In his new book, The Darwin Economy: Liberty, Competition, and the Common Good, Robert Frank argues that within the next century, Charles Darwin will become known as the intellectual founder of economics, displacing Adam Smith from that role (my book review here). Frank’s prediction rests on the contrasting perspectives on competition provided by the two. Smith had the counterintuitive insight that selfish actions could increase the common good, while Darwin recognised that competition could be wasteful as individuals compete for survival and mates. Frank argues that the Darwinian picture is a better representation of the economy.

Having approached the book more than ready to be convinced by Frank, I actually ended it with a reinforced appreciation of Smith. Smith might not have given as clear perspective on the conflict between group and individual interests as did Darwin, but his insights about specialisation, trade and the benefit to others in the absence of benevolent intentions remain among the core understandings of economics. One look around us shows that competition in the developed world has delivered enormous wealth. That this benefit to the group occurred despite the selfish actions of individuals shows us that Smith’s ideas have been the dominant force. We should not ignore the negative consequences of competition, and policy decisions should acknowledge them, but the dominant trend is increased group welfare.

Frank might argue in response that it is the constraint and institutions provided by government that has allowed this wealth to be created, and on that point, he would be right (although precisely which constraints and institutions is debatable). But it is the understanding of Smith that shows us what can happen within the right institutional framework. If people can reap the benefits of their own efforts, they will specialise, trade, and take advantage of the growing size of the market, which on average will benefit others too.

As for Darwin, he deserves a central role in economics, but largely through the fact that humans evolved through natural selection. This could considerably change economics, but it does not displace Smith’s core insights. My hope is that instead of Charles Darwin being understood as the founder of economics, economics is considered as a branch of ecology. It is from that perspective that Charles Darwin can rightfully stand at the top.

Adam Smith’s invisible hand metaphor is one of the most powerful ideas in economics. Individual action, even in the pursuit of pure self-interest, can serve the interests of others.

Charles Darwin’s evolution by natural selection is an even more powerful idea in the world of evolutionary biology. In Darwin’s world, individual actions can be at the expense of others, as competition for survival or mates can leave others out in the cold.

Robert Frank’s new book The Darwin Economy: Liberty, Competition, and the Common Good has at its core the fundamental insight that many aspects of the economy are Darwinian, not Smithian. Individual action can harm the interests of others, because, as per evolutionary competition, outcomes are relative. People care about rank and many goods are positional. Only so many people can have beach views or send their children to an above average school.

A recurring example that Frank uses through the book is work safety regulation. In the neoclassical economic world, workers trade-off safety for wages and assort according to their preferences for safety and wages. Frank argues that this understanding is incorrect, as relative wages also matter. To send your children to the best schools, you need to live in the best neighbourhood, which means that you need to earn more than most other people. As a result, workers will compete away the safety they otherwise value to obtain the income to live in the best neighbourhood. The result is low or no safety protection provided by employers, increased house prices, and the workers are worse off than they were before.

A strong point of Frank’s argument is that he grounds markets and human motivation in evolution. People are products of evolution by natural selection, with reproductive success (and the factors underlying it) a relative concept. Those at the top of the pile were winners and are our ancestors. The motivation to have the highest status, wealth and power is still present in people today. The Darwinian framework is used by Frank to identify whether a good is positional. For example, who survives or not is governed more by relative income than leisure, so income should be more positional than leisure. There will be excessive competition for income.

While I appreciate this evolutionary foundation, I question whether Frank has gone far enough in his use of the Darwinian framework. In one sense, the economy must be Darwinian as humans are animals subject to natural selection. We are shaped by and continue to be shaped by it. Is economics just a branch of ecology? Yet Frank does not take this step.

Frank’s argument is a a strong critique of the neoclassical view of the market, and unlike many liberal critiques, does not rely on arguments about market imperfections, dominant powers, information asymmetries or irrationality. In Frank’s world, people are acting rationally and markets are highly competitive, but there is a disparity between individual and collective interests. Frank takes his fight to libertarians (his bad guy of choice) on their own turf.

By doing away with many of the liberal critiques of markets, Frank also eschews some typical liberal solutions. Simple nudges won’t solve these problems, nor will providing more information. Each individual is acting rationally and further information or guidance will not change that fundamental self-interest. Stronger measures are required.

One primary policy suggestion is agreed restraint. If everyone agreed to certain minimum safety standards, which Frank suggests the majority of people support, you won’t get a race to the bottom and the excess wage earned that would be earned in the absence of safety is not simply frittered away in a competition for positional goods. While this argument has merit, Frank creates a libertarian straw man that he beats to death, instead of seriously confronting the libertarian arguments about safety regulation. Can government determine the right level of safety? Does it bend to interest groups and companies trying to create barriers to entry? Or does government simply lack the information required to make decisions?

Another leg of his policy recommendations is a progressive consumption tax, which he has advocated for some years now. By taxing consumption, competitive expenditure would be curtailed, with incentives to invest and save increased. Taxing consumption and not productive activities such as labour makes sense, although I don’t share Frank’s implicit concern that government is being starved of money.

One of Frank’s more interesting arguments is that as high rank has a value in itself, rank is already implicitly priced in the labour market. More productive people generally do not get paid commensurate with their relative level of productivity compared to their workmates, which Frank suggests is because people are willing to be paid less if they have high rank. In other words, the labour market has implicit progressive taxation. But outside of the workplace, we compete with friends, family and neighbours, with no implicit market for rank. Frank suggests that as implicit progressive taxation is the market solution in the labour market, we should carry out progressive taxation of rank in the broader world. This is another benefit of a progressive consumption tax.

The latter two-thirds of the book are less focused on Frank’s Darwinian insight, but rather on some fundamental economic concepts. His chapters on efficiency and willingness to pay give excellent background on the topics for the non-economist. The chapter on Coase’s theorem might even teach something to economists. However, I might have preferred Frank to have used the space to discuss the potential critiques to his policy recommendations tailored for the Darwin economy. While I agree with his general insight, his straw man response to the libertarian position did not lay the framework needed to support his solutions.

Having said that, The Darwin Economy provides an important argument that must be addressed by any libertarian. As Adam Smith knew, competition does not always maximise the common good. Any coherent policy framework must deal with that fact.

From an article by Gijsbert Stoet in the latest issue of Evolution and Human Behaviour:

The hunter-gatherer theory of sex differences states that female cognition has evolutionarily adapted to gathering and male cognition to hunting. Existing studies corroborate that men excel in hunting-related skills, but there is only indirect support for women excelling in gathering tasks. This study tested if women would outperform men in laboratory-based computer tests of search and gathering skills. In Experiment 1, men found target objects faster and made fewer mistakes than women in a classic visual search study. In Experiment 2, participants gathered items (fruits or letters presented on screen), and again, men performed significantly better. In Experiment 3, participants’ incidental learning of object locations in a search experiment was studied, but no statistically significant sex differences were observed. These findings found the opposite of what was expected based on the hypothesis that female cognition has adapted to gathering.

The expectation that women would be superior to men in gathering tasks is misplaced. The observed division of labour is indicative that women have a comparative advantage, not an absolute advantage, in gathering. We should expect that the relative efficiency of production by men and women differs. If relative efficiency does vary, women and men both benefit from specialisation, even if one or the other is more productive in both activities. Without hitting the nail on the head, Stoet hints at this:

There can be different reasons for a division of labor in a society, and it is not necessarily the case that both genders need to be optimized for the tasks they are doing. It could simply have been the case that a division of labor was driven solely by the fact that men were good at hunting. Women might have chosen to do the gathering, not because they were adapted to it, but because it was the task that remained to be doing. Given that there is no apparent evidence for women being excellent gatherers, this must be considered a plausible scenario. Indeed, empirical research supports the idea that women doing the gathering might often be the best arrangement for a group of hunter–gatherers as a whole, who need to reckon with multiple constraints (Gurven & Hill, 2009; Wood & Eagly).

While I normally lament the lack of evolutionary biology in economics, this is one example where economics can lend a genuine (200-year-old) insight in the other direction.

A study by Berri and colleagues on quarterback performance and their attractiveness has gained some attention over the last couple of months:

We show that attractiveness, as measured by facial symmetry, leads to greater rewards in professional sports. National Football League quarterbacks who are more attractive are paid greater salaries and this premium persists after controlling for player performance.

This is relatively consistent with the picture painted in Dan Hamermesh’s Beauty Pays: Why Attractive People Are More Successful, which I reviewed recently. There is a premium to beauty. But as I noted in my review, we should not ignore the correlation between beauty and other positive traits. An earlier study by Williams and colleagues puts the first study in perspective:

Results from a preliminary study showed a positive correlation between 30 NFL QBs’ passer ratings and their facial attractiveness as rated by 30 women. In a further study, a different group of 30 women rated a different cohort of 58 NFL QBs. The results showed that the QBs’ mean attractiveness ratings were positively correlated with their passer ratings, which was found to be independent of players’ age, ethnicity, height, weight, or facial expression.

These two studies can be easily reconciled – attractive quarterbacks are (on average) higher performers, but they also gain a premium above their performance. Whether that beauty premium comes from intangible elements such as self-confidence and leadership, or from bias by team owners, is unclear. One possibility is that, as football is a spectator sport and income depends on sponsorship and media, attractiveness has a financial value in itself.

It is also unclear what mechanism underlies the higher performance by attractive athletes that Williams and colleagues discovered. Is the mechanism directly beauty related, in that improved communication with teammates improves their own performance? Or, as I would argue, do positive traits tend to cluster? Beauty is a fitness indicator, so a lower mutation or parasite load, which would affect athletic performance, might also affect beauty. Further, assortive mating tends to match smart, beautiful and athletic partners, making their children smarter, more beautiful and more athletic than average.

In a post earlier this month, Eric Johnson put together an interesting argument on the evolution of collective violence  (I recommend reading his whole post).

Johnson opens with some of the arguments that group violence is a consequence of our evolutionary history. One of this arguments is the called the Elaborated Social Identity Model of crowd behaviour:

Each individual remains a rational actor, but has been primed by natural selection to identify with the group during a period of crisis. This well developed ingroup/outgroup bias is what has allowed our species to be the most cooperative of the primates, but certain conditions have the potential to turn us against our own community. …

“Collective violence,” wrote Harvard primatologist Richard Wrangham in the Annals of the New York Academy of Sciences, shows “a common human pattern evident in societies lacking effective central authority, manifested in ethnic riots, blood feuds, lethal raiding, and warfare.” Such aggression, he says, is directly related to that of nonhuman primates and demonstrates a common evolutionary history.

One piece of evidence in support of this theory of inherent group aggression were a series of attacks by baboons in London zoo, with two-thirds of the 140 baboons dying during the violence. However, subsequent observations of baboons in captivity show how strong the environmental influences are on the actions of the groups:

What Kummer found was that captive baboons showed many more aggressive acts than their free-ranging counterparts (nine times more for females and seventeen and a half times more for males). The massacre of Monkey Hill therefore represents a kind of controlled experiment on the potential dangers of social engineering, one that demonstrates the lethal consequences of flawed assumptions. …

Since the events of Monkey Hill, hundreds of studies with captive primates have shown that impoverished environments result in heightened aggression and antisocial behavior. Such behavior has been shown to significantly increase under conditions of overcrowding, when there’s a lack of novelty in food, entertainment, or social opportunities, when the population increases and the number of strangers in a colony grows, or, most crucially, when food is limited and/or fluctuates dramatically.

Using these observations, Johnson draws some conclusions about the London riots:

 [T]he riot outbreaks were clustered in the most economically deprived regions of the city. It was these regions that would have been most aversely affected by the austerity measures and, with a peak in both food and energy prices occurring at the same time, the environmental conditions were ideal for a triggering event that would push an already stressed population over into social discord…..

For London and the cities throughout North Africa and the Middle East, it appears there was a free choice to riot after all. But the choice didn’t come from the rioters alone, it rose from leaders and policymakers and the larger society as a whole. Riots reveal a colony in discord. Many of us have acknowledged the widening inequality and economic decline of our most impoverished citizens–but we chose to ignore it

These conclusions might seem to flow from the observations of stressed primates, but we have an extra piece of data on the London rioters. Over 70 per cent of those convicted of rioting had prior convictions – 15 on average. While society may influence the chance of a riot, it seems that some people are much more susceptible than others.

Larry Arnhart’s recent post at Darwinian Conservatism makes a couple of interesting points on family values and classical liberalism. The piece is largely a response to Geoffrey Hodgson’s claim that a market individualist cannot support family values:

“Generally, if contract and trade are always the best way of organising matters, then many functions that are traditionally organised in a different manner should become commercialized . . . Pushed to the limit, market individualism implies the commercialization of sex and the abolition of the family. A consistent market individualist cannot be a devotee of ‘family values’ . . . They cannot in one breath argue that the market is the best way of ordering all socio-economic activities, and then deny it in another. If they cherish family values, then they have to recognise the practical and moral limits of the market imperatives and pecuniary exchange”

I am perplexed when claims such as these are made. Where are the people claiming that the market is the best way to organise all socio-economic activities? The more usual claim is that people should be able to do as they choose – with the expectation that the innate tendency to form families will dominate in some spheres, the spontaneous order of the market in others.

Arnhart quotes Hayek to point out that the tension between markets and family has not been missed by classical liberals:

It is important, then, Hayek explains, that we neither apply the rules of the market to family life nor apply the rules of family life to the market. “If we were to apply the unmodified, uncurbed, rules of the micro-cosmos (i.e., of the small band or troop, or of, say, our families) to the macro-cosmos (our wider civilization), as our instincts and sentimental yearnings often make us wish to do, we woud destroy it. Yet if we were always to apply the rules of the extended order to our more intimate groupings, we would crush them. So we must learn to live in two sorts of world at once”

Arnhart takes Hayeks’ argument further, and suggests that the existence of these two worlds points to the need for the family as an institution:

As Horwitz indicates, Hayek’s idea of “living in two worlds at once” points to the need for the family as an institution in which children can learn the moral rules for both the micro world of face-to-face interactions and the macro world of anonymous interactions in the extended spontaneous order of society.

The Hayekian insight is that families are best situated to do this because of their advantage in knowledge and incentives. The intimacy of the family allows parents to have an intimate knowledge of each child’s individual character and situation that allow parents to teach them their social lessons–by both explicit instruction and implicit example–in a manner that is suitable for the individual child. … No extended order of spontaneous cooperation could provide either the knowledge or the incentives that arise within the intimate experience of families.

I would use a weaker word than “need”. The lack of influence that parents have on child outcomes outside of their genetic contribution suggests that children are relatively robust to the arrangement in which they are raised. However, the innate tendency to form and operate in families suggests that families are valued – and will continue to form.

Arnhart’s closing paragraph is interesting.

We might also notice that this special role of the family in transmitting social learning about how best to succeed in society could explain the great transformation that came with the Industrial Revolution. If we accept Gregory Clark’s argument about the importance of an evolutionary process of “survival of the richest” by which families that taught their children the bourgeois virtues were more successful in England in the 18th century, which led to the Industrial Revolution, then we could explain this great transition into Hayek’s Great Society as a product of an evolutionary transformation in family life.

How much of the transmission was by families and how much by genes? Clark seems to lean towards the latter.

Ronald Bailey has written an article for Reason on Randy Thornhill and Corey Fincher’s work linking disease and liberalisation. Bailey writes:

Thornhill and Fincher argue that the risk of infectious disease affects elites’ willingness to share power and resources, the general social acceptance of hierarchical authority, and the population’s openness to innovation. Their central idea is that ethnocentrism and out-group avoidance function as a kind of behavioral immune system. Just as individuals have immune systems that fight pathogens, groups of people evolve with local parasites and develop some resistance to them. People who are not members of one’s group may carry new diseases to which the group has not developed defenses. “Thus,” Thornhill and Fincher write, “xenophobia, as a defensive adaptation against parasites to which there is an absence of local adaptation, is expected to be most pronounced in regions of high parasite stress.” …

Thornhill and Fincher believe that more recent advances in medicine and public health are implicated in the post-1950s wave of liberalization that swept over the United States and Western Europe. The advent of penicillin, the arrival of polio vaccines, the elimination of malaria, the chlorination of drinking water, and the reduction in food-borne illnesses all combined to dramatically reduce disease. The authors suggest that if people experience few infections as they grow up, they perceive strangers and novel ways of life as safe; tolerance and the embrace of social, economic, and technological innovation follow. They note that areas of the world in which disease rates remain high have not experienced such liberalization.

Disease sounds a plausible reason for avoiding out-groups, but what is the incentive of an elite to share resources and power in the absence of disease? And can ethnocentrism and out-group avoidance be more simply explained by kin selection or strategic considerations?

Bailey notes the policy implications of this theory:

If Sachs, Thornhill, Fincher, and  Gelfand are right, reducing a country’s disease burdens should promote the rise of liberal institutions. “If the parasite hypothesis of democratization is supported by additional research,” Thornhill and Fincher write, “humanitarian efforts to reduce human rights violations and to increase human liberties and democracy in general will be most effective if focused on the most fundamental causal level of infectious disease reduction.”

I agree with the objective, but is this causal link in the right direction? Do people with a low disease burden support liberal institutions, or do liberal institutions create the framework under which disease can be controlled?

If I had to argue for the former, I would probably use Garrett Jones’s hypothesis that high-IQ is a significant factor in determining the level of trust in a society. If there is a link between disease and IQ, as Thornhill and Fincher have argued, the effect of disease reduction on liberalisation would be largely via the IQ mechanism.

However, I am not convinced of this causal link. More generally, the direction of causation is the central issue with the suite of articles linking parasites to religion, IQ, liberalisation and armed conflict (and I think there are others) that Thornhill and Fincher have produced over the last few years. What Thornhill and Fincher have successfully shown is that parasite loads and a host of characteristics of poorer nations are correlated.

Ultimately, I expect that the causal mechanisms between disease, IQ and institutions largely flow from IQ and institutions to disease. That is not to say that disease cannot reduce IQ – it undoubtedly does in some instances and is possibly part of the feedback loop during development. However, an IQ to disease causal relationship provides a mechanism by which disease declines – high IQ groups develop more liberal institutions, have much more wealth and can more effectively control disease. If causation flows in the other direction, it leaves open why disease prevalence varies greatly between areas that, based on climate, geography and history, should have similar levels of disease.

While the Cato Unbound discussion on Brain, Belief and Politics appears to have petered out (unfortunately, Shermer has not directly confronted most of the issues in the response essays), the site has linked to an interesting piece (pdf) by Will Wilkinson from the Cato Policy Report in 2005.

In the article, Wilkinson addresses the link between capitalism and human nature. On property rights, he states:

Property rights are prefigured in nature by the way animals mark out territories for their exclusive use in foraging, hunting, and mating. Recognition of such rudimentary claims to control and exclude minimizes costly conflict, which by itself provides a strong evolutionary reason to look for innate tendencies to recognize and respect norms of property.

New scientific research provides even stronger evidence for the existence of such property “instincts.” For example, recent experimental work by Oliver Goodenough, a legal theorist, and Christine Prehn, a neuroscientist, suggests that the human mind evolved specialized modules for making judgments about moral transgressions, and transgressions against property in particular. Evolutionary psychology can help us to understand that property rights are not created simply by strokes of the legislator’s pen.

From the comments on my recent post on human nature and libertarianism, property rights and the ability to accumulate massive amounts of property underlie many concerns about a libertarian state. Wilkinson notes that the human mind is ill-equipped to deal with it:

Perhaps the most depressing lesson of evolutionary psychology for politics is found in its account of the deep-seated human capacity for envy and of our related difficulty in understanding the idea of gains from trade and increases in productivity— the idea of an ever-expanding “pie” of wealth.

… The EEA [Environment of Evolutionary Adaptedness] was for the most part a zero-sum world, where increases in total wealth through invention, investment, and extended economic exchange were totally unknown. More for you was less for me. Therefore, if anyone managed to acquire a great deal more than anyone else, that was pretty good evidence that his was a stash of ill-gotten gains, acquired by cheating, stealing, raw force, or, at best, sheer luck. Envy of the disproportionately wealthy may have helped to reinforce generally adaptive norms of sharing and to help those of lower status on the dominance hierarchy guard against further predation by those able to amass power.

Our zero-sum mentality makes it hard for us to understand how trade, innovation, and investment can increase the amount of total wealth. We are thus ill-equipped to easily understand our own economic system.

While we may historically have pulled down the rich, the immediate assumption underlying the desire to pull them down no longer holds.

The WSJ has published an essay by Steven Pinker on the decline of violence, which is adapted from his upcoming book The Better Angels of Our Nature: Why Violence Has Declined. Pinker points out six major declines in violence in human history, starting with the shift from the hunter-gatherer life:

The first was a process of pacification: the transition from the anarchy of the hunting, gathering and horticultural societies in which our species spent most of its evolutionary history to the first agricultural civilizations, with cities and governments, starting about 5,000 years ago.

For centuries, social theorists like Hobbes and Rousseau speculated from their armchairs about what life was like in a “state of nature.” Nowadays we can do better. Forensic archeology—a kind of “CSI: Paleolithic”—can estimate rates of violence from the proportion of skeletons in ancient sites with bashed-in skulls, decapitations or arrowheads embedded in bones. And ethnographers can tally the causes of death in tribal peoples that have recently lived outside of state control.

These investigations show that, on average, about 15% of people in prestate eras died violently, compared to about 3% of the citizens of the earliest states. Tribal violence commonly subsides when a state or empire imposes control over a territory, leading to the various “paxes” (Romana, Islamica, Brittanica and so on) that are familiar to readers of history.

This was followed by the “civilising” process in Europe, a humanitarian revolution around the time of the Enlightenment, the respite from major war since World War II, the decline of war worldwide and the rights revolutions which involves a “growing revulsion against aggression on smaller scales”.

The facts speak for themselves, so Pinker’s explanations for what lies behind these declines is more interesting. His three major explanatory factors are the pacifying influences of the state, of commerce and of cosmopolitanism. A change in inherent human nature is ruled out:

Is it because violence has literally been bred out of us, leaving us more peaceful by nature?

This seems unlikely. Evolution has a speed limit measured in generations, and many of these declines have unfolded over decades or even years. Toddlers continue to kick, bite and hit; little boys continue to play-fight; people of all ages continue to snipe and bicker, and most of them continue to harbor violent fantasies and to enjoy violent entertainment.

It’s more likely that human nature has always comprised inclinations toward violence and inclinations that counteract them—such as self-control, empathy, fairness and reason—what Abraham Lincoln called “the better angels of our nature.” Violence has declined because historical circumstances have increasingly favored our better angels.

I look forward to reading Pinker’s reasoning in more detail. While many of the changes in violence occur over the very short-term, the longer term trend has occurred over thousands of years, with ample potential for evolutionary change. Further, the hypothesis of Donohue and Levitt on the legalisation of abortion and crime suggests that changing the population composition can can have large effects in short periods, although it is not clear whether the cohort eliminated in the wake of the Roe v Wade decision would have been criminals due to upbringing or inherent traits.

Fitting nicely with my recent post on human nature and libertarianism (and particularly the comments), Rob Brooks has the following to say on the mega-rich and people’s sense of fairness:

Hunter-gatherers keep their neighbours and tribe-mates in line. When everybody depends on everyone else, then reputation rules. You simply can’t afford to be selfish, whether by failing to share or by freeloading, in a small community. Your allies will desert you. …

Where our early ancestors kept one another honest, elites in hierarchical societies tend to socialise with other elites who are equally self-interested in maintaining their own power. The mega-rich don’t hang out with wage-earners, preferring to mix with politicians, media moguls and millionaire televangelists. …

I would never suggest that flat egalitarianism is desirable, but societies in which wealth is spread more equitably experience less violence, better health, lower stress and greater happiness than highly inequitable societies. Which is why everybody has a duty to criticise opulence and ridicule greed rather than fantasising about making the BRW Rich Lists.

I’ll post some detailed thoughts on hunter-gatherer society and egalitarianism in the future (Andrew’s recent post at Evolvify also requires a post or two). In the meantime, I have one question – why should I care about these elites?

I care that the mega-rich influence government – Rob’s example of the mix of politicians and media moguls is particularly relevant. But from a hunter-gather perspective, the mega-rich are more like a distant tribe than part of any group of which I am a member. They don’t want to hang out with me, and they don’t form part of my circle of kin, friends or neighbours. It is only through modern media that I know who these people are. So should I want to cut them down to size just because they are rich? Or is it their ability to project that wealth that should be the subject of concern?