A pair of very interesting books has appeared this month, examining the two sides of the coin of modern life.
In The Birth of Plenty: How the Prosperity of the Modern World Was Created, William Bernstein seeks the wellsprings of industrial civilization and its accomplishments
In The Company of Strangers: A Natural History of Economic Life, Paul Seabright thoughtfully explores the potential vulnerability of the cooperation on which economic life depends.
Bernstein is a physician in North Bend, Oregon. In the larger world, he is better known as a money manager; indeed, he has been slowly giving up his neurology practice in favor of writing and running no-frills portfolios for a handful of very high net-worth individuals.
He is as well the author of a pair of successful books of a few years back — the best-seller The Four Pillars of Investing, “for the liberal arts audience,” he says, and The Intelligent Asset Allocator for sophisticated investors.
But it is as editor of Efficient Frontier that Bernstein is probably best known. This “online journal of practical asset allocation,” a Web-based quarterly commentary on money management, has a broad and affectionate audience among professionals.
It keeps readers abreast of new developments, burrows deep to investigate extravagant claims, and otherwise maintains a steady narrative of what truly is the Greatest Game — the maddeningly complex sport of trying to out-earn all the others over time.
(Bernstein is no relation to the legendary Peter Bernstein, another money manager/writer who in founded the Journal of Portfolio Management more than thirty years ago. But the spirit of his enterprise is similar.)
The Birth of Plenty is an account of Bernstein’s reading of the literature of economic growth and development. It tells a familiar story, different mainly in its emphases from Nathan Rosenberg and L.E. Birdzell Jr.’s 1987 How the West Grew Rich: The Economic Transformation of the Industrial World.
The “plenty” of Bernstein’s title is the familiar litany of the improvements in living standards of the masses since, say, 1820. Increased life expectancies, diminished infant mortality rates, better life-long health, higher education levels, growing immunity to war (at least for most of the human population) and, of course, vastly increased per capita income with which to purchase an expanded array of goods and services — these are some of the yardsticks that he cites.
His aim, he says, is “to uncover the cultural and historical factors that came together in the early 19th century and ignited the great economic takeoff of the modern world,” in hopes of discovering a recipe that will work anywhere it is tried.
He identifies a “four-factor framework” necessary to sustained economic growth, and writes a lively chapter about each of those factors. Property rights, including personal safety (from Sir Edward Coke to Ronald Coase). Scientific institutions, to investigate and make sense of the world (Francis Bacon and all that). Capital markets, to assure that new inventions can be developed (their remarkable evolution from place to place over time). And good transportation and communication systems for people and goods (waterwheels, steam engines, the telegraph and all the rest.)
Then comes a rapid-fire history of prosperity itself: winners (Holland and England), also-rans (Spain, France and Japan) and did-not-plays (the Ottoman Empire and Latin America.) Finally there are several chapters of prescriptions of various sorts.
This isn’t economics, but it is very good reading, one interesting story after another, told by a lively and energetic mind.
Paul Seabright, on the other hand, /is/ an economist, and one of the more peripatetic. Educated at Oxford in the 1980s, he spent the 1990s as Assistant Director of Research at Cambridge University. Since 2000, he has been professor of economics at the University of Toulouse.
He displays in considerable detail the interest in evolutionary biology that has been sweeping economics for a decade or so, especially in the United Kingdom. And he writes beautifully as well. His book is a dazzling display of erudition, loosely patterned on The Wealth of Nations, with literary allusions and anecdotes from his travels scattered throughout.
The first part of The Company of Strangers rehearses that familiar insight that essentially no one is “in charge” of markets. This is, perhaps, as astonishing today as when is was when Adam Smith first pointed out that market order arises spontaneously, “as if arranged by an Invisible Hand.”
So to capture our everyday capacity to trust the world, Seabright introduces the concept of “tunnel vision” — meaning “to play one’s part in the great complex enterprise of creating the prosperity of a modern society without knowing or necessarily caring very much about the overall outcome.”
But he goes a smidgen deeper than this. He asks what is it that permits humans to surmount their hunter-gatherer instincts in order to sustain the kinds of intricate webs of trust that are required to, say, exchange a credit card number for a sack-full of groceries?.
“Human beings ten thousand years ago had inherited a psychology that made them intensely suspicious of strangers and capable of savage violence towards them under some circumstances, but able to benefit spectacularly from institutional arrangements that made it reasonable to treat strangers as honorary friends.”
There follow several really interesting chapters on various mechanisms, both internal and external, that have arisen to facilitate such cooperation — the taste for reciprocity, the institution of money, banking and its various disorders, systems of professional authority.
He then examines other instances of exchange among strangers with a view to identifying and treating some of the undesirable side effects that arise from market activity — in cities, among systems for the provision of water, in auctions of all sorts, non-market institutions such as families and firms, and the community of science that he describes as “a division of labor among generations.”
Seabright is a hard man to follow, for, as well as he writes, he eschews both the conventional unambiguous rhetoric of economics (now mostly mathematical) and many of its standard gambits (the topic of rationality doesn’t come up for extended examination where you would expect it, for example, having been eclipsed by “tunnel vision.”) What place for the propensity to truck and barter if the emphasis is on the system of facial recognition and mimicry that underlies everyday human interaction?
The results are a series of hints, glimpses, promises, exhilarating starts and sudden stops — all rather like watching a familiar landscape illuminated by lightning in the midst of a great thunderstorm and thus finding it newly enchanted.
Reassuringly, many of the institutions that Seabright singles out as being central to trust among human beings are the same as those identified by Bernstein — extensive property rights, for example, beginning with methods of assuring physical safety. He takes matters to a deeper level by examining the cognitive and emotional apparatus that permits us to decide who to trust, and when.
Yet the overall tone of the book is one of foreboding — a fear that “the shy, murderous ape” from who we evolved could re-emerge suddenly, at least locally, without warning. The book ends, not surprisingly, with a chapter about the heightened fear of strangers that has accompanied the threat of terrorism.
And if its nostalgia for the symmetries of the Cold War seems a little misplaced (“Trust grows more naturally between two wolves than between a wolf and a sheep, and no amount of sincere protestation addressed from the wolf to the sheep can alter this melancholy fact”), at least its approach invites our attention to some of the more interesting developments of the post 9/11 world. These are the vast new computer-driven screening and surveillance systems, now in their earliest engineering stages, which are intended to routinely check the bona fides of the legions of our “honorary friends.”
It is difficult to avoid the feeling that it may be premature to attempt to show how economics is changing in response to discoveries in genetics, physiology, anthropology and psychology. The excitement is real. And more than one talented young person will take up social science because of The Company of Strangers. But the chase has barely begun.