Crossposted from The Huffington Post
I hope that our economy recovers, but the time has come to declare its guiding metaphor dead. This is the metaphor of the invisible hand, which makes it seem as if the narrow pursuit of self-interest miraculously results in a well-functioning society.
The invisible hand metaphor originates with Adam Smith in The Wealth of Nations (1776). Bernard Mandeville made a similar point with his Fable of the Bees (1705), which fancifully describes human society as a wondrously productive bee hive, even though each bee is as selfish as can be.
Smith was critical of Mandeville and presented a more nuanced view of human nature in his Theory of Moral Sentiments (1759), but modern economic and political discourse is not about nuance. Rational choice theory takes the invisible hand metaphor literally by trying to explain the length and breadth of human behavior on the basis of individual utility maximization, which is fancy talk for the narrow pursuit of self-interest. For the general public, unfettered competition has been turned into a moral virtue and "regulation" has become a sin.
Actual human preferences are all about regulation. A microcosm of America's economic collapse can be created in the laboratory in a single afternoon. Yank a group of people off the street, give them a task that requires cooperation, and most of them will play along as solid citizens. Unfortunately, a few will game the system if there is any way to cheat. Once the solid citizens realize that they're being ripped off, they withdraw their cooperation as their only defense. Provide them with an opportunity to punish the cheaters, and some (but not all) punish with zeal. Even the cheaters punish other cheaters with zeal! Once the capacity for regulation is provided in the form of rewards and punishments that can be implemented at low cost, cooperation rises to high levels. Regulation is required or cooperation will disappear, like water draining from a bathtub.
These social preferences go beyond our own species. Cooperation and cheating are behavioral options for all social species, even bacteria, and cooperation survives only to the extent that it is protected against cheating. The eternal conflict between cooperation and cheating even takes place within our own bodies, in the form of genes and cell lineages that manage to game the system at the expense of the organism upon which they depend. We call them diseases, but they are really the failure of a vast system of regulations that enable us to function as organisms as well as we do.
Why are we so different from all other primate species? Because we are so cooperative. Why are we so cooperative? Because it is so easy to regulateDemocracy in America (1835, 1840), also said this about small human groups: "The village or township is the only association that is so perfectly natural that...it seems to constitute itself." This self-organizing ability to function as cooperative groups is "so perfectly natural" because it evolved by a long process of natural selection, in humans no less than bees.
By the same token, functioning as large cooperative groups is not natural. Large human groups scarcely existed until the advent of agriculture a mere 10 thousand years ago. This means that new cultural constructions are required that interface with our genetically evolved psychology for human society to function adaptively at a large scale. each other's behavior in small face-to-face groups. It happens so naturally that we don't even notice it. Alexis de Tocqueville, the great French social theorist who wrote
These constructions can work well or poorly. They can arise by a raw process of cultural evolution--many inadvertent social experiments, a few that succeed-- or by a less wasteful process of intentional planning. Tocqueville marveled at the vitality of the American democratic experiment planned by the founding fathers, compared to French society as an inefficient accretion of history. He also perceptively observed that America's vitality could not be attributed entirely to intentional planning. Mexico copied the United State's constitution, but the results were not the same. Something more contributes to America's vitality that we vaguely call "culture" but must study to understand. Tocqueville also speculated that the American democratic experiment could unravel in an eerie premonition of our current turbulent times.
Theories and metaphors are the cultural equivalent of genes. They influence our behaviors, which have consequences in the real world. Mother nature practices tough love. When a theory or a metaphor leads to inappropriate behaviors, we suffer the consequences at scales small and large. To change our behaviors, we need to change our theories and metaphors.
For those who wish to learn more about how economics is going beyond rational choice theory, I recommend a book titled Moral Sentiments and Material Interests: The Foundations of Cooperation in Economic Life (2006), edited by Herbert Gintis, Samuel Bowles, Robert T. Boyd, and Ernst Fehr. Gintis, Bowles, and Fehr are eminent economists while Boyd is an eminent evolutionary anthropologist, illustrating how integrative the new economic theory has become. I have also written an essay titled "The New Fable of the Bees" that explores the theme of this blog in more detail.