From markets to market economy

Market gate, old city of Baku. Until a few centuries ago, markets were highly localized in time and space. Most economic activity took place outside them, either within each household or in long-term reciprocal relations within the community.

The political Right typically believes that a market economy will self-generate as long as government gets out of the way and as long as property rights are legally protected.

But why, then, are market economies relatively recent? When Adam Smith wrote The Wealth of Nations (1776), he was describing an economic system that had scarcely existed a few centuries earlier in England and that was still unknown in most of the world. It wasn’t as if people had been ignorant of the market principle and its potential for creating wealth. In fact, markets had been common since the dawn of history and probably long before. But they had been highly localized in time and space, with most economic activity taking place outside them, either within each household or in long-term reciprocal relations within the community. Something kept all of these isolated marketplaces from expanding into a market economy.

That something was “trust.” Market economies have developed in societies where lying, cheating, and stealing are highly stigmatized, even when dealing with strangers and even when the chances of getting caught are minimal. In such societies, some people may deviate from this behavioral norm, but they are just that—deviants. They are the exceptions, not the rule. In the early 70s, my hometown used to have newspaper boxes that operated on the honor system. You took a paper and placed enough money in the coin slot. Nothing kept you from taking a paper without paying, but nobody ever did.

Yet this is not how most of the world works. When I raise this point with other people, they usually agree. Like me, they have traveled and seen how other societies really operate. But then they will argue that such societies are deviant. Something—lack of opportunity, poor education, or improper role models—is preventing them from being normal.

Yet the truth is the opposite. It is the high-trust societies that are abnormal, both historically and geographically. They are the ones that have abandoned the fundamental rule of trusting kith and kin above everyone else (because everyone else is out to screw you). That norm no longer applies to them. They have deviated from it; therefore, they are deviant.

Gregory Clark (2009) has described the trajectory that has led some societies to deviate from the low-trust norm:

The Darwinian struggle that shaped human nature did not end with the Neolithic Revolution but continued right up until the Industrial Revolution. But the arrival of settled agriculture and stable property rights set natural selection on a very different course. It created an accelerated period of evolution, rewarding with reproductive success a new repertoire of human behaviors – patience, self-control, passivity, and hard work – which consequently spread widely.

Was this behavioral shift due to changes in genes or in memes (learned ideas)? The question is difficult to answer (and not simply because many find it offensive). Natural selection operates on phenotypes, and only indirectly on genotypes. There was probably a mix of changes to learned behaviors and innate predispositions. There may also have been changes to gene/culture interaction, i.e., some predispositions may have now required less “exercise” to become fully expressed.

Whatever its exact nature, the overall change seems to have been a shift toward the sort of behavioral regime that exists in certain small communities, such as Hutterite colonies and Israeli kibbutzes, except on a much larger scale:

Still, a common good is always a fragile commodity, vulnerable to the parasitism of self-interest and nepotism. How were these perils averted? A large part of the answer is simply small size. Communities are small enough for everyone’s behaviour to be continuously monitored and controlled through informal, and if need be, formal sanctions. At the same time, the group is small enough for the contribution of every adult to be crucial to the collective welfare, and, therefore, for everyone to have a large stake in controlling shirkers and free-riders. In short, the costs of rewarding good behaviour and stigmatizing parasitism are much lower than the costs of ignoring other people’s behaviour. Both types of communities are notorious for lack of privacy: everyone’s behaviour is everybody’s concern. (van den Berghe & Peter, 1988)

But how was it possible to expand this high-trust environment to one that would encompass millions of people? How did societies like England pull it off?

(to be cont’d)

References

Clark, G. (2009).The Domestication of Man: The Social Implications of Darwin, ArtefaCToS, 2, 64-80
http://campus.usal.es/~revistas_trabajo/index.php/artefactos/article/view/5427

Van den Berghe, P.L. and K. Peter. (1988). Hutterites and kibbutzniks: A tale of nepotistic communism, Man (N.S.) 23, 522-539.

Review of 2009

Before I make my predictions for 2010, let me review the ones I made for 2009:

The Neanderthal genome will be fully sequenced. There will be no evidence of interbreeding with modern humans (although proponents of the multiregional model will remain unconvinced). By comparing this genome with ours, we may reconstruct the genome of archaic humans who lived almost a million years ago and who were ancestral to Neanderthals and modern humans.

The Neanderthal genome was not fully sequenced this year. Because much of the reconstructed DNA turned out to be contamination from modern humans, the researchers had to start over. So far, there is no sign of Neanderthal admixture in the modern European genome, including the European variant of the microcephalin gene (which some had thought to have been of Neanderthal origin).

Meanwhile, work will begin on sequencing the genome of early modern humans (10,000 – 40,000 years ago). This project should ultimately prove to be more interesting by showing us how much modern humans have evolved during their relatively short existence. We will probably find out that John Hawks erred on the low side in concluding that natural selection had changed 7% of the human genome over the past 40,000 years.

The work has begun, at least for European populations, but it’s raising more questions than answers. The big question is the fate of the hunter-gatherers who inhabited Upper Paleolithic and Mesolithic Europe. Were they ancestral to present-day Europeans? Or were they replaced by a farming population from the Middle East? To date, the data indicate little genetic continuity between late hunter-gatherers and early farmers. On the other hand, the same data show little continuity between early farmers and present-day Europeans.

Perhaps founder effects are muddling the picture. Whenever some hunter-gatherers adopted agriculture, they and their descendants probably expanded considerably at the expense of neighboring groups. Early farmers would thus come from a very unrepresentative sample of late hunter-gatherers. The transition may have been just as bumpy between early farmers and later populations. Thus, the lack of genetic continuity could be more apparent than real.

In any case, paleo-geneticists should be looking not only at junk DNA but also at genes that have real-world effects. When did ancestral Europeans come to look the way they do now? Was it a gradual process that began when modern humans arrived in Europe some 35,000 years ago? Or did it happen rapidly?

We should also examine genes that regulate growth of brain tissue (like the aforementioned microcephalin variant). How intelligent were Europeans 30,000 years ago, 15,000 years ago, 5,000 years ago?

With the 150th anniversary of The Origin of Species, much will appear in 2009 about Charles Darwin and his life. We already know how he came up with his theory of evolution (Darwin salted away almost everything he wrote), although a few questions remain unanswered. What would he have done if he had lived longer? What did he have in mind for future projects?

Nothing really new has turned up. In 2009, historians questioned the view that Darwin deliberately held back his theory for two decades out of fear of a religious backlash. In fact, he was more afraid of not being taken seriously. He wished to build up his academic reputation before tackling the issue of evolution:

To use the modern jargon, he had to have the papers on the table to prove his worth. … Evolutionary ideas had emerged sensationally in the anonymously published Vestiges of the Natural History of Creation (1844), which could be pooh-poohed by the orthodox scientists of the day as a mishmash of half-baked ideas from the pen of a pseudo-scientist (it was subsequently revealed as the work of the antiquarian and publisher Robert Chambers). Darwin would not want to be taken lightly or dismissed as a mountebank: he was evidently a realist when it came to his career. (Fortey, 2009)

The Second Great Depression will not begin in 2009. In any case, what scares me is not the prospect of a sudden drop in the standard of living. Rather, it’s that of a gradual decline to almost half its current value. That scenario is scarier and likelier. And it’s probably already started. For the past fifteen years, median wages have stagnated despite decent economic growth. What will happen when growth stays in the 0-2% range?

The current recession is drawing to a close, but this should be no cause for self-congratulation. The coming decade will likely bring us stagflation, i.e., declining incomes and rising prices, especially for the basics of life (food, housing, oil, and most other commodities).

The cause? Globalization. The playing field is being leveled, and we’re competing more and more with the rest of the world for the basics of life. With free circulation of capital, goods, and labor—and that seems to be where our elites wish to go—incomes everywhere will tend to gravitate to the same level. There will still be income disparity within each country, perhaps even more (as in Latin America), but the average income level will be similar around the world, except for those countries that opt out of the globalist project.

Things might not be so bad for us if the world’s resources could be increased indefinitely. Our incomes could then stagnate while everyone else catches up (unlikely, though, since much of the world lacks the necessary social capital and political stability). In any case, even that scenario seems unrealistic. Demand is starting to outstrip supply for a number of key commodities, and not just oil. This is what the Club of Rome predicted back in 1972 in its report The Limits to Growth. Unfortunately, this pessimism seemed to be proven wrong when commodity prices fell into a long-term slump after the 1982 recession.

I suspect that warnings about peak oil are going unheeded now because similar warnings were made over thirty years ago. Just more of the same doom and gloom. Or so many think.

References

Endersby, J. (2009). Creative designs? How Darwin's Origin caused the Victorian crisis of faith, and other myths, TLS 7.3.16.

Fortey, R.A. (2009). How Darwin evolved, TLS 6.1.1.