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By Root 476 0

reward confiscation and politicking. South and North Korea spring to mind. One is generally a fair and free place, where people are mostly becoming more rich and happy; the other an arbitrary, hungry and cruel place whence people are fleeing as desperate refugees whenever they can. The difference – which results in fifteen times as much prosperity per head for the South – is plainly in the way they are ruled, in their institutions. Later in this book I will argue that the wrong kind of government can be a disastrous long-term impoverishing factor – the Ming empire is my prime example. Zimbabwe today needs better rules before it can have better markets. But note here that a country’s economic freedom predicts its prosperity better than its mineral wealth, education system or infrastructure do. In a sample of 127 countries, the sixty-three with the higher economic freedom had more than four times the income per capita and nearly twice the growth rate of the countries that did not.

A few years ago the World Bank published a study of ‘intangible wealth’ – trying to measure the value of education, the rule of law and other such nebulous things. It simply added up the natural capital (resources, land) and produced capital (tools, property) and measured what was left over to explain each country’s per capita income. It concluded that Americans can draw upon more than ten times as much intangible capital as Mexicans, which explains why a Mexican who crosses the border can quadruple his productivity almost immediately. He has access to smoother institutions, clearer rules, better-educated customers, simpler forms – that sort of thing. ‘Rich countries,’ concluded the Bank, ‘are largely rich because of the skills of their populations and the quality of the institutions supporting economic activity.’ In some countries, intangible capital may be minute or even negative. Nigeria, for example, scores so low on the rule of law, education and the probity of its public institutions that even its immense oil reserves have failed to enrich it.

So perhaps I am wrong to seek the flywheel of human progress in the gradual development of exchange and specialisation. Perhaps they are symptoms, not causes, and it was the invention of institutions and rules that then made exchange possible. The rule against revenge killing, for example, must have greatly helped society to settle down. It must have been quite a breakthrough to say that ‘do unto others’ applies only to charity, not to homicide, and that handing the matter of revenge over to the state to pursue on your behalf through due process would be of general benefit to all. Both Orestes and Romeo and Juliet (and The Godfather and Dirty Harry, for that matter) capture societies in the act of wrestling with the issue: all can agree that the rule of law is better than the rule of reciprocal revenge, though it makes less good theatre, but not all can overcome their instincts and customs to achieve it.

True enough, but I see these rules and institutions as evolutionary phenomena, too, emerging bottom-up in society rather than being imposed top-down by fortuitously Solomonic rulers. They come through the filter of cultural selection just as surely as do technologies. And if you look at the history of, for instance, merchant law, you find exactly this: merchants make it up as they go along, turning their innovations into customs, ostracising those who break the informal rules and only later do monarchs subsume the rules within the laws of the land. That is the story of the lex mercatoria of the medieval period: the great law-giving kings of England, such as Henry II and John, were mostly codifying what their trading subjects had already agreed among themselves when trading with strangers in Bruges, Brabant and Visby. Indeed, it is the whole point of common law. When Michael Shermer and three friends started a bicycle race across America in the 1980s, they began with virtually no rules. Only with experience did they have to bring in rules about how to deal with being arrested for causing a traffic jam