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Living along the Orinoco River that borders Brazil and Venezuela are the Yanomamö people, hunter-gatherers whose average annual income has been estimated at the equivalent of $90 per person per year. Living along the Hudson River that borders New York State and New Jersey are the Manhattan people, consumer-traders whose average annual income has been estimated at $36,000 per person per year. That dramatic difference of 400 times, however, pales in comparison to the differences in Stock Keeping Units (SKUs, a measure of the number of types of retail products available), which has been estimated at 300 for the Yanomamö and 10 billion for the Manhattans, a difference of 33 million times! How did this happen? According to economist Eric D. Beinhocker, who published these calculations in his revelatory work The Origin of Wealth (Harvard Business School Press, 2006), the explanation is to be found in complexity theory. Evolution and economics are not just analogous to each other, but they are actually two forms of a larger phenomenon called complex adaptive systems, in which individual elements, parts or agents interact, then process information and adapt their behavior to changing conditions. Immune systems, ecosystems, language, the law and the Internet are all examples of complex adaptive systems.
In biological evolution, nature selects from the variation produced by random genetic mutations and the mixing of parental genes. Out of that process of cumulative selection emerges complexity and diversity. In economic evolution, our material economy proceeds through the production and selection of numerous permutations of countless products. Those 10 billion products in the Manhattan village represent only those variations that made it to market, after which there is a cumulative selection by consumers in the marketplace for those deemed most useful: VHS over Betamax, DVDs over VHS, CDs over vinyl records, flip phones over brick phones, computers over typewriters, Google over Altavista, SUVs over station wagons, paper books over e-books (still), and Internet news over network news (soon). Those that are purchased “survive” and “reproduce” into the future through repetitive use and remanufacturing.
As with living organisms and ecosystems, the economy looks designed—so just as humans naturally deduce the existence of a top-down intelligent designer, humans also (understandably) infer that a top-down government designer is needed in nearly every aspect of the economy. But just as living organisms are shaped from the bottom up by natural selection, the economy is molded from the bottom up by the invisible hand.
The correspondence between evolution and economics is not perfect, because some top-down institutional rules and laws are needed to provide a structure within which free and fair trade can occur. But too much top-down interference into the marketplace makes trade neither free nor fair. When such attempts have been made in the past, they have failed—because markets are far too complex, interactive and autocatalytic to be designed from the top down. In his 1922 book, Socialism, Ludwig von Mises spelled out the reasons why, most notably the problem of “economic calculation” in a planned socialist economy. In capitalism, prices are in constant and rapid flux and are determined from below by individuals freely exchanging in the marketplace. Money is a means of exchange, and prices are the information people use to guide their choices. Von Mises demonstrated that socialist economies depend on capitalist economies to determine what prices should be assigned to goods and services. And they do so cumbersomely and inefficiently. Relatively free markets are, ultimately, the only way to find out what buyers are willing to pay and what sellers are willing to accept.
Evonomics helps to explain how Yanomamö-like hunter-gatherers evolved into Manhattan-like consumer-traders. Nineteenth-century French economist Frédéric Bastiat well captured the principle: “Where goods do not cross frontiers, armies will.” In addition to being fierce warriors, the Yanomamö are also sophisticated traders, and the more they trade the less they fight. The reason is that trade is a powerful social adhesive that creates political alliances. One village cannot go to another village and announce that they are worried about being conquered by a third, more powerful village—that would reveal weakness. Instead they mask the real motives for alliance through trade and reciprocal feasting. And, as a result, not only gain military protection but also initiate a system of trade that—in the long run—leads to an increase in both wealth and SKUs.
This article was originally published with the title Evonomics.
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15 Comments
Add CommentAnother excellent essay from Mr Shermer, but even the perceptive skeptic seems susceptible to dogma. In a piece where he makes a case for the organic growth of orderly society, Mr. Shermer throws a bone to the purveyors of brute force with his sentence: "some top-down institutional rules and laws are needed to provide a structure within which free and fair trade can occur".
Reply | Report Abuse | Link to thisI disagree. Free and fair trade occurs in societies where most individuals interact in ways that provide mutual benefit. The necessary rules weren't generated by wise men in a sacred temple, or lawmakers in congress, but rather evolved over generations and were widely accepted and practiced before the law was ever written. Laws that fail this test are ignored. If enforcement becomes too onerous, there is rebellion. Yet the concept that human interaction must, and can be controlled by a higher force is universal. Interestingly, there is no widespread agreement on who the "higher force" is. Religious people ascribe good behavior to god's law. They cannot conceive of an orderly society of atheists. Secular people credit the government. They consider anarchy to be synonymous with barbarity. Everyone seems to agree on the concept that orderly society requires an omnipotent force. Yet, everywhere there is evidence that this is not so.
Indeed, if you look at the work of Hernando de Soto, top down authority merely legitimizes the legal arrangements hammered out by individuals.
Reply | Report Abuse | Link to thisHe does not mention the complex adaptive system that attracts most of the popular and political attention: climate. Attempts to "manage" the climate are as much misguided science as attempts to "manage" the economy or the evolution of species in general.
Reply | Report Abuse | Link to thisInvisible hand is a farce... there is nothing invisible about Debeers funding the extermination of African Tribes to control all the diamonds - - prices are set and markets controlled more often that not... Hello, anyone home???
Reply | Report Abuse | Link to thisDr. Michael Schermers speculation about evolution and economics (Evonomics, Scientific American, January 2008, at 38), while interesting, does not appear particularly scientific or even particularly skeptical. For instance, Dr. Shermers citation to a 1922 book by Ludwig Von Mises, accompanied by the bald assertion that too much top-down interference into the marketplace makes trade neither free nor fair could be read as uncritical acceptance (or even advocacy) of a particular political ideology that has little if anything to do with the modern practice of the science of economics by Nobel laureates such as Joseph Stiglitz (whose work on market failure, transactions costs, and imperfect information, Dr. Shermer would do well to study).
Reply | Report Abuse | Link to thisLaissez-faire evolution by natural selection, and laissez-faire economics, both may well, as Dr. Shermer speculates, tend over time to produce a kind of diversity that is arguably worth valuing. But are those processes worth valuing to the exclusion of say, the top down processes that led (in the biological context) to the domestication of crops and animals, or the development of antibiotics? Presumably, a good case can be made for a mixed ecosystem (and also for a mixed economy) in which too much of either extreme is avoided i.e., not too much wild land is converted by the economic market to monoculture agriculture, but at the same time, we also do not attempt in the biological world (just as some self-styled political revolutionaries would do, to return the market to its supposed pre-regulatory natural state) to roll-back top down intervention in nature to pre-agricultural, hunter-gatherer days.
How much of the top-down alternative to laissez-faire, precisely, is too much, Dr. Shermer? Certainly, Grover Norquist, or modern-day acolytes of Von Mises, Fredrich Hayek, and Milton Friedman, have their own political points of view. Others, such as Naomi Klein (The Shock Doctrine: The Rise of Disaster Capitalism [Metropolitan Books 2007]), have assembled a rather impressive anecdotal case to argue that a mixed, modern economy, is eminently preferable to the laissez-faire vision peddled by recent political movements, particularly in the United States.
Finally, I cannot quite fathom what Dr. Shermer means when he posits that Yanomanö-like hunter-gatherers evolved into Manhattan-like consumer-traders. Last I checked, the Yanomanö and Manhattanites, both were part of the species Homo sapiens sapiens. The difference is one of culture, certainly not of evolution. I will not, here, repeat Professor Richard Dawkinss mantra about avoiding the fallacy of viewing evolution as a progressive process, or as a process that moves in a particular direction, with a set goal in mind. Ill merely say that Dr. Shermers apparent view of evolution differs rather substantially from how I have come to understand evolution by natural selection to work.
I think, perhaps, you are missing an important distinction between spontaneous social order and social anarchy. The former is developed by work and investment, under the rule of law and with a set of evolved morals. The latter is chaos.
Reply | Report Abuse | Link to thisThe classical liberal tradition of von Mises and Hayek never makes the claim that the complete absence of top-down rules leads to the optimal social order. It simply says we should be skeptical about our ability to manage them in the name of social justice, equality, or progress.
I'm not sure I really agree with the cartoon accompanying the article. I think that it could easily be argued that the Dynastic gent from china is far more evolved than Rennaisance or Victorian guy. Perhaps a bad analogy for bad science.
Reply | Report Abuse | Link to thisWhat nonsense I see coming from Benrast and others.
Reply | Report Abuse | Link to thisAnarchy means, simply, "without leaders" and can be a very peaceful spontaneous social order. As for his Mises argument ("written in 1922 so it can't be right!"), well its not an arguement at all. Economic calculation problems are what really caused the Soviet Union to collapse, not Reagan or anyone else. Mises was right. Try something other than ad hominems.
star2man and others seem to mistake true free and fair trade among individuals with "DeBeers" style corporatism (which is often state sanctioned and enforced). That kind of "free market" isn't free - it is itself just a different version of top down economic planning that will not work in the long run as was with socialist planned economies.
It is the same as ID nonsense.
Dr. Shermer is absolutely right.
Johnny,
Reply | Report Abuse | Link to thisYou have misinterpreted my post. I was responding to ecgrimm. I agree with Shermer. If I am guilty of nonsense, you are too!
This is very true, and its hold true in today's environment too. Let's take the smallest of the logics - Increasing trade between countries can also be a solution for reducing terrorism and increasing employment worldwide. Simple logic - why do we have terrorism - there are people who do not have any work, nothing to keep them occupied and that is why they indulge in wrong things ( EMPTY BRAIN IS DEVIL'S WORKSHOP). If we are able to generate sufficient employment then these people would be occupied and would have less time and brain for wrong things. By generating employment you also add to ecomoic growth and once an individual tastes the good things in life there is more craving and one tries to strive for more.
Reply | Report Abuse | Link to thisI could not agree less with the whole argument of this article. A can of Coke is a can of Coke, reasonably standardized.
Reply | Report Abuse | Link to thisAn hectare of the forest where the Yanomami live has an incalculable variety of species, in which each individual is different from the other.
The apparent wealth of the New York environment is deceiving. Mostly the same materials in different shapes and colours, satisfying the same basic needs of the Yanomamis.
Nowadays we rely on less than 300 types of plants to feed us, a number that is dwindling fast.
A bow is never the same as another one for the Indian. The tree is not the same, the day of harvest and the history of the object make it unique. Anyone can find North, 52 Avenue.
In the forest it is not so easy, and it is much more interesting.
It is better not compare things that are not similar.
"Evonomics helps to explain how Yanomamö-like hunter-gatherers evolved into Manhattan-like consumer-traders". If it does then it is very bad science. Both groups co-exist at the present time, neither group shows a genetic descent from one to the other (although I'm willing to accept any evidence there may be for this). Obviously the Manhattanites would like to think they are somehow more 'advanced'. This is an illusion based on prejudice. Whereas the consumer-traders are rapidly destroying their own means of subsistence, the hunter-gatherers have survived over millennia - most of human history. For the long-term future of humanity, my money is on the hunter-gatherers. Read Hugh Brody's 'The Other Side Of Eden' for a serious discussion of this.
Reply | Report Abuse | Link to thisThe best explanation of the unavoidable decadences of the totalitary regimes and the reasons for their atheism.
Reply | Report Abuse | Link to thisScarpelli
to my personal view:
Reply | Report Abuse | Link to thisyou are right on athleticism narrow minded philosophy,yet you are very wrong to use that as the unavoidable failure of totalitarian regime.
Above all you seem to be totally off-track with the article in question which leaves no contributory credence to your debate in this instance.
I suggest if you could revisit the article once more.
I am looking forward to read your second review and reply to Dr Michael Schermer article again.
Ok, first of all, it is racist and imperialistic to assume that just because someones lives in a hunter gatherer society that they're "less evolved".
Reply | Report Abuse | Link to thisSecondly, the reason someone in New York is more rich is because they most likely spent their entire life specializing to do ONE task (whether it be writing, making art, cooking, etc.)
While people in hunter gatherer societies have to master several talents in order to be self-sustaining. But most of those talents are not seen as valuable enough to the rest of the world (considering they didn't spend so much time working on each talent because they have so many.)
That's another thing the article misses. While hunter gatherer societies only make 90 bucks, they don't have to use any money at all for food, shelter, and many other items. While in New York, the majority of your money is dedicated to those things.