Matt Ridley’s wisdom on trust and trade 

In 1834, Charles Darwin encountered a group of natives in Tierra del Fuego, at the southern tip of South America. Although both parties were unable to understand each other’s language, they were nevertheless able to conduct a simple trade: a large nail from Darwin in exchange for two fish from the natives. This trade, described in Matt Ridley’s The Rational Optimist: How Prosperity Evolves, helps to convey the universality of trade as a means for achieving mutually beneficial ends. 

One of the key elements necessary for a trade relationship is trust. According to Ridley in The Rational Optimist, it is plausible that “human beings began tentatively to trade, capturing the benefits of comparative advantage and collective brains, which in turn encouraged natural selection to favour [sic] mutant forms of the human mind that were especially capable of trust and empathy.” As humans evolved to become more trusting of others, their willingness to trade also increased. One result of trade is increased specialization, which leads to prosperity and material wellbeing. 

Today, many internet-based trading sites, such as eBay and Amazon, rely on numerical and written reviews of sellers created by users to rate trustworthiness. This crowdsourcing of trust has allowed other businesses to prosper, such as ridesharing services, where driver trust and reliability is paramount. This was impossible to ascertain before consumers were empowered to rate their drivers and leave feedback. 

Additionally, it is easier now than ever before to verify the quality of a product. Ridley points out that, in today’s economy, it would be ridiculous to check if a toothpaste tube from a well-known grocery store is filled with water, because customers can rely on the fact that if the tube was filled with water, the shop would suffer from legal backlash and customer fallout. This is a great example of rational trust: trust based on evidence and reasoning. This allows for positive market interactions with much less fear of fraud or deception. 

The ultimate product of trust-based trade was the invention of currency. After all, a hundred-dollar bill or a small copper coin has very little practical use if considered in a vacuum, but when people collectively agree that a bill or coin has value it instantly becomes a useful mechanism for multilateral trade. Even better, monopoly powers are not necessary for inducing such a collective agreement. In another one of his books, The Evolution of Everything: How New Ideas Emerge, Ridley describes “the Scottish experiment,” in which Scotland had a self-regulating monetary system between 1716 and 1844. In 1695, the Bank of Scotland was the only bank in Scotland with the power to issue money, but over the next few decades, Scotland began to allow private banks to enter the industry and issue their own currencies. Even with many competing banks, the Scottish free banking system thrived for more than a century. Over that period, there “were half as many bank failures in Scotland as in England, and they all paid their losses in full.” 

Banking and trade work remarkably well when people are left to make their own judgments on who to trust and who to trade with. Free, mutually beneficial exchange has always been a hallmark of a healthy society. Through trade, individuals gain the ability to focus on producing what they are good at and exchange the fruits of their labor for things they want. This process has resulted in extraordinary gains in living conditions and wages. According to Ridley, “the average person alive in the world today earns in a year between ten and twenty times as much money, in real terms, as the average person earned in 1800.” 

The key catalyst for trade is freedom. To successfully execute a trade of any kind, one must be able to create a product, find a party willing to provide something in exchange for the product, and reach agreeable terms so that both parties are satisfied, all before the trade can occur. If any part of this process is impeded by force or coercion, then executing a trade becomes far more difficult, if not impossible. In the US today, private individuals and businesses are bombarded with regulations, controls, taxes, tariffs, and distortions, all of which lead to economic stagnation and reduced incentives to trade with others. To generate innovation, growth, and enterprise, we must allow individuals to exercise their own judgment, trust others, and trade. 

“Just as the Industrial Revolution took the world by surprise because it emerged from thousands of individual fragments of partial knowledge, rather than as a plan, so every innovation to this day is the result of thousands of people exchanging ideas,” writes Ridley. “We can never predict innovation; we can only say that it will mysteriously emerge whenever people are free to exchange.”