Evolution and the invisible hand

In David Sloan Wilson’s blog series Economics and Evolution as Different Paradigms (which I have recently posted about here and here), Wilson discusses the invisible hand metaphor that is used in economics.

The invisible hand metaphor comes from Adam Smith’s Wealth of Nations, and although the particular use of the invisible hand metaphor by Smith relates to preferring domestic to foreign industry, the metaphor has come to encapsulate this broader idea of Smith:

It is not from the benevolence of the butcher, the brewer or the baker, that we expect our dinner, but from their regard to their own self interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages.

Wilson contrasts this view of self-interest enhancing the common good with an evolutionary perspective in which a slacker or exploiter within a group will have an evolutionary advantage, suggesting that natural selection favours traits that undermine the common good. To reconcile evolution and the invisible hand, Wilson states that group-level selection must operate as a counterbalance to within-group selection. He suggests that the invisible hand can operate because:

[M]any of our psychological traits evolved by virtue of causing groups to survive and reproduce better than other groups, not by causing individuals to best members of their own groups.

I am not sure that a group selection argument is required to show why the invisible hand metaphor might have some value.  (In fact, I am not sure the group selection arguments put forward by Wilson add much to evolutionary theory - when I was looking around to understand what precisely is Wilson’s position, I found this great presentation by Stuart West which seems to nail all the main arguments in less than 20 minutes.) To explain why the invisible hand metaphor has such power, I’d prefer a simpler explanation around the need to produce something of value in a market economy.

Where I do (obliquely) agree with Wilson is that evolutionary theory can show that when everyone acts in their own self-interest, there can be negative aggregate outcomes. Economics has no shortage of those - the tragedy of the commons and failure to internalise externalities such as pollution being the classics. Over-investment in signalling would be another. However, while recognising that there can be (and are) problems, I’m generally fairly optimistic. But this is not through any principle of evolution, or group-selection based argument. Wilson’s following illustration provides an indication why.

Over his next two posts (here and here), Wilson looked at the work of Elinor Ostrom, winner of the Nobel Memorial Prize in Economic Sciences. He considered that Ostrom’s work illustrated the invisible hand operating through group selection. Ostrom’s career focused on the use of common pool resources and how institutional arrangements could emerge to manage those resources and often avoid the “tragedy of the commons” despite there being no private ownership or government regulation.

Wilson sees Ostrom’s work as showing that life is full of situations where the invisible hand does not operate. Behaviours for the good of the group require constraint and coordination.

I take a different perspective on Ostrom’s work. Ostrom’s work expands the range of situations where it can be argued that positive outcomes can emerge without top down interference. The rules and norms that develop to manage the resource could be argued to be as driven by the invisible hand as the distribution and the use of the resource itself. This reflected my familiarity with Ostrom’s work via libertarian and Austrian (school) economists who used her work to show that even the tragedy of the commons does not always require a solution to be imposed from above.

Ostrom identified a number of conditions for these emergent solutions, which Wilson sees as being a mix of conservative and liberal principles. While there is local autonomy, Wilson argues that the groups, not individuals, must have autonomy. He also suggests that there is a need for a framework to govern relationships between groups. This leads to a middle-ground on which political discourse can be held.

I am not sure how Wilson saw Ostrom’s work as promoting a middle-ground of discourse, nor of it being a mix of liberal and conservative principles. Where the conditions identified by Ostrom for these emergent local solutions are not met, we are back to the usual dichotomy between state-ownership and top down control versus private ownership. If they are met, the libertarians have their way.

*My four posts on David Sloan Wilson’s Economics and Evolution as Different Paradigms can be found here, here, here and here.