The Rational Optimist Dissected

Synopsis

Going against the grain of modern media and academic investigation, Matt Ridley approaches the topic of human economic development from a positive, if not an overly optimistic perspective. Searching the course of human economic development (albeit in much lesser detail then Jared Diamond in "Guns, Germs and Steel"); Matt Ridley develops his argument through a detailed analysis of the specialization of labour and the system of exchange that occurs as a result. Using human innovation and ingenuity as the backbone for continued evolution of specializations in labour, Ridley convincingly suggests mankind will continue to develop and prosper well into the future and that despite the pessimistic overtone which has historically dominated the debate and conversation of economic development, the facts don't lie. Since the dawn of fire, to the creation of the world wide web and beyond, economic development has, generation after generation, only sought to increase the quality of life and standard of living and has affected every person on the planet. 

Specialization of Labour & Trade

A simple example should convey the fundamental underpinnings of the economic theory. Tom makes fish hooks. He can make 10 hooks every hour, but only catch 3 fish in the same hour. Fred is a fisherman, he can catch 5 fish in the same hour, but only makes 5 fish hooks. If both men were to split their days engaging both occupations, they would be losing the potential for surplus. Conversely, if each man specialized in each craft than proceeded to trade or exchange with each other, they will be better utilizing their time and expertise.  The sheer act of specializing in one occupation, and trading for an item in the other will allow each man the time to compile surplus value for their labour. This in turn would allow for more downtime for each individual to specialize in another craft. 

The problem arises when establishing a fair market value for each product. As Ridley points out, the very nature of exchange/trade or barter is inherently unfair, "a fact lost on most of humanity". The reason for this lies in the essence of trade itself. The fact is "you will be trading 1 thing you like, for something you like slightly more". 

The Silk Trade Route

Hence, both parties in any exchange believe they are getting the better deal. When the Spanish traded with the Native American's upon discovery of the New World, both civilizations thought the other overvalued  what they were trading (Spanish traded weapons, food, domesticated horses, etc.... whilst the natives traded Gold, silver, iron etc...). Or take the silk trade Europe had opened with China in the medieval ages shortly after the Marco-Polo expedition. In each case both trading partners believed they were trading from positions of strength and making up for local shortfalls. But without knowing the application(s) of the resources traded away, it would be impossible to begin to establish a fair value. (The Chinese cannot put a value on silk traded to the Europeans, outside of the domestic or known value it had in China. Similarly the Native ignorance to contemporary metal workings forced them to undervalue the gold and silver traded to the Spanish). 

After some careful analysis, I believe Ridley leaves out a crucial aspect of exchange. Only through a shared experience and/or similar level of education, can a buyer and seller (or seller and seller) establish an exclusive value for the medium of exchange. Trading gold for lumber may make sense for a civilization desperate for the latter. But, how much (price point) gold should purchase how much lumber? Modern economists will argue that the market exists for exactly this reason. That the market can level a global average or basket of items to arrive at a comparable solution. However, this theory only holds if all members of the market are equally educated and equally knowledgeable about the full extent of resources traded. As discussed below, modern market forces are much more susceptible to external marketing and pricing factors then ever before. These factors artificially price products, resources and commodities unfairly, even before a buyer or seller get together. 

If Tom never goes fishing with Fred (or takes fishing 101) to understand that Fred will probably lose 4 hooks stuck in rocks; 2 hooks will be lost in bad weather and only 1 of the remaining 4 hooks will catch a fish, than Tom cannot put a value on how many hooks he should trade with Fred to acquire 1 fish.(Remembering that Tom now depends on Fred for fish every week; and Fred on Tom for the means to catch them.) It's a mutual exchange with mutual benefits in this naive, and simple example. 

But if left in isolation, civilizations and individuals alike will eventually stagnate (or slow the rate of innovation). The applications for most resources tend to diminish as the finished products of those resources become obsolete and production techniques become more efficient. This the heart of modern economic development.

That is why the media and academic are so intrigued the number of engineers and scientist on the planet today. The multiplying force of that many innovators is surely have a very positive affect on human development. (In essence, every person is an engineer, seeking new and improved methods to increase their standard of living from the previous generation). 

Economic Development & Efficiency

The modern car uses 20% the amount of aluminium and metal then a car manufactured in 1950s. The modern television no longer uses wood. The list of items which have been innovated upon is only limited to the creative imagination of  the collective human experience, which in essence is infinite. Of course it is true that some products simply transform to employ different resources. The iPod replaced the Walkman. The DVD replaced the VCR. It is important to note, that when most products are innovated upon, they tend to use less, not more, resources to create a higher quality product. This analysis can be used to almost every product developed in the 19th and 20th century. The steam engine, the automobile, the light bulb, the coal powered locomotive, the television, lamp, computer the list is endless. There was a time when some analyst argued "computers will never find a  place in the average home". It was simply to large and expensive a machine to be widely distributed. However, innovation after innovation quickly changed this perspective.  

Pessimists have historically argued that a shortage of one resource or another is imminent, arguably the 1st market speculators and the birth of modern price manipulation. The psychology of future market shortages drastically affect the current market value of any item. Food has historically dominated this conversation, but energy, minerals and water are not far behind. The "end of oil" has been predicted since the first "gusher" was found and The Drake Oil well discovered in Pennsylvania in the latter half of the 19th century. We have yet to run out of oil, and with technological improvements industry wide, it appears to more then likely, the human development experiment will continue to evolve on an oil based energy infrastructure well into the next century at the very least (Current growth predictions accounted for.) 

Oil, Energy & Environmentalism

I will say that "The Rational Optimist" ferments a very compelling argument that oil is the most environmentally friendly source of energy humanity has yet to discovery. (Modern "green sources"; still in infancy stage of development notwithstanding).







Modernity and the Future: 

It is a fool's errand predicting what might be. But after careful consideration I agree with Ridley's premise that human evolution will continue well into the future. After peering into the psychological framework that is humanity, Ridley concludes that the transmission of ideas as a result of the internet will exponentially increases humanities potential and ability to develop a global civilization capable of feeding, educating and developing the lower classes of civilization and propelling them into the middle class. A civilization capable of feeding the estimated 9 Billion people that will be roaming our planet by 2050, according to recent UN projections. And more importantly, multiple sources have agreed (the US intelligence community among the latest as of this writing) that over the course of the next 40 years, the global percentage of people living in  poverty could be virtually eliminated. Yip, you heard that right, eliminated. Of course any study of this size and importance will be highly controversial. But if history is any indicator, humanity will rise to the challenge and even surprise itself along the way. The population of the planet has more than doubled since 1960 from three billion to almost seven according to the World Bank. During that same period, the world has reduced the amount of people that live in poverty by a drastic, almost impossible amount. If you would have told experts in 1960, that the global population would balloon to seven billion by 2010, you would certainly have been encountered by the pessimists doomsayers. Moreover, if you went so far as to say that humanity would excel in almost all fields during that time, that we would reduce the amount of people living on less then 2$ per day and that more people then ever would join the middle class and enjoy a standard of living higher then any King or Queen in history (modern monarchs aside); well you would have been thrown out of every academic position on the planet. Keeping in mind this would have been pronounced at the height of the Cold War.   

Rating:

Whoever says don't judge a book by it's cover has never read this book. The Rational Optimist delivers exact what is on the front page. A scholar prepared to go against the grain of history with a positive spin on past, present and future economic, environmental and sociological development. Suggesting that the fundamental driver behind human evolution was and continues to be humanities ability to trade items as a result of the division of specialized labour was a phenomenal take on an age old idea.  3.8/5.