The slide on the market continues. The pain makes us think that there must be some easy fix. Maybe a big interest rate cut? Or much better supervision of bank and non-bank lending?

The problems are undoubtedly a consequence of rapid financial innovation. Modern finance has largely driven the dynamic of globalization, and it also has changed our sense of security in a curious way. The changes have made life on an individual basis more predictable, but also seem to make the world at large more unpredictable.

Fundamentally, the new financial revolution is very good news. It has unleashed tremendous productive forces that have raised incomes and living standards across the world. As individuals, we can plan our lives much more carefully, with a sophisticated range of financial products that allow us to insure ourselves against accident or old age.

By the end of the 20th century, the perception that markets were sophisticated enough to handle most eventualities helped to discredit the idea that the state or the public sector were the only source of a security guarantee.

The drawback is that most, indeed perhaps all, of us are not quite sure how this unprecedented provision of security actually works. Periodically, the feeling of ignorance makes everyone very nervous.

In an extreme situation, the panic extends in an extraordinary way. Even very large international banks, which no one can imagine their governments allowing to collapse, don’t trust each other in settling routine transactions. Normal market operations suddenly freeze.

Financial regulators charged with overseeing the exposure to risk have often given up, and mostly accept the sophisticated models that financial institutions themselves have worked out. At the international level, the central bankers’ central bank, the Basel Bank for International Settlements, produces annual reports that have warned with an ever gloomier tone of the absence of awareness of risk.

After the ballooning of the subprime crisis across America and Europe, though not in Asia, these warnings look highly prescient. At the same time, regulators and press critics were complaining that the higher management of financial corporations is not adequately informed about the risks undertaken by their institutions.

The critics were right, and the appalling ignorance of many chief executives has been revealed in the aftermath of the subprime crisis. Some have been forced to retire, and doubtless more will follow. But in the longer run, this ignorance or incompetence does not matter. Financial evolution occurs in an analogous way to the Darwinian evolution of species. Regular crises knock out weaker institutions, but add to the confidence and credibility of the better banks and financial intermediaries.

Moreover, the characteristic of highly complex systems is that they work — without the participants having any clear notion of how all the individual decisions are interrelated. We do not need to understand aeronautics in order to fly safely in an airplane, though if we don’t we may worry more than if we do.

By itself greater complexity does not necessarily mean greater vulnerability. Consider the difference between the Mexican crises of 1982 and 1994-1995. In the first case, around 700 banks in rich countries, some of them quite small, were exposed to Mexican debt. But the crisis could be worked out by central banks and the International Monetary Fund talking to a relatively small number of the biggest banks, and leaning on the financiers in a very direct and personal way.

In 1994, at first everyone thought that a solution would be much more difficult, if not impossible, because it was no longer banks that were exposed to Mexico. Even the broad and diverse range of institutions, pension funds, mutual funds and so on, were not the ultimate owners of the Mexican liabilities. They were rather only agents for millions of individuals who could not possibly be called on to make decisions like those of the 1980s.

In 1994-1995, contrary to all the pessimistic explanations, the crisis which had in the 1980s taken over a decade to be satisfactorily resolved, was over much more quickly because risk really had been broken up quite effectively.

The movement away from a financial system centered on banks to one based on securitization allows for a new dissemination and parcellization of risk. In retrospect the skilled personal diplomacy that was needed to solve the debt crisis of the 1980s was clearly costly, slow, and inefficient. It is certainly not a tragedy that such an operation cannot be repeated.

The modern financial revolution and its capacity to generate efficiency gains at the same time as it is frustratingly incomprehensible is only an extension of a much longer process of change. It is in fact the latest chapter in the story of capitalism that is fundamentally bound up with the history of human development. In each of financial innovations, going back to the use of bills of exchange by Italian Renaissance merchants, the long term consequences of the securities revolution were at first not understood. Rather the innovations were seen as a kind of game or lottery. Bills of exchange were condemned as usurious. Later on, life insurance was mostly seen as a speculation in which participators took contracts out on other people’s lives, often in bizarre circumstances.

French financiers made bets on the lives of healthy Swiss mountain girls, who were then forced to lead a life of chastity so that childbirth would not reduce their chances of surviving. The launching of the first joint stock companies in France and Germany produced speculative bubbles in which gigantic fortunes were made and lost. The collapse of the bubbles led to legislation limiting the possibility of speculation and establishing high minimum prices of shares in order to prevent ordinary people exposing themselves to what was seen as unnecessary and inappropriate risk.

At each stage of the development of financial markets, the same mechanisms were at play. The new possibilities are always seen as an uncontrollable game that threatened an established social order. In consequence, in the past, governments tried to control the markets, and it took much longer for their real benefits to be visible. The risk that we will insist on controlling something we cannot understand is actually much greater than the risks that are alleged to be produced by the apparent casino of an uncontrollable system.

Mr. James is professor of History and International Affairs at Princeton University, and author of “The End of Globalization” (2001) and “The Roman Predicament” (2006).