Natural selection and the invisible hand

1
Natural selection and the invisible hand

• Model for Darwin and Wallaces theory of natural
  selection was the dog eat dog world of emerging
  industrial capitalism
• Struggle for survival seemed natural
• survival of the fittest Herbert Spencer not
  Darwin

2
Bernard Mandeville (1670-1733)

• 1705 Fable of the Bees Private vices and Public
  Virtues
• Well before Adam Smith had the idea that greed
  and selfishness may promote the common social
  good selfish struggle promoted fitness
• forerunner of ideas about the invisible hand,
  order out of chaos, optimization from an
  apparently chaotic process

3
Malthus and evolutionary theory

• The Malthusian Law population, if left
  unchecked, increases geometrically while at most
  the food supply increases arithmetically
• Very important new concepts (R. Young)
• 1. Humans and the environment were not
  necessarily in harmony
• 2. Humans are animals are part of the natural
  world

4
Malthus influence was enormous

• Malthusianism played a central role in a debate
  in which biological and social ideas were part of
  a common intellectual context
• Influence on Darwin and Wallace
• Influence on social Darwinism

5
William Paley

• Natural Theology (1802)
• The distinctions of civil life are apt enough to
  be regarded as evils, by those who sit under
  them but, in my opinion, with very little
  reason.
• The distribution of money, power and social
  status are a natural product of the Malthusian Law

6
Rev. Thomas Chalmers

• It is quite vain to think that positive relief
  will ever do away with the wretchedness of
  poverty. Carry the relief beyond a certain limit,
  and you will foster the diseased principle which
  gives birth to poverty...The remedy against the
  extension of pauperism does not lie in the
  liberalities of the rich it lies in the hearts
  and habits of the poor. (1811)

7
Social Darwinism

• Who is rich and who is not is an outcome of the
  struggle for survival and the survival of the
  fittest (term coined by Herbert Spencer)
• Helping those who are less fit is a violation of
  the laws of nature
• In economics the marginal productivity theory of
  distribution is a mathematical formulation of
  this theology

8
Herbert Spencer (1820-1903)

• Published a book on evolution in 1852
• He popularized the term evolution and coined
  the term survival of the fittest.
• Had a huge influence on economists. Alfred
  Marshall wrote that he eagerly awaited Spencers
  books and would read them to his wife during
  hikes in the Austrian alps.
• Alfred Russel Wallace named his son Herbert
  Spencer Wallace

9
William Graham Sumner

• The Forgotten Man
• Sumner and economic theory the marginal
  productivity theory of value
• What is the purpose of human society? To produce
  things.
• Well-being utility as consumption
• Forerunner of Potential Pareto improvement and
  efficiency as the only important economic goal

10
The Forgotten Man

• Capital, however, as we have seen, is the force
  by which civilization is maintained and carried
  onEvery bit of capital which is given to a
  shiftless and inefficient member of society, who
  makes no return for it, is diverted from a
  reproductive use but if it was put into
  reproductive use, it would have to be granted in
  wages to an efficient and productive laborer.
  Hence the real sufferer by that kind of
  benevolence which consists in an expenditure of
  capital to protect the good-for-nothing is the
  industrious laborer.

11
Social Darwinism in economics

• Charity for the poor diverts resources from their
  best use - increasing economic output

Consumption goods
?
Investment
?
?
Societys resources
Charity for the undeserving
12
More Forgotten Man

• Almost all legislative effort to prevent vice is
  really protective of vice, because all such
  legislation saves the vicious man from the
  penalty of his vice. Natures remedies against
  vice are terrible. She removes the victims
  without pity. A drunkard in the gutter is just
  where he ought to be, according to the fitness
  and tendency of things.

13
In Defense of Free Enterprise

• Private property, also, which we have seen to be
  a feature of society organized in accordance with
  the natural conditions of the struggle for
  existence produces inequalities between
  menNature is entirely neutral she submits to
  him who most energetically and resolutely assails
  her. She grants her rewards to the finest,
  therefore, without regard to other considerations
  of any kindLet it be understood that we cannot
  go outside this alternative liberty, inequality,
  survival of the fittest not liberty, equality,
  survival of the unfittest.

14
Survival of the fittest

• The expression has long been an embarrassment to
  biologists but still holds sway in economics.
• Sometimes its called a tautology (those that
  survive are the fittest) but it really isnt even
  that. There are problems with both survival and
  fittest

15
Survival

• Are we talking about individuals, groups, or
  genes?
• Are we talking about the long run or the short
  run?
• If a species evolves into another, quite
  different species, has it survived? What if there
  are 10 subspecies and only one survives? Has the
  species survived?

16
Fitness

• How do we measure fitness?
• Ernst Mayr points out that an animal is most fit
  just before it becomes extinct
• In economics the causality goes from
  competition to efficiency in production to
  profit maximization to survival (Friedman)
• But research seems to show that profit maximizing
  firms are not the most likely to survive (Dutta
  and Radner 1999)

17
The tenets of Walrasian economics arose out of
the evolution of commercial society

• Marshall Sahlins argues that the roots of
  contemporary economics lies deep within Christian
  cosmology
• In Christian cosmology man was put on earth
  destined to a life of misery trying to satisfy
  desires that even when filled only led to further
  misery. (original sin)
• But

18
Sahlins 1996

• Still, God was merciful. He gave us Economics.
  By Adam Smiths time, human misery had been
  transformed into the positive science of how we
  make the best of our eternal insufficiencies, the
  most possible satisfaction from means that are
  always less than our wants. It was the same
  miserable condition envisioned in Christian
  cosmology, only bourgeoisified, an elevation of
  free will into rational choice, which offered a
  more cheerful view of the material opportunities
  afforded by human suffering. The genesis of
  Economics was the economics of Genesis.

19
Ancient ideas

• Evolution toward a natural order
• Human nature as only greedy and self centered

20
David Hume (1739)

• Of all the animals with which this globe is
  peopled, there is none toward whom nature seems,
  at first sight, to have exercised more cruelty
  than towards man, in the numberless wants and
  necessities with which she has loaded him, and in
  the slender means which she affords of relieving
  those necessities.

21
Lionel Robbins (1952)

• We have been turned out of paradise. We have
  neither eternal life nor unlimited means of
  gratification. Everywhere we turn, if we choose
  one thing we must relinquish others which,
  indifferent circumstances, we would wish not to
  have relinquished.
• In Sahlins words, every act of consumption
  becomes an act of deprivation.

22
Basic ideas are in the air within particular
cultures

• Idea of the individual struggle for existence
• Idea of harmony through the actions of selfish
  individuals
• God put humans on the earth to choose among all
  the other pieces of creation