Natural selection and the invisible hand

• Model for Darwin and Wallace’s 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

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

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

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

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

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)

“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

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 Spencer’s books and would read them to his wife during hikes in the Austrian alps.

• Alfred Russel Wallace named his son Herbert Spencer Wallace

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

The Forgotten Man

• “Capital, however, as we have seen, is the force by which civilization is maintained and carried on…Every 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.”

Social Darwinism in economics

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

Investment

↑

↑

Society’s resources → Charity for the undeserving

Consumption goods

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. Nature’s 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.”

“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 men…Nature 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 kind…Let it be understood that we cannot go outside this alternative: liberty, inequality, survival of the fittest; not liberty, equality, survival of the unfittest.”

Survival of the fittest

• The expression has long been an embarrassment to biologists but still holds sway in economics.

• Sometimes it’s called a tautology (those that survive are the fittest) but it really isn’t even that. There are problems with both “survival” and “fittest”

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?

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)

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………

Sahlins 1996

• “Still, God was merciful. He gave us Economics. By Adam Smith’s 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.”

Ancient ideas

• Evolution toward a natural order

• Human nature as only greedy and self centered

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.”

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.

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