I see two main kinds of political economists: (a) those, who, when they can’t figure out how the market could handle something, conclude that it must be defective, and recommend that the government should step in to try to fix it, and (2) those, who, when they can’t figure out how the market could handle something, conclude that they must be ignorant, and try to figure out how it could. They have different reactions to not finding something. The former doesn’t see it, and concludes that it doesn’t exist; and the latter doesn’t see it, and concludes that it must be someplace that they haven’t yet checked. The former has a strong belief in the power of the government, and a weak one in the power of the market; and the latter has the opposite, a strong belief in the power of the market, and a weak one in the power of the market.
I will admit it right now. I tend to be one of the latter. I have seen order in the market, and I have seen chaos in the government, yet I am ignorant about most of how the market works, and most of how the government works. What I have seen about the market is good, and what I have seen about the government is bad. What I haven’t seen about either is neither. Yet I don’t expect to uncover something about the market that is bad, by which I mean worse than the government, or expect to uncover anything about the government that is good, by which I mean better than the market.
I am admitting this because I want to question it. I want to question this attitude. I want to know where it came from, and I want to know whether it makes sense. I want to know whether either position is reasonable, or whether there is a third way.
I first want to go into a quick digression.
We say that biological competition is a zero-sum game, and that social competition is a positive-sum game. We say that, in biological competition, your loss in my gain, and my gain is your loss, and, in social competition, my loss is your loss, and my gain is your gain. So, in biological competition, tearing down your competitor helps you, but, in social competition, it doesn’t. Being at the top of a social hierarchy might be better than being at the bottom, but it doesn’t help you to topple anyone who is already at the top. I like to think about it like this: In biological competition, there can only be one person at each level, including the top, so you have to topple the person above you to climb up onto their level, but, in social competition, there can be any number of people at each level, so you don’t need to make any room for yourself above you before you climb up, because there already is room, so you just need to climb up, and the people above you might even give you a hand.
So jealousy at people above you to the extent that you want to topple them from their position makes no sense in social competition. Would it make sense to try to disable who just bowled a 200, because you are so jealous that you could only get a 150? No, knocking the guy who got a 200 out of being able to bowl doesn’t help you get a 200. In fact, it might even hurt you, because you won’t be able to watch someone who got where you want to go in action, to see how they do it, and imitate them.
But people constantly exemplify that sort of jealously. We see that people constantly want to tear people down in the social hierarchy, and we often say that it probably is because they are jealous. Where does that sort of jealously come from? I think that it probably is a vestige of our evolution from when we were in more of a zero-sum game with people outside of our extended family. Humans used to be in more of a zero-sum game with people outside of our extended family, so it isn’t improbable that some vestiges of the attitude that made sense at that time would make it to the present.
That is a vestige of our evolution from before we had society as we know it today. There are many other examples of that. Walter Block even spoke in a lecture about that he thought that the reaction against the market economy and for socialism is just a vestige of our evolution from before we had society as we know it today, because at least partial socialism would make sense in a small group of you and your extended family.
My point in that digression was to make you think of the market economy as something that evolved. The market economy evolved. Its mechanisms evolved just like anything else. And I think that we still have in the attitudes of people some vestiges of evolution from before it evolved.
So I want to pose a question that I don’t think any economist has answered, or even asked, though I might be wrong about that.
How did the market economy evolve? Now I don’t mean how did we go from mercantilism to less mercantilism or something. I am asking how the components of it evolved. We know that interest rates coordinate production through time whether or not the government messes with them. But we say that the interest rate coordinates production through time in terms of the time preferences of the people in society if the government doesn’t mess with them. So my question isn’t about the history of how the government has messed with interest rates or something like that, or what people payed as interest. My question is, how did that mechanism even evolve? Where did it come from? How did our evolution come up with something like interest rates coordinating production through time in terms of the time preferences of the people in society? Why does that happen? My question isn’t about the cultural evolution of the market. My question is about the biological evolution of the market.
We evolved a bunch of other things that don’t seem to work very well. Our taste faculty is almost a joke in the modern world, unless you know how to intervene, and give it the right input. Why do we have such faith that the market isn’t the same way? Why do we have such faith that the market will work? What if it is a product of evolution, but early in its development, so it won’t work very well? Who knows?
It really baffles me. I have no idea even how to approach the question. Why do interest rates coordinate production through time? We know that they do. But we don’t know why they do. Why did evolution favor people whose structure of their mind made it so interest rates would coordinate production through time?
I think that, if we start asking those questions, and answering them, I think that we will find a third way between the two that I explained in the beginning, and will be on our way to a much more powerful theory. I unfortunately have no idea how to proceed.