Those who assume hypotheses as first principles for their speculations…may indeed form an ingenious romance, but a romance it will still be.

Roger Cotes, 1713

I wrote a manifesto once. It asserted that the world around us is explained by societal evolution through natural selection.

The rough argument is that societies can have different cultural norms. These norms are the primary determinant of societal wealth. Richer societies have the resources to grow and displace others. Therefore our culture, which displaced many others, is one that is optimized for wealth generation.

So what makes us rich? Trade. Trade allows us to work together, to specialize, and to gain from our comparative advantages.

At its simplest, trade is an agreement between two parties to co-operate on some matter. After the agreement each party has a choice about whether to keep their word or cheat. In that sense, trade is equivalent to the Prisoner’s dilemma.

The Prisoner’s dilemma is interesting because the (Nash) equilibrium outcome (mutual cheating) is not one of the (Pareto) efficient outcomes. Societies that succeed at changing the equilibrium outcome are able to trade more and get richer.

Historically, we’ve found a number of different solutions, which are basically different ways of turning the one-shot trading game into an iterated Prisoner’s dilemma.

The limit of each solution tends to be the number of people we can reliably trade with – the size of our sphere of trust. As technology advances new solutions become available. Our sphere of trust increases, the economy expands, and previous solutions fade in relevance.

That’s the basic idea. Next up: a history of the system of the world…