Ridley: We owe our prosperity to 2 men from Glasgow

Hi rational optimist. A special treat for you today: a new Matt Ridley essay that traces mankind's prosperity back to 2 Scottish men from 1776. Enjoy.

A quarter of a millennium ago, the world was changed by two men from Glasgow. In the spring of 1776, Adam Smith, a former professor of philosophy at Glasgow University, published “The Wealth of Nations,” his extraordinary book about how prosperity is mostly a spontaneous phenomenon deriving from the human habit of exchange and specialisation.

The very same week, James Watt, who had worked as an instrument maker in a workshop at Glasgow University, unveiled his first commercially successful steam engine, a machine that revolutionised the application of steam power by its use of a separate condenser.

There is a vital connection between these two events that is often missed. Both breakthroughs were necessary for the great enrichment that followed in the next two centuries: the unprecedented transformation of human living standards that has left us today with a global population that is larger, longer-lived, healthier and much less poor than any preceding human generation.

Why Glasgow? Something special was happening there in the 1700s, despite Scotland being a backward country still reeling from the ruination of the Darien fiasco in 1700, the devastation of the Jacobite rebellion in 1745 and the humiliation of the English pacification that followed.

Yet by mid-century Glasgow had become Europe’s fastest-growing city, a free port through which tobacco poured in from the Americas, enriching merchants and spilling money into culture, art and learning. Even to the point of the university hiring a technician from Greenock called James Watt.

(Meanwhile, Scotland’s experiment with free banking was working well, better than England’s reliance on a central bank. Scotland easily survived the crash of the Ayr Bank in 1772, which caused the East India Company to dump tea in America to clear its debts, which in turn led to the American Revolution—but that’s mostly another story.)

Fuelled by freedom and funding from trade, from the 1750s Scots philosophers switched on an enlightenment that would change the world.

The central theme was spontaneous order: that morality, prosperity, language and social behaviour can emerge spontaneously from within human nature and human society without necessarily being commanded by the state, the sovereign or the priest.

David Hume pioneered naturalistic explanations of moral phenomena, undermining the need for reliance on an all-seeing Creator.

Adam Ferguson explored the idea that there are things that are “the result of human action but not the execution of any human design,” such as language, a man-made device of intricate complexity yet with no designer or enforcer.

Francis Hutcheson stressed the benevolent side of human nature, against the bleak view of Thomas Hobbes, and was a significant influence on his student Adam Smith, but also on John Adams and Thomas Jefferson.

And Adam Smith explained why we human beings are different from rocks and rabbits in that we experience something called economic growth or prosperity. It all comes down, he said, to the human obsession with “truck, barter and exchange.” Other animals lack this instinct: “No man ever saw a dog make fair and deliberate exchange of a bone with another dog.”

From this habit flows the way we specialise and work for each other, generating a non-zero-sum alchemy that delivers incremental and unlimited flourishing through innovation. In specialising we seek ways to improve our efficiency. In exchanging we bring together insights from different people. Ideas have sex and make baby ideas.

As an example of how such innovation comes, bottom-up, from ordinary people, Smith told a story of a boy whose boring, repetitive job was to control a valve in a Newcomen steam engine, opening and closing the link between the boiler and the cylinder at the right moments in the cycle. The boy, 

“who loved to play with his companions, observed that, by tying a string from the handle of the valve which opened this communication to another part of the machine, the valve would open and shut without his assistance, and leave him at liberty to divert himself with his playfellows. One of the greatest improvements that has been made upon this machine, since it was first invented, was in this manner the discovery of a boy who wanted to save his own labour.” 

Ah, steam engines. It is my contention that Smithian innovation alone could not have delivered the Industrial Revolution and all that followed without something else entirely. Exchange and specialisation were necessary but not sufficient.

Freedom to specialise and exchange had helped previous civilisations—in Ashokan India, ancient Greece, Abbasid Arabia, Song China, Renaissance Italy, the Netherlands of the golden age—to generate great wealth and fine culture but only for a few.

Why? The answer lies in the fact that the pre-industrial economy relied on two wholly distinct forms of energy: heat and work. Heat came from wood or coal; work came from wind, water, oxen, horses and people. Nobody dreamed the two were linked in any way.

And the pre-industrial ways of doing work had a fundamental problem: they all had a low ratio of energy return on energy invested. A lot of work had to go into building the mills or growing the crops that fed the animals and people that then did the work. The margin left over was slim.

A typical medieval farm harvested just three or four grains of wheat or oats for every seed sown, less in a bad year. Most of the population therefore had to work on generating the small surplus of energy that enabled a few barons and bishops to live in luxury and build castles and cathedrals. To put it another way, the only way to be rich was to have lots of poor people working for you.

Along came Thomas Newcomen in 1712 and then James Watt in 1776 and changed all that. Steam engines burned coal to boil water and used the pressure of steam to drive pistons and turn wheels: heat was now doing work. The two forms of energy were linked for the first time. Machines could massively amplify the productivity of working people; flywheels could power textile looms; locomotives could apply immense quantities of “horsepower.” By 1850 an average coal miner in Britain was producing 100 times as much energy as an average farmer.

As my friend Professor John Constable insists, the economy is a thermodynamic phenomenon. It creates useful but improbable arrangements of atoms and electrons by applying energy to purposeful rearrangement of the world. It is, in Douglas Adams’s fanciful phrase, an “infinite improbability drive.”

Today nearly all the work done in the world (over 90%) is driven by heat. The turbines that generate power that light your house are just sophisticated kettles, whether heated by coal, gas or nuclear fission. They are direct descendants of the kettle whose rattling lid gave Watt his (probably apocryphal) eureka moment. So are the turbines that drive planes through the air. Internal combustion engines work on the same basic principle: using heat to do work.

Watt’s cheap energy combined with Smith’s freedom to exchange were what made Britain great. Not empire or government. “The cheap energy economy was the foundation of Britain’s economic success,” writes Robert Allen in his book The British Industrial Revolution in Global Perspective.

Prosperity means reducing the time cost of fulfilling people’s needs so they have to work fewer hours to satisfy each want. That requires abundant, affordable energy. When the late eco-pessimist Paul Ehrlich said in 1975 that “giving society cheap, abundant energy at this point would be the moral equivalent of giving an idiot child a machine gun,” he could not have been more wrong.

Yet today while America pursues cheap energy, Britain follows Paul Ehrlich and deliberately makes it expensive by refusing to drill for shale gas and North Sea oil while building massively expensive wind and solar “farms” that have a ratio of energy return on energy invested not much better (once intermittency is taken into account) than medieval wheat farms.

Nations that ignore the lesson of Adam Smith and try to control the economy from above stagnate: Cuba, Venezuela, North Korea.

Nations that ignore the lesson of James Watt and refuse to lower the cost of energy also stagnate: Britain, Germany, Spain.

That is why 1776 matters.

—Matt Ridley