a whiff of consumer boycott and it changed its mind. Exxon may have famously stood out from the consensus by funding scepticism of climate change (while Enron funded climate alarmism

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