Michael Shermer is the gadfly head of the International Skeptics Society (which meets at the California Institute of Technology), a columnist for Scientific American and the author of a number of books on science and belief. He is also one of the rarest of rare birds - a scientist who promotes the free market. Shermer arrived at this position through his parents and the courses of Andrew J. Galambos. After taking Galambos’s introductory course, V-50, he met the person to whom he dedicated this book - Jay Stuart Snelson, Galambos’s former senior lecturer. Through Snelson he was introduced to the Austrian School of Economics and the work of Ludwig von Mises. All of this is explained in the prologue and, coupled with references to evolution, leads us to have great expectations for the rest of the book.
A quick flip to the index is enough to temper our enthusiasm. Two of the names one would expect to find in a book on economics, science and evolution are those of the friendly adversaries Friedrich Hayek and Karl Popper. Hayek has one reference, and Popper has none. We are surprised, but not yet discouraged. After all, a combination of Galambos’s zero-state position and von Mises’s powerful insights into economics should be enough to put our author on the right path.
The first chapter begins as we might expect - with a discussion of observations that the author will attempt to explain. Shermer contrasts the Yanomamö people of South America, still in the Stone Age, with the modern urban “Manhattan people.” Living on the same planet and breathing the same air, the Yanomamö produce about $100 per person per year, while the average resident of Manhattan produces about $40,000. Coupled with the difference in the number of products (referenced as SKUs) available to the two groups, Shermer declares the comparison “mind-boggling” and sets out in search of an explanation of what he calls the “Great Leap Forward.”
Evolution, with its bottom-up process of functional adaptations is presented as an analog for market development, but we are brought up short when he declares the market “imperfect” and calls for top-down rules that “provide a structure within which free and fair trade can occur” (emphasis added). This uncritical acceptance of the inability of markets to evolve these structures in a bottom up manner is contrary to the primary teachings he had previously credited and damaging to his thesis. The use of the word “fair” warns us that he has preferred outcomes in mind. Shermer’s support of markets seems to weaken with each paragraph.
Almost immediately Shermer begins an attack on human rationality as a means of coping with the modern, post-Paleolithic world. His first argument is based upon the Ultimatum Game, in which two people participate, but only one determines the division of $100 between them. If the second person accepts the division they receive amounts in the offered proportions. If not, neither gets anything. Results show that a $70/$30 split is the general criterion for acceptance, indicating that the second player is exercising an irrational urge (counter to being a “rational, self-interested money-maximizer”) to punish the first for his “unfair” division by giving up the “free” money. However, we notice that refusing $30 will not materially affect anyone but the most destitute and wonder whether a $950,000/$50,000 split (equivalent to a $95/$5 split in the actual experiment) might be accepted if $1,000,000 were at stake. To be fair, Shermer uses this argument to discredit Homo economicus, a concept that Austrian economists do not support. Also, his concept of rationality does not affect von Mises’s action axiom as the decision to refuse less than $30 is still the choice of a means to an end - the punishment of the first player’s “unfairness.”
Shermer goes on to throw Occam’s razor out the window and declare that “we are selfish and selfless, cooperative and competitive, peaceful and bellicose, prosocial and antisocial,” rather than that all of these behaviors are facets of self-interest which appear as they suit us in pursuing our values. Then we are told “markets are moral” with no reference to what that means, other than what a well-educated, former-evangelical-Christian, now-atheist with a Ph.D. in the history of science might think it would mean.
At the end of the first chapter we are introduced to what he calls “virtue economics,” the first principle of which is “this genetically embedded reflex of reciprocity: when someone gives us something, we feel that we should give something back.” In light of Robert Axelrod’s book, The Evolution of Cooperation, this principle is highly suspect. Axelrod found that participants in the Prisoners’ Dilemma game had increased incentives to cooperate as long as future interactions were likely[2] , explaining why businesses in areas with few repeat customers (in high tourism areas, for example) tend to have high prices relative to the quality of their products and services. This principle admittedly holds in some cases but is hardly universal.
Here we have a scientist without a rudder, lost at sea; and we can expect him to sail any course which will serve his confused world view. We are not disappointed.
In chapter two we find that the difficulty that we have as a species in accepting the theory of evolution or the science of global climate change is our short lifespan. This assertion puts a 150 year old theory based upon countless observations on the same footing as a recently-derived, model-based projection of future events! Fortunately, Shermer can rise above this short-sightedness and alert us to impending doom. Relying on market solutions is never proposed, and in chapter seven we find that the “high-minded goal” of “preserving the planet’s ecosystem and biodiversity … requires social and political action.”
Shermer goes on to present some interesting ideas about why people resist the idea of free markets, suggesting at one point that what Daniel Klein of George Mason University calls The People’s Romance - the feeling of belonging that the participation in state institutions provides - is at least part of the problem. After that he chides both ends of the political spectrum for their inconsistencies. Finally, he concludes the second chapter by seemingly presenting selfishness (which clearly entails behavior of which he disapproves) and co-operation as mutually exclusive before setting the stage for the third chapter - a discussion of “bottom-up capitalism.”
In the third chapter Shermer links biological evolution to the market via Charles Darwin and Adam Smith. Smith’s “invisible hand” is identified as the model for Darwin’s theory and his book, A Theory of Moral Sentiments, is presented as evidence for other-than-selfish behavior, the purported key to civil society. Smith’s anti-mercantile arguments are presented along with the conclusion that he was an advocate of consumer sovereignty, the driver of bottom-up development. A number of examples are given from the past up to today of top-down attempts to manage the economy for the benefit of producers, demonstrating that mercantilism is not dead. The chapter ends with a declaration for “liberal democracy and free market capitalism or democratic-capitalism” in order “to keep the free market both free and fair.”
As we grind through the ensuing chapters we find experiment after experiment indicating humanity’s irrationality or morality, as needed to support the current assertion. Supposedly, we irrationally value status over wealth and certain areas of the brain are activated when acting morally, but the irrationality is seemingly relative to the discredited Homo economicus, and the morality is nebulous.
Students of praxeology will recognize this approach as scientistic, and it appears to lead nowhere. For instance, in the aforementioned connection of moral actions to areas of the brain there is no discussion of the value system associated with the action. Shermer seems to imply that accepted Western moral behavior is hard-wired into the brain, rather than the value system to which the individual adheres governing the activation of the moral portions of the brain. These centers of moral emotions may exist, but they almost certainly become activated when the inquisitor sees the heretic burn or the Nazi thug destroys a Jewish synagogue. Science may be able to tell us what an individual morally values by monitoring these areas of the brain, but it cannot tell us that when those areas are activated the corresponding actions correspond in any sense to a code of generally-acceptable behavior.
Finally, we come down to the conclusion that all of this irrationality, which is bad for us, must lead to some kind of paternalism, but one which preserves the benefits of free markets. This idea is “libertarian paternalism,” developed by University of Chicago economists Cass Sunstein and Richard Thaler. Someone - it is unclear whom - lets us continue to make choices, but ones which are generally better for us. This policy is reminiscent of a suggestion in developing a child’s ability to make choices by first limiting them to a number of acceptable outcomes.
After urging that policies be informed by the “best science available,” the last chapter ends with the sentence “Let’s opt for more freedom and add back restrictions on freedom only where absolutely necessary and with great reluctance.” We note that this policy is what has produced the modern world. It is only when absolutely necessary and with great reluctance that the state takes every action in reducing freedom.
The epilogue gives us more reason to doubt that Shermer has taken us somewhere new when he asserts that capitalism needs “a scientific foundation grounded in psychology and evolution.” The former is false (action does not need a cause other than that outlined by von Mises - the substitution of a preferred state for the current one) and the latter has largely been provided previously by Hayek.
If one is interested in an extensive source of references to current research in evolutionary and behavioral economics, this book would be a good place to start. Shermer is obviously in contact with researchers in the field and references a wide range of their work. If not, the works of Hayek can certainly supply deeper insights into the evolution of society and institutions, and the value of markets in the transmission and discovery of knowledge. That so weak an advocacy of the market could have been written by someone with Shermer’s background and talents is unfortunate. There seems to be little attempt to weave the experimental evidence into a comprehensive theory It once again leaves the impression that no scientifically-oriented person can mount a strong argument for laissez-faire.
[1] Michael Shermer, The Mind of the Market (New York: Times Books, 2008).
[2] Rober Axelrod, The Evolution of Cooperation (New York: Basic Books, 1984), pp. 126-32.
