Guns, germs, and steel…and economics

“Classic” books are few and far between but Guns, Germs and Steel by Jared Diamond is one of these rare classic books written during our lifetime. It aims to answer the question why the people of Eurasia fared better than people in other regions.

The explanation takes the reader through human history over the last 40,000 years or so. We learn about the evolution of humans from systems of hunting-gathering to agriculture and how advances in agriculture provided the necessary surplus that allowed for the building of cities and construction of larger units of governance. While Diamond is a physiologist turned geographer, his book an incredible case study that illustrates some of the seminal results in economics.

One of the major insights of economics is about gains from trade. Narrowly, it means societies are better off if each concentrate on relative advantages and they exchange goods, knowledge and services. However I interpret this broadly to mean the gains from movement of resources and knowledge across locations. Because most countries in Eurasia were in similar climatic regions, and there were possibilities for movement, trade and exchange occurred. Therefore, one “technology,”  the pig, was imported from China to Europe while another, wheat, came from the Middle East and spread to the rest of Eurasia. Thus through trade and movement, cultures throughout Eurasia were sharing the use of several varieties of grains (wheat, rice, etc), several species of domesticated animals (cow, pig, horse) and multiplicity of technologies.

In contrast, civilizations in Africa and America were scattered across longitudinal axis, they had different weather conditions that limited exchange and prevented the economics of scale that allowed for the evolution of advanced technologies. Furthermore, they suffered a higher degree of difficulty in movement and this high transaction cost reduced exchange and hampered technological progress.

The book suggests that unfettered exchange has its limitations as well. While trade can lead to welfare enhancing exchange of goods, it may also serve as a mechanism to transmit diseases, as happened to Natives of the Americas. This makes the case for inspections and regulation along borders and for care when moving objects across locations. Ultimately it can be very beneficial, but it must be done carefully.

Finally, Diamond’s book provides context to the recent economics of natural resources. Extraction of resources in the present without consideration of the future can be destructive. The challenge of sustainability and building institutions that allow for the resource base to survive and flourish in the long run. If we don’t plan for the future, the cost may be very high.

We learned recently that Jared Diamond was a recipient of the prestigious Wolf Prize in Agriculture. His work is proof that social science research is crucial for better management of natural resources and the environment.

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