Sapiens: A Brief History of Humankind

That’s why many cultures concluded that making bundles of money was sinful. As Jesus said, ‘It is easier for a camel to pass through the eye of a needle than for a rich man to enter into the kingdom of God’ (Matthew 19:24). If the pie is static, and I have a big part of it, then I must have taken somebody else’s slice. The rich were obliged to do penance for their evil deeds by giving some of their surplus wealth to charity.

The Entrepreneur’s Dilemma

If the global pie stayed the same size, there was no margin for credit. Credit is the difference between today’s pie and tomorrows pie. If the pie stays the same, why extend credit? It would be an unacceptable risk unless you believed that the baker or king asking for your money might be able to steal a slice from a competitor. So it was hard to get a loan in the premodern world, and when you got one it was usually small, short-term, and subject to high interest rates. Upstart entrepreneurs thus found it difficult to open new bakeries and great kings who wanted to build palaces or wage wars had no choice but to raise the necessary funds through high taxes and tariffs.

The Magic Circle of the Modern Economy

That was fine for kings (as long as their subjects remained docile), but a scullery maid who had a great idea for a bakery and wanted to move up in the world generally could only dream of wealth while scrubbing down the royal kitchens floors.

It was lose-lose. Because credit was limited, people had trouble financing new businesses. Because there were few new businesses, the economy did not grow. Because it did not grow, people assumed it never would, and those who had capital were wary of extending credit. The expectation of stagnation fulfilled itself.

A Growing Pie

Then came the Scientific Revolution and the idea of progress. The idea of progress is built on the notion that if we admit our ignorance and invest resources in research, things can improve. This idea was soon translated into economic terms. Whoever believes in progress believes that geographical discoveries, technological inventions and organisational developments can increase the sum total of human production, trade and wealth. New trade routes in the Atlantic could flourish without ruining old routes in the Indian Ocean. New goods could be produced without reducing the production of old ones. For instance, one could open a new bakery specialising in chocolate cakes and croissants without causing bakeries specialising in bread to go bust. Everybody would simply develop new tastes and eat more. I can be wealthy without your becoming poor; I can be obese without your dying of hunger. The entire global pie can grow.

Over the last 500 years the idea of progress convinced people to put more and more trust in the future. This trust created credit; credit brought real economic growth; and growth strengthened the trust in the future and opened the way for even more credit. It didn’t happen overnight – the economy behaved more like a roller coaster than a balloon. But over the long run, with the bumps evened out, the general direction was unmistakable. Today, there is so much credit in the world that governments, business corporations and private individuals easily obtain large, long-term and low-interest loans that far exceed current income.

The Economic History of the World in a Nutshell

The belief in the growing global pie eventually turned revolutionary. In 1776 the Scottish economist Adam Smith published The Wealth of Nations, probably the most important economics manifesto of all time. In the eighth chapter of its first volume, Smith made the following novel argument: when a landlord, a weaver, or a shoemaker has greater profits than he needs to maintain his own family, he uses the surplus to employ more assistants, in order to further increase his profits. The more profits he has, the more assistants he can employ. It follows that an increase in the profits of private entrepreneurs is the basis for the increase in collective wealth and prosperity.

This may not strike you as very original, because we all live in a capitalist world that takes Smith’s argument for granted. We hear variations on this theme every day in the news. Yet Smith’s claim that the selfish human urge to increase private profits is the basis for collective wealth is one of the most revolutionary ideas in human history – revolutionary not just from an economic perspective, but even more so from a moral and political perspective. What Smith says is, in fact, that greed is good, and that by becoming richer I benefit everybody, not just myself. Egoism is altruism.