Wednesday, January 25, 2012

How did we get so rich?

Adam Smith famously asked:  Why are some nations wealthier than others?  Almost 250 years later, the discussion continues. Robert Lucas added, “Once you start thinking about economic growth, it’s hard to think about anything else.”  By all means.  How did we (in the West) get so rich?  Steven Landsburg put it this way:
Modern humans first emerged about 100,000 years ago. For the next 99,800 years or so, nothing happened. Well, not quite nothing. There were wars, political intrigue, the invention or agriculture – but none of that stuff had much effect on the quality of people’s lives.  Almost everyone lived on the modern equivalent of $400 to $600 a year, just above the subsistence level.  True there were always aristocracies who lived far better, but numerically, they were quite insignificant …  (WSJ, Jun 9, 2007)

The topic has preoccupied many smart people for many years. Niall Ferguson helpfully boiled it down to his famous “six killer apps”:

·         Competition – political (between states) as well as economic

·         Science – a way of studying and learning

·         Property rights – the rule of law

·         Medicine – the science that made health and life possible

·         The consumer society – the source of demand

·         The work ethic – a moral and cultural framework
What can we add?  Two things come to mind.  I have previously discussed the role of cities -- and how they become congenial to creativity and entrepreneurial discovery; how their evolving forms support networks that facilitate supply chains – including less formal but essential supply chains for good ideasCreative cities and how they attract and motivate creative people has made urban economics nearly "hot".

But there is always more.  The importance of trust in economic and personal realtionships is clear.  Ferguson does not include it.   In the market, we get widespread branding because buyers and sellers demand a trust relationship, especially if there repeated dealings.

But in this week's econtalk podcast, Russ Roberts' guest, David Rose makes the case for the importance of a much deeper level of trust based on moral principles.  This discussion helped me a lot and I look forward to reading Rose's book.