Another Leap into Darwinian Selection Applied to Economics

"Darwin’s Invisible Hand: Market Competition, Evolution and the Firm"

Dominic D. P. Johnsona, (Oxford University), Michael E. Price (Brunel University), Mark Van Vugt  (University of  Amsterdam)  HERE

“Abstract

Competition among firms has been suggested to reflect the ruthless logic of Darwinian selection: a free market is a struggle for survival, in which successful firms survive and unsuccessful ones die. This view appears to bolster three pillars of neoclassical economics: (1) that economic actors are self-interested; (2) that self-interest leads to public goods (Adam Smith’s “invisible hand”); and (3) that together these lead to market optimization. However, this chain of reasoning leads to a paradox. We show that the application of Darwinian selection to competition among firms (as opposed to among individuals) invokes group selection, which leads to exactly the opposite predictions: notably altruism and the suppression of individual self-interest. We apply an alternative evolutionary model of economic competition, Multi-Level Selection (MLS) theory, which integrates the effects of selection at both individual and group levels. This approach reveals that, while individuals may generally pursue their own self-interest (as in the standard evolutionary account), humans also have evolved traits that—as if led by an invisible hand—steer our self-interest to align with the good of the firm or wider society as well. But it is the hand of Darwin, not Smith.”

Comment

I have yet to read the paper in full, for which I shall post my ideas on it in due course, but I think it worthy of some publicity on Lost Legacy just now.  Judging from the reasoning expressed in the abstract I see several flashing red lights.  I do not defend neoclassical economics or its thinking, but I consider that the source of my unease with it lies in each of the “pillars’ attributed to neoclassical economics.

To say that “economic actors” are “self-interested” as if it is true in itself and for all matters, cuts off the complex ways in which such self-interested actors express their self-interests in societies of other self-interested actors (and is an example of the weakness of neoclassical economics).  It is insufficient to note a characteristic of self-interest without recognizing the unalterable necessity for those same actors to mediate their self-interests with other self-interested actors (as Smith noted in both TMS and WN).  We are not merely individuals in a crowd of self-interested egos indifferent to the self-interests of others.  We need other self-interested actors to co-operate with us, as we must co-operate with them.  No human, other than the occasional mystic, could survive without the daily co-operation of others (we would not survive childhood without our parents, particularly our mothers – fathers are less important than males generally), not adulthood acting as if we are at “war” with everybody we rely upon. 

Smith did not say that all self-interested actions “led” to “public goods”, nor did he describe all public goods as the necessary outcome of “an invisible hand”.  He identified only two cases suitable for the metaphoric description of certain actions as being “led by an invisible hand”. He noted that there were “many other” cases where the metaphor may be appropriate, but nowhere did he say that all cases were applicable. In both cases in which he used the metaphor to discuss the unintended outcomes of the specific motives leading individuals to act in a certain specified manner, in which the consequences of actions, not the motives, had different “unintended outcomes” in each case.  The distinction is important. 

To use the metaphor of “an invisible hand” correctly it is necessary to identify its particular “objects” as a metaphor (see Smith’s “Lectures On Rhetoric and Belles Lettres” [1783] 1983, 29).  The assertion of “an invisible hand” leading to market optimization” is a wholly modern assertion (from Pareto’s Theorem and General Equilibrium theories, not Adam Smith). Parenthetically, I think to describe the actions of “proud and unfeeling landlords” as about “market optimisation in Smith’s example as leading to “market optimisation” is absurd.

Darwinian selection operates on individuals whose breeding outcomes over a very large number of generations may result in selecting for the successful survival of the group  (it can also lead to evolutionary dead ends).  Applying this idea in toto to competition between firms is a massive unpredictable leap of faith.  Whether the outcomes of any particular Darwinian selection process leads “to exactly the opposite predictions: notably altruism and the suppression of individual self-interest” is another mighty speculative leap, even assuming that self-interested humans eschew “altruism” and so on in human societies (which I think is crass), let alone, whether this applies among chimpanzees, among others.

 The authors of this paper have formed a theory of which I am not sure they properly apply it, nor have they challenged their assumptions.  But I shall do them the courtesy of reading their text before pronouncing any suggestions or conclusions. (I am rather busy just now on a chapter project for Princeton University Press, now running up against its deadline).