The Company of Strangers
By Arnold Kling
Notwithstanding my disagreements with Paul Seabright on political economy, the revised edition of The Company of Strangersis one of the best economics books to come out so far this year. I strongly recommend it, particularly if you did not read the first edition when it came out.
The overall theme of the book, which is that it takes a lot of adaptation to enable humans to take advantage of complex trading systems, is straightforward enough. What makes the book particularly interesting to me are the many minor facts and insights that can be found throughout.
For example (p. 78):
But oxytocin does not work its harmonious magic simply by making people more optimistic or less concerned about risk: under its influence, subjects are willing to send money to other human subjects but not (say) to a machine whose behavior they have to predict.
I wonder if something like this explains the reason that having a teacher in the classroom seems necessary for education. Perhaps learning requires trust, and perhaps for many people trust is enhanced by the presence of a human teacher.
Earlier in the book, Seabright points out that two arenas of trust are particularly problematic. One is trust of others to manage one’s savings. The other is trust that if you acquire specialized skills the market will continue to reward them. I suspect that much of the fluctuation in economic activity that we call cyclical can be explained by the co-evolution of trust and objective conditions in these areas.