Wednesday, October 25, 2017

Is Emporiophobia (Fear of Markets) Rooted in Our Evolved Human Nature?

I have often argued against Friedrich Hayek's claim that socialism appeals to our evolved instincts, as shaped by our evolutionary history in hunter-gatherer bands, and therefore that capitalism requires a cultural repression of those natural instincts.  In making that argument, I have disputed the common assumption that the "mismatch" theory of evolutionary psychology supports Hayek's claim.

I have argued that evolutionary anthropology sustains the conclusion that a capitalist liberal culture appeals to the evolved human instincts for social exchange or trade and for the liberty expressed as resistance to oppression that can be seen in hunter-gatherer bands.  Adam Smith was right to see that the "system of natural liberty" is rooted in our innate instincts and that the opulence that results from exchange and specialization is the necessary consequence of "a certain propensity in human nature . . . the propensity to truck, barter, and exchange one thing for another."

Karl Marx, Friedrich Engels, and anthropologists like Richard Lee have been mistaken in believing that "our ancestors were communists" (Lee 1991, 255).  Actually, our hunter-gatherer ancestors were "the original libertarians" (Mayor 2012).

I have developed my argument in some posts here, here, here, here., and here.

And yet Hayek's socialism-as-evolutionary-atavism thesis continues to be defended by scholars who think about the evolutionary psychology of economics.  In recent years, Paul Rubin has contended that "folk economics"--the intuitive economics of ordinary people with no training in economics--shows what he calls "emporiophobia" (the fear of markets), based on the Greek words emporion (for a trading market) and phobia (for fear).  And he sees this as showing the evolved human nature that was shaped by evolution in ancient hunter-gatherer bands (Rubin 2003, 2014).   Now, Pascal Boyer and Michael Bang Petersen have elaborated Rubin's reasoning in an article accepted for publication in Behavioral and Brain Sciences (Boyer and Petersen 2017).  Here we can see the theoretical rigor and empirical evidence supporting Hayek's thesis that Hayek himself never provided.

According to Rubin, folk economics is mistaken in seeing the economic world as a zero-sum world in which a gain for one person must be a loss for someone else, while economists correctly understand that economic exchange can be positive-sum in showing the gains from trade, so that in any voluntary economic transaction, both sides benefit.  Folk economics arises from instinctive intuitions that evolved in our hunter-gatherer ancestors living in a world without specialization, division of labor, capital investment, or economic growth--a world without markets.  The mismatch between that Paleolithic world without markets and the modern world of extended trade in markets explains the mistakes of folk economic thinking in its assumption that markets are bad.

So, for example, folk economics assumes that international free trade is bad, because if foreigners are profiting from trading with us, we are losing out in that this creates unemployment at home.  For another example, people often say "The rich get richer, and the poor get poorer," which implies that the rich have caused the poverty of the poor by outcompeting them.  Again, the fundamental assumption is that free markets must create zero-sum competition with winners and losers.

To see the mistakes in folk economics, people need to be taught economic science.  Unfortunately, Rubin observes, the teaching of economics stresses market competition rather than market cooperation.  To show this, he surveys some of the leading textbooks in economics, and he points out that there are far more references to competition than to cooperation.  This reinforces the assumption of folk economics that markets always require competition, with winners and losers, and so we need to restrict or regulate markets to promote cooperation rather than competition.

To overcome this, Rubin proposes changing the way economics is taught, so as to stress cooperation rather than competition.  In fact, the fundamental insight of economics is that every economic transaction is cooperative, because all parties expect to benefit from a transaction, otherwise they would not agree to it, and therefore it's a act of mutually beneficial cooperation.  Of course, competition is essential, but only as a tool facilitating cooperation.  Competition sets terms for cooperation and selects the best partners for cooperation.  When economic agents compete with one another, they are competing for the right to cooperate with others.  The most successful competitor is the one who is most successful in cooperating with others--either by selling to more buyers or buying from more sellers.  When people are taught to understand this, they will see that markets are fundamentally cooperative rather than competitive, which dispels the fear of markets as bad or immoral in promoting a destructive competition in society, a fear that arises from evolved instincts that distort the reality of markets in the modern world

Boyer and Petersen extend and deepen Rubin's reasoning by laying out an evolutionary cognitive model that specifies how cognitive systems that evolved in ancestral hunter-gatherer bands now shape the fear of markets in folk economics.  They present eight examples of folk-economic beliefs.
1. International trade is zero-sum, has negative effects.
2. Immigrants steal jobs.
3. Immigrants abuse the welfare system.
4. Necessary social welfare programs are abused by scroungers.
5. Markets have negative social impact ("emporiophobia").
6. The profit motive is detrimental to general welfare.
7. Labor is the source of value.
8. Price-regulation has the intended effects.
Each of these beliefs can be explained as connected to an evolved cognitive bias.  For example, the belief that international trade must be zero-sum can be seen as arising from the evolved cognitive propensity for forming coalitions in competition with other coalitions.  The evolved human mind is inclined to identify nations as competing coalitions, and therefore we are inclined to believe that when foreign nations benefit from trading with us, our nation is harmed, because if the other nations are winning, we are losing.  (Doesn't this remind us of Donald Trump's rhetoric against free trade?)

But even if this explains the folk-economic beliefs of ordinary people that show fear of markets, it does not explain the economic behavior of these people that shows endorsement of markets.  Most of those Americans who condemn international free trade as unfair to America are happy to shop at WalMart and buy imported Chinese goods if they think they are the best products for the price.

Rubin recognizes this when he quotes Frederic Bastiat as saying "each man is in practice an excellent economist, producing or exchanging according as he finds it more advantageous to do the one or the other" (Rubin 2003, 167).  So while Rubin complains that the economic beliefs of ordinary people show ignorance of economics, he sees that in practice people show themselves to be excellent economists!

The quotation from Bastiat comes from his discussion of theory and practice in the debate between the proponents of free trade and the proponents of protectionism.  The theorists of free trade say: "It is better to buy from another what it would be more costly to make oneself."  The theorists of protectionism say: "It is better to make things oneself, even if it would be less expensive to buy them from another."  Bastiat points out that only the first assertion enjoys the support of universal practice.  That's why the theorists of protectionism want to use coercion to compel people to produce what they would find more advantageous to purchase. 

While the theory of protectionism is contrary to practice, Bastiat observes, the theory of free trade is "so little opposed to practice that it is nothing else than practice explained."  So what he means in saying that "each man is in practice an excellent economist" is that "everyone gains a knowledge of this science through experience; or rather, the science itself is only this same experience accurately observed and methodically interpreted" (Bastiat 1968, 84). 

Human beings show in their behavior a practical understanding of why markets are good, because of the gains from trade, which does not require any formal training in economic theory.  And this practical understanding of markets shows how the institutions of capitalism can elicit the evolved propensities of the human mind for cooperation through trading or exchange.  This is why, against Hayek, Leda Cosmides and John Tooby have argued that evolved instinctive rules can be triggered by the experience of different environmental cues, so that capitalist institutional cues can trigger trading behavior for mutually beneficial exchange.  Or, as Tooby has put it, "vast market-based economic systems exploit for their amazing productivity one cognitive system that evolved to handle explicit contingent exchange (the social exchange system)," and "the effects of most other psychological mechanisms terminate locally (parenting, love, friendship), but explicit exchange can extend far beyond individual perception globally through the miracle of markets."

This suggests that there are evolved cognitive systems that promote market behavior, and so Adam Smith was right about there being a natural propensity to truck, barter, and exchange.

Boyer and Petersen recognize that folk economic beliefs "do not govern people's economic behavior," because people "who say that markets are 'bad' may still behave as roughly rational agents in markets, and they may even detect the advantages of competition in their everyday economic behavior" (5, 32-33).  Boyer and Petersen recognize that people have folk-economic beliefs that are "incompatible with their own behavior in markets," and they cannot explain this: "the actual connections between micro-processes of economic decision-making on the one hand, and folk-economic beliefs on the other, remain unexplored" (39, 41).

Boyer and Petersen do not consider the possibility that even though people untrained in economics often do not have a good intellectual understanding of markets, they do have a good practical understanding of why markets are good, as manifest in their economic behavior, and this shows how the cognitive system for social exchange that evolved among our ancestral hunter-gatherers can be elicited in modern capitalist environments to sustain extended market behavior.

That this is the case is indicated by the remarkable triumph of capitalism over socialism in the past 150 years.  After V. I. Lenin led the Bolsheviks to power in Russia in 1917, he set out the next year to leap directly into pure socialism by abolishing all buying and selling in markets and having all economic activity controlled by governmental planning, which was called "war communism" (Richman 1981).  This produced an economic disaster.  If Russia did not totally collapse, it was only because the natural human impulse towards markets could not be completely suppressed, and so most of the economic activity went underground into illegal black markets.  By 1921, in response to popular uprisings that threatened to overthrow the regime, Lenin publicly admitted the failure of war communism, and he announced the "New Economic Policy," which legalized buying and selling in markets. 

Never again have socialists tried to totally abolish markets.  They have tried to severely restrict markets, but even that has been subverted by people going into illegal markets.  In some countries today, most of the economic activity is in underground markets that evade governmental controls and taxation.

Even those European countries that are regarded as most successful in their socialism--such as the Nordic social democracies--are not really socialist but rather welfare state capitalist systems.  As I have argued in some posts (here and here), these countries rank high on the Human Freedom Index, which includes economic freedom for markets.

It is hard to explain this if one assumes that human beings have evolved instincts to fear markets and love socialism, because "our ancestors were communists."  It is easier to explain if one assumes that human beings have evolved instincts for liberty and a propensity to truck, barter, and exchange, because our ancestors were "the original libertarians."


REFERENCES

Bastiat, Frederic. 1968. Economic Sophisms. Trans. Arthur Goddard. Irvington-on-Hudson, NY: Foundation for Economic Education.

Boyer, Pascal, and Michael Bang Petersen. 2017. "Folk-Economic Beliefs: An Evolutionary Cognitive Model." Behavioral and Brain Sciences (forthcoming).  Available online.

Lee, Richard B. 1991. "Reflections on Primitive Communism." In Hunters and Gatherers: History, Evolution, and Social Change, eds. Tim Ingold, David Riches, and James Woodburn, pp. 252-68. New York: Berg.

Mayor, Thomas. 2012. "Hunter-Gatherers, The Original Libertarians." The Independent Review 16 (Spring): 485-500.  Available online.

Richman, Sheldon. 1981. "War Communism to NEP: The Road from Serfdom." The Journal of Libertarian Studies 5 (Winter): 89-97.  Available online.

Rubin, Paul H. 2003. "Folk Economics." Southern Economic Journal 70: 157-71.

Rubin, Paul H. 2014. "Emporiophobia (Fear of Markets): Cooperation or Competition?" Southern Economic Journal 80: 875-89.

ADDENDUM

After reading this post, Pascal Boyer sent me the following comment:

I just read your blog post and must say I agree with most or all of it.
But of course (when were academics happy with what other people say about their work?), I must say I am worried that you write:

Boyer and Petersen do not consider the possibility that even though people untrained in economics often do not have a good intellectual understanding of markets, they do have a good practical understanding of why markets are good, as manifest in their economic behavior, and this shows how the cognitive system for social exchange that evolved among our ancestral hunter-gatherers can be elicited in modern capitalist environments to sustain extended market behavior.

We not only consider that possibility, we make it explicit, and even reiterate it at several points in the paper, e.g.:

In this regard, it is important to note, again, that emporiophobia is a matter of stated, explicit beliefs, which may or may not reflect the intuitive principles that actually guide people’s economic behavior. People who say that markets are “bad”, may still behave as roughly rational agents in markets, and they may even detect the advantages of competition in their everyday economic behavior. But, if asked whether a given domain of activity should be left to a market of competitors, or when asked the extent to which markets should be regulated, they readily express the view that market outcomes are socially detrimental. 
   
But, OK, the point was buried in the text and should have been made much salient. It is in fact a really fascinating problem: most people will routinely accept that having two butchers in their town is better than having one, and yet, will opine that ‘markets’ should not ‘dictate’ economic activity. Understanding how this inconsistency can be sustained is difficult but necessary. 

1 comment:

Troy Camplin said...

I agree with you that Hayek perhaps goes a bit too far in suggesting people are evolved to prefer socialism over markets. However, I do think that people are very much zero-sum thinkers, and that this thinking is at best very difficult to overcome in the vast majority of people. It's why, even if people don't favor outright socialism, they often favor redistributionist policies.

It's hard to get people to think like an economist, even if they understand intuitively that trade is beneficial to them. What people seem to miss is the fact that the only difference between me and Bill Gates is that he has engaged in billions more mutually beneficial exchanges than I have.

Well, not the only difference, of course. The reason he was able to do that is because he was also innovative and created something(s) new people wanted. We need to include innovation/invention in our economics models much more often to clarify this for everyone--including all too many economists.