Wednesday, January 06, 2016

Hayek and the Genetic Evolution of Socialism and Capitalism

Over the years, I have written a series of posts criticizing Friedrich Hayek's Freudian theory of human evolution, in which he argues that human beings have evolved instincts favoring socialism, and that the spontaneous order of free markets that make modern civilization possible arises as a purely cultural tradition that requires the painful suppression of our socialist instincts.

Recently, I have read a paper by some libertarian economists that defends a modified version of Hayek's argument.  They identify themselves as taking a position that is opposite to mine.  Here I will offer my assessment of that paper, but I will respect the anonymity of the authors.

The authors make a provocative argument about the genetic evolution of economic psychology—that human beings are by their evolved instinctive nature inclined more strongly towards socialism (understood as “explicit cooperation”) than they are towards laissez faire capitalism (understood as “implicit cooperation”).

In effect, this is a modified version of Hayek’s argument that human beings are instinctively inclined to favor socialist central planning over the spontaneous order of free markets, although these socialist instincts that were adaptive for small prehistoric foraging bands are maladaptive for the large extended orders of modern civilization, which would be destroyed by any attempt to impose socialist planning.

My first question is about whether I am right to see their position as a modified version of Hayek’s argument about the appeal of socialism as rooted in an atavistic instinct.  That they are agreeing with Hayek is suggested by their quoting from Hayek in The Fatal Conceit as observing that “man’s instincts” were not made for modern civilization, because they were adapted to “life in the small roving bands or troops in which the human race” evolved (6).  But while the authors agree with Hayek that human beings have the atavistic socialist instincts that are adaptive only for small foraging bands, they seem to disagree with Hayek’s claim that the propensities for market exchange that make modern civilization possible are purely cultural and not at all instinctive, because there was no trade in the environments of evolutionary adaptation (see The Fatal Conceit, 34, 67, 70, 80-81, 118-19, 130, 134; The Constitution of Liberty, 40).  And yet while Hayek generally assumes that trade did not exist at all until the last few thousand years of human history, he sometimes admits that there is some evidence of trade going back hundreds of thousands of years (Fatal Conceit, 11, 16-17, 29, 38-45, 60, 133).  This is the point developed by the authors—that the evidence for trade going back hundreds of thousands of years suggests that market exchange is genetically instinctive and not purely cultural, as Hayek generally claims.  And yet their claim is that socialist benevolence emerged millions of years earlier in the mammalian protohuman ancestors of human beings, and therefore we can infer that socialist instincts are more hard-wired than market instincts (5-6, 26, 28-29).  This pushes the authors closer to my position—that the “propensity to truck, barter, and exchange” is an instinctive inclination of human nature that can be fostered by the human culture of bourgeois virtues.

Comparing the authors with Hayek raises another question.  Do they agree with Hayek that human beings in the modern world must live in “two worlds”?  While Hayek seems to think these two worlds are compatible with one another, the authors imply that these two worlds are contradictory.

Hayek is clear that markets and other processes of spontaneous ordering are only effective for certain kinds of social activities.  He distinguishes “spontaneous orders” as “grown orders” form “organizations” as “made orders,” and he makes it clear that any large society requires both kinds of ordering.  “In any group of men of more than the smallest size,” Hayek explains, collaboration will always rest both on spontaneous order as well as deliberate organization, “because the family, the farm, the plant, the firm, the corporation, and the various associations, and all the public institutions including government, are organizations which in turn are integrated into a more comprehensive spontaneous order” (Law, Legislation, and Liberty, vol. 1, 1973, p. 46).

Spontaneous ordering works best for social coordination where the tasks are very complex and where they involve large numbers of people who interact anonymously.  But deliberate organization works best for those tasks of social coordination that are simple enough and involve such a small number of people interacting face-to-face and sharing a common purpose that they can be planned out by deliberate design.  The family is one of those social institutions that work best as a deliberate organization rather than as a spontaneous order.

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 would 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” (Fatal Conceit, 18).

The authors here say nothing about the need for the deliberate design of families, firms, corporations, and public institutions.  Do they disagree with Hayek about this?  Do they think that all social coordination would be done best through markets?  Or do they agree with Hayek that “organizations” require socialism or “explicit cooperation”?

This leads to a question about how the authors understand socialism.  They quote from an article by Milton Friedman arguing that from the fact that “socialism is a failure,” and the fact that “capitalism is a success,” it is fallacious to infer that “the U.S. needs more socialism” (3, n. 2).  But they are silent about what Friedman says in the rest of that article.  He says that while pure socialism—complete government ownership and control of the means of production—has failed, partial socialism is necessary, because the judicial, legislative, and military systems of government are socialist activities that we need.  Would the authors argue that Friedman is wrong about this, because pure anarchism without any government would be both possible and desirable?

Moreover, in distinguishing the failure of socialism and the success of capitalism, the authors are silent about the possibility of successfully mixing socialism and capitalism.  After all, as measured by the “freedom indexes” of the Fraser Institute, the Cato Institute, and the Heritage Foundation, some of the freest countries in the world are the Nordic social democracies (Denmark, Finland, Sweden, and Norway).

But then the authors insist that “we live in an unfree world” (3).  According to the authors, there have been almost no free societies in the world over the past two centuries, and they insist on this as evidence that the socialist instinct is overwhelmingly stronger than the capitalist instinct.  If that is so, does that mean the Great Enrichment of the past two centuries—the unprecedented explosive growth in wealth and population that has spread around the world—has been produced by socialism rather than capitalism?  If so, isn’t that implausible?  If capitalism is responsible for that great improvement in the human condition, doesn’t that show the power of the human instincts for capitalism?

How would the authors explain the powerful capitalist instincts expressed by those people who work in the illegal underground economy, who are not legally registered or regulated by government, who are paid in cash, and who pay no taxes on their incomes?  In 2009, the Organization for Economic Co-operation and Development estimated that over half of the workers in the world work in the illegal economy, and that by 2020, two-thirds of the workers will be in the underground economy.  There are some estimates that in places like Lagos, Nigeria, over 80% of the workers are in the underground economy.  Friedrich Schneider estimates that the yearly value of the underground economy around the world is over $10 trillion.  If this were an independent nation, this would be second only to the GDP of the U.S.

According to the authors of this paper, the entrepreneurial energy of these people in the underground economy elicits our disgust because it violates our instincts for benevolence.  “Far more deeply embedded in the human psyche is our tendency toward explicit cooperation, or benevolence, or altruism, and therefore this constitutes a far stronger impulse in our decision-making.  Biologically speaking, explicit benevolence triumphs the implicit trade variety” (26).  But in a footnote to this passage, they say that “trade, too, is benevolent; it, too, is mutually supportive in that there are necessary gains from it at least in the ex ante sense” (26, n. 17).  Are they agreeing with Hayek’s claim that the “morals of the market” are altruistic in their effects as promoting the common welfare, even though their intentionality is not altruistic (Fatal Conceit, 81, 117-19)?

Hayek would say that those underground entrepreneurs are also intentionally benevolent in that much of their motivation for bettering their condition is so that they can help their families and friends to live a better life.  So, here again, we see human beings living in two worlds—the small world of family and intimate associations and the large world of trade and impersonal interaction—both of which are rooted in our evolved human instincts.

But how exactly do we empirically study those evolved human instincts and make falsifiable predictions about them?  The authors rely on prehistoric archaeological and paleontological evidence of human genetic evolution.  But such evidence is highly speculative, particularly since we cannot specify the genetic mechanisms for complex social behavior. 

If there are such genetic mechanisms, they should be manifested in the neural activity of the brain in a manner that might be directly observed.  So, for example, we might use brain scanning machines to study the brain activity of people who are asked to deliberate about hypothetical economic policies that test whether their thinking is more socialist or capitalist.  We could do this through economic game experiments.  This could provide us some empirical testing for our theories of the evolutionary neuroscience of socialism and capitalism.  Of course, there are some problems here that come from the fallacy of interpreting brain-scanning as mind-reading.
Some of my other posts on Hayek's Freudian theory of human evolution can be found here, here, here, here, here, here, here, and here.

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