BOOK OF THE DAY: MICHAEL CASEYreviews The Company of Strangers: A Natural History of Economic Life, by Paul Seabright; Princeton University Press; 2010; £13.95 (€17)

THE MAIN thesis of this scholarly book is that for most of his time on this earth homo sapiens did not trust other people outside his own family or tribe. However, in recent years (ie the last 10,000 of the full time-span of over 200,000 years) the benefits of trading with each other became apparent and people had to learn to trust complete strangers.

As the new behavioural economics emphasises, trust is essential for all kinds of trading arrangements. Various institutions, such as governments, regulation, contract law, codes of conduct, and markets helped us trust and trade, but in terms of evolutionary history, trust is not something which comes naturally.

The two main forces which taught us to trust are rational calculation and reciprocity. The former has shown us the value of the division of labour, trade and markets. The latter makes us kindly disposed to others who are kind to us. This is why we pay the taxi driver who has brought us to our destination and why we do not club to death the waiter who brings us our food.

But, the author explains, modern society is extremely fragile. Part of the fragility comes from tunnel vision which is necessary for the division of labour, but is also responsible for many of our ills.

It contributed in no small way to the Holocaust and to the “Nuremberg defence” of blindly following orders. The same kind of tunnel vision could prevent us from dealing with global warming. In general, there is always the danger of reverting to type (mistrustful, aggressive hunter-gatherers) with major implications for our very survival.

The book is so elegantly written that its central message comes as a shock. We are living on a volcano that could engulf us all if something happens to abolish trust and co-operation.

Ten thousand years of relatively civilised existence is not nearly long enough to hard-wire trust into us. Our socialisation is still at the experimental stage and could collapse at any time. This is the stuff of nightmares. The fact is that a murdering instinct is still part of our nature. Indeed, the author points out that, throughout our evolutionary history, murderousness was correlated with intelligence. We invented new ways of destroying rivals and this in turn meant we had to become more intelligent to survive the murdering instincts of others outside the tribe.

Despite liberalism and our 10,000-year-old “civilisation”, the wars of the 20th century were brutal. The Holocaust was not unprecedented, however. Between 1880 and 1920, 10 million Congolese were killed by Belgian colonists. It is clear civilisation is only skin-deep and we cannot take peace for granted.

The ability to trust has brought us some amazing material benefits – the division of labour, reasonably well-functioning markets without the need for a dictator and the invention of money. The latter is especially dramatic since the currency and cheques we exchange every day have no intrinsic value at all and are pure products of trust. Words like “credit” and “fiduciary” derive from the Latin for “faith”.

We also trust our banks which depend on the law of large numbers. All depositors are hardly going to withdraw their money at the same time. But what if they do just that in extreme circumstances?

One of the big questions posed by this book is whether the recent financial disaster and associated recession will cause us to revert to our more aggressive type. It has been argued that the Great Depression of the 1930s led to the second World War. The author says it is too early to say whether our present economic problems and the betrayal of trust by bankers and governments will lead to anarchy and hostility.

The underlying thesis of this book is darker than that of Hobbes who tended to believe in the effectiveness of the rule of law in keeping us from each others throats. After the wars in Iraq and Afghanistan, who can still believe that the UN or any international law has any effect on restraining the impulses of countries like the US and UK? When the chips are down the “civilising” institutions do not work.

One is reminded of the despair of Arthur Koestler who believed that homo sapiens developed in an unbalanced way, fostering the intellectual ability to create an atom bomb but not the emotional common sense to prevent the elimination of the species. So much for the optimistic “end of history” viewpoint.

The author is not overly deterministic. He does not assert that, because of our biological evolution, we will start killing each other again. But he does suggest that, given the span during which the hunter-gatherer psychology prevailed, there is a propensity to revert to type. We need to strengthen institutions to ensure that this does not happen.

This book is slightly disjointed, possibly because some of the material was previously published as articles. This is a minor inconvenience, however, in what is an exciting – and frightening – journey through the development of the human species.

In the last five years many governments around the world have betrayed the trust of their own people. If they do not win back this trust the consequences could be alarming.

Michael Casey is a board member of the International Monetary Fund