I’ve just started reading Matt Ridley’s The Rational Optimist. So far, it is an excellent, through-provoking read. A key to Ridley’s argument is that the innovation of exchange–the trading between two parties of separate items or services that both parties value–that led to mankind’s dominance of the planet and the explosion of knowledge and technology.
Ridley explains how exchange–or barter–is qualitatively different from reciprocity (an activity that can be found in other species):
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.
As I read this it occurred to me that Ridley is likely right, but also that exchange is just as dangerous an activity as it is a transformative one. Why? Because to base one’s existence on exchange means making oneself vulnerable to and dependent on others for what one needs. As Ridley notes, earlier humans were self-sufficient. But moving from self-sufficiency to exchange means trusting others that they will provide what you need and will honor the exchange.
In the present, we take this somewhat for granted. I assume that my local grocer will have the fruits, vegetables, etc, that I need to feed myself and my family. I don’t worry about the possibility that they either won’t have my food or that they will refuse to provide it to me in exchange for the money that I have. But imagine back about 100,000 years ago. At some point, someone had to take a very big leap and become dependent on someone else for what they required for survival.
As a political scientist, my initial reaction is that trust both emerged from repeated interactions with barter partners and was then institutionalized through the emergence of government. Too often government is derided as an impediment to economic growth, but we often forget that without it one is hard pressed to explain sustained progress. A capitalist economic system cannot function without a robust legal system that includes rules for exchange and a system that monitors and enforces violators. How else can a society become so utterly dependent on anonymous, non-local actors to provide that which is crucial for survival? That isn’t to say that government can’t also play a negative role–often it has. But ignoring the positive, necessary role that it plays is quite dangerous in my view. It also requires us to ignore the lessons of history.
I am only up to Chapter 2, and it appears that Ridley will take up this question of how trust emerged in Chapter 3. I’ll be curious to see how he deals with this question and what answer he proposes.
[Cross-posted at Signal/Noise]
1. How could the exchange of goods of essentially equivalent value, become more valuable the more often that equivalences are exchanged? I find that confusing.
2. Why assume that humans were formerly independent and self-sufficient? This seems to be what Marx called the liberal Robinsonade. If anything, I would assume that humans first emerged as complex packs with strong relations of inequality and dependency.
3. I would say that pot-latch is based on trust and is the source of increasing value (see Georges Bataille's The Accursed Share, vol II). Market exchange is based on distrust as it is not atemporal and it does not increase value (unless we begin to talk about exploitation) since the exchange is one of equivalences. The necessity of the state to underwrite contracts (ultimately through coercion if necessary) shows the ultimate distrust on which market exchange is based.
Hey Vikash,
Good questions/points.
1) Not to answer for Ridley, but I would assume he would say the goods are not necessarily equivalent in value. The respective goods may be more valuable to each member of the trade. In some cases, the trade is unbalanced from an outsiders perspective, but that doesn't negate the value. Also, it likely comes back to comparative advantage–I am really good at making spear tips and have access to the necessary inputs, but I can't make the body of the spear, and my trading parter vice-versa. So, we exchange those items of seemingly equal value but are better of for it.
2) I think you are taking the hypothetical too literal–the bigger point is that small, familial groups had an internal division of labor but were independent from outsiders. At some point, this began to change and we became increasingly dependent on an even greater number of “outsiders”.
3) How are you defining trust? Trust is nothing more than the expectation that another party will keep their promise–whether that is the result of the goodness of their heart or because the state creates a powerful incentive for them to do so it leads to the same end.
Bill, Hi. Let me see if I can clarify/push a bit further on your responses…
1) Let's set aside comparative advantage because that is a separate stage. Also I don't want to bring in Smith because for him the propensity to truck and barter is a part of human nature much like Hobbes' core assumption that some men desire power after power that ceaseth only in death. Human nature assumptions are the soft core of a theoretical paradigm and cannot be fruitfully challenged. But Ridley is not arguing on the basis of human nature, so I think we can push him. If objects are exchanged by free and rational actors they must be of equal value, otherwise why would one part with their good for another of lesser value? Value cannot come from the exchange. An exchange is a negation or an equivalence. If it is not an equivalence than it could be a tribute or a pot latch but that is not what the author wants to argue.
2. Maybe I am being too literal but liberal arguments are built up from “common sense” assumptions, so it is important to quibble at the beginning before the whole edifice is constructed. So, I am not sure I would buy the idea of discrete family units in pre-neolithic societies. I would assume groups of interrelated clans would be more likely. In other words, I would assume that we begin as interrelated units and it is the market (plus the state) that makes us into discrete and atomized individuals or nuclear families. In other words, I don't see why we would assume the discrete family unit exists apriori.
3. Trust that (ultimately) relies on state coercion is not trust at all. Exchange which is contingent on coercion is based on fear and negative sanctions; fear is not trust. Weber argued that generalized trust emerges not through the market but through religious sects which act to pre-certify the moral rectitude of its members. Even today, some of the most complex transactions that cannot or are not backed by the state are conducted between members of small religious sects (e.g. the diamond trade).
I should also add that in the Smithian system trust also does not emerge through the market. For Smith (at least the Smith of the Theory of Moral Sentiments) it comes about through mutual ocular surveillance that comes to be internalized by the individual…
I'd guess that trade started with non-essentials- luxury items, fancy clothes or utensils, art, etc. And after trading relationships were established, then some ceding of producing essentials was granted to others.
Just a couple of thoughts given the back-and-forth (sort of correspond to 2) and 3) in the commentary).
1) I'm not sure we need to go back 100,000 years or even 1 year to find a case of a human being that is dependent on someone else for survival–well, at least, food. During what is known as the 'lean season' in governmental parlance in Ghana, individuals may very much be dependent on someone else for their 'food security'.
I think the point that can be made is that the shift from 'recognizing dependency'/'market may not work today' to 'taking the operation of markets for granted' occurs for some populations and not others—and we see this in the world today.
2) I suppose I am more comfortable with saying that 'social practices' or 'rituals' are necessary for exchange to develop. Whether or not they represent or amount to or require 'trust'… I'm not sure they do, particularly if it is defined in terms of an expectation. Lots of rituals are carried out unreflexively–there are no expectations, just the action, whether it is exchange of currency for goods, a handshake, etc. It seems as if people only talk about 'expectations' when there is discord, not in the moment.
Hope that makes sense.
-Jason