The wealth of man. Malthus was right: what may ultimately destroy prosperity is not the collapse of global markets but the relentless growth of the world's population. By John Gray

Road to Riches

Peter Jay <em>Weidenfeld & Nicolson, 383pp, £20 </em>

ISBN 0297643673

Writing on economics tends to mirror the fortunes of the economy. Today, a 20-year boom in stock prices has produced a parallel boom in books claiming to reveal the secret of uninterrupted economic growth. It is to be found, they tell us, in the celebrated "Washington consensus" on deregulated markets and slimmed-down government. Books such as Thomas Friedman's bestselling The Lexus and the Olive Tree (HarperCollins) argue that the present prosperity of the United States is not an accident of history, one that history can be expected to undo. They maintain - indeed, they insist - that it is a sign that the lessons of economic history have at last been understood and acted upon. Unsurprisingly, this reassuring message has been well received.

Peter Jay has never sought to provide comfort to his readers. In the 1970s, he wrote a memorable series of articles arguing that the Keynesian version of market capitalism had become inherently unstable. Full employment could not be combined with low inflation and strong union power. Sooner or later, there would be a bust. As things turned out, market capitalism did not collapse, but Jay's analysis was amply vindicated by events. Throughout the world, organised labour went into retreat, in conjunction with new technologies and free-market policies brought into being by the post-Keynesian, low-inflation economy in which we live. In anticipating much of this shift, and preparing his readers for it, Jay's writings in the 1970s were applied political economy at its best.

Now Jay has turned to a much larger subject. In Road to Riches, narrative and analysis are combined to produce an economic history of the human species that is at once enjoyable to read and consistently illuminating. Jay does not reject outright the standard, Whiggish view of economic history, but he subscribes to a highly mitigated version of it. The economic history of humankind is a story of genuine advance, he believes, but one in which progress is repeatedly arrested and reversed. In Jay's view, the creation of wealth depends on good institutions more than on anything else. Citing Adam Smith approvingly, he argues that human beings have a deep-seated disposition to improve their economic circumstances. Once they have the right background of law and government, people will naturally exert themselves, to their benefit, and growing wealth will follow almost as a matter of course.

Adam Smith is a more complicated and far subtler thinker than is popularly recognised, but here I think Jay follows him too closely. It is not only bad governments and weak institutions that restrain people from devoting themselves to wealth creation. They often value other things more highly. There is nothing natural in people attaching an overriding importance to economic well-being. After all, as Max Weber noted, most of the cultures of which we have historical knowledge have been animated by religious beliefs that rank the accumulation of wealth pretty low in the scheme of things. Jay might reply that people in these cultures were prevented from bettering themselves economically because the incentives to do so were also lacking. But that amounts to saying that they would have striven for wealth if only their values had been different, which is a circular argument. In any event, Jay's failure to consider the cultural preconditions of wealth creation is a striking omission.

Nevertheless, he is right that the chief obstacles to economic progress in the 20th century were governments animated by mistaken economic theories, and he provides some chilling reminders of the human costs of central economic planning. Quite rightly, he singles out the Chinese "Great Leap Forward" in 1958 as one of the greatest of all man-made disasters: "Among political decisions made consciously by political leaders, this has a claim to be among the absolutely worst - in its human consequences - ever to be made." In two years, between 20 million and 30 million people - roughly one in 30 of China's population at the time - died of starvation. This huge tragedy went largely unnoticed in the west, where opinion-formers had persuaded themselves that Mao Zedong's was an essentially progressive, if somewhat repressive, regime.

Today, central planning is out of favour. Conventional wisdom is confident that the global free market will deliver rising living standards for all. Jay dismisses this as briskly as he does the collectivist orthodoxies of the past. A global free market may be very good for rich people in rich countries, for rich people in poor countries and even for poor people in poor countries (here, he is more sanguine than I am), but "it is potentially very bad news for poor people in rich countries". The western working class became affluent because capital was constrained to being invested in first-world countries by the policies of governments and the political risks of investing elsewhere. Now that this is no longer true, there is nothing to prevent the living standards of blue-collar workers in affluent countries falling steadily behind the rest of society.

Nor does Jay share the bullishness of global capitalism's history-blind boosters regarding the recent boom in stock prices. On the contrary, he cautions that such booms invariably end in tears: "When prices reach and are sustained at extreme heights largely by a belief that they will continue to rise as they have in the recent past without any detectable counterpart in those things - company profits - which give value to shares in the long run, it becomes a certainty that the falsity of this belief must sooner or later dawn and, when it does, prices will collapse." Even so, the chief obstacle Jay sees in humanity's continued economic advance is not a collapse in markets; it is the growth of human numbers.

In the final chapter of Road to Riches, Jay questions the comforting consensus that the world's human population will stabilise indefinitely at around nine billion. Even if it were to take place, unprecedented numbers of human beings would demand unprecedentedly high and rising living standards. The resulting environmental and political pressures would be enormous - and the moral and political resources as scarce as they ever have been. In these circumstances, Jay concludes, "a truly Malthusian denouement" cannot be ruled out. It is a mark of the undeceived intelligence at work in this brilliant book that, at its end, Jay confronts the most formidable challenge to the moderate, Whiggish theory of progress he himself espouses - that thrown down by the perennially unfashionable Thomas Malthus.

John Gray's most recent book is False Dawn: the delusions of global capitalism (Granta, £8.99)