Book Review: The Company of Strangers

If you've been reading about economics for long enough, sooner or later you will come across reference to the miracle that is the production of a lead pencil. Perhaps you'll read about it in the context of a Milton Friedman interview (like here), or perhaps a reference to the original, Leonard Read's 1958 book I, Pencil (see here). Either way, the story is about spontaneous order and/or interdependence - how the actions of hundreds or more people interact produce a single pencil, without any one of them necessarily caring about the end product, or even knowing how it is produced.

Over the years, I've seen several references to Paul Seabright's book, The Company of Strangers, in a similar context to I, Pencil. So, I finally took the time to read it (or rather, the revised edition from 2010 - the original was published in 2001). The essence of the book can be summarised as follows, from the introduction to the book:

• First, the unplanned but sophisticated coordination of modern industrial societies is a remarkable fact that needs an explanation. Nothing in our species' biological evolution has shown us to have any talent or taste for dealing with strangers.

• Second, this explanation is to be found in the presence of institutions that make human being willing to treat strangers as honorary friends.

• Third, when human beings come together in the mass, the unintended consequences are sometimes startlingly impressive, sometimes very troubling.

• Fourth, the very talents for cooperation and rational reflection that could provide solutions to our most urgent problems are also the source of our species' terrifying capacity for organized violence between groups. Trust between groups needs as much human ingenuity as trust between individuals.

Trust is central to the modern economy, and has been central to social interactions for as long as Homo sapiens has gathered into groups. In my ECONS101 class, I always wish we had more time to consider repeated games in our game theory topic, where trust and reputation become key features of the resulting outcomes. 

The book is thoroughly researched and very deep. Seabright draws from a range of sources from biology to anthropology to economics. Every paragraph made me think, which made for a long read (in case you were wondering why I haven't posted a book review since early September). Seabright also provided me with a number of novel ways of explaining some key concepts in my classes.

Some readers may find the book quite dry, but there are also some lighter highlights, such as this:

There is a lost look sometimes that flits across the brow of those senior politicians who have not managed to attain perfect facial self-control. It is the look of a small boy who has dreamed all his life of being allowed to take the controls of an airplane, but who discovers when at last he does that none of the controls he operates seems to be connected to anything, or that they work in such an unpredictable way that it is safer to leave them alone altogether. Politicians have very little power, if by power we mean the capacity to achieve the goals they had hoped and promised to achieve.

If only more politicians, and voters, understood this point! And this as well:

As the twenty-first century develops, "globalization" has become a convenient catch-all term to sum up the multitude of different, often contradictory reasons people have to feel uneasy about the way in which world events are developing.

Since the book is really about trust between people, and globalization is ultimately about connections between people, there are some good underlying discussions to be found in its pages. Seabright also provides an interesting perspective on the Global Financial Crisis (which was contemporary at the time of writing the revised edition). However, at its heart this is a book about people, and our interactions in a world where we don't know the majority of people with whom we interact. Like spontaneous order, such interactions are at the heart of economics. If you want to develop a deeper understanding of these interactions, this book would be a good one to read.