Until recently, much of economic theory has neglected the roles that evolution, psychology and biology play in shaping the economy and its human constituents. This has been detrimental to mainstream economics’ narrow vision of economic man, who is supposed to behave in a selfish, rational fashion as he optimises social outcomes, primarily in the realm of markets.
A notable recent contribution which attempts to counter this conception is Rojhat Avsar’s The Evolutionary Origins of Markets. The book argues that the human brain and human behaviour have evolved in ways which make the creating and sustaining of socioeconomic institutions, not least the market and exchange, outcomes of social motives as much as selfish ones.
Avsar’s short book contains a wealth of ideas and applications of studies of human nature to the economy. I will not attempt to cover more than a few of them, or review the book, in this post. Instead I want to discuss one model of the human brain taken from the book and note its implications for our understanding of man in the economy. I will also introduce some ideas from a similar effort by institutional and evolutionary economist Geoffrey Hodgson, which also employs concepts from biology in its attempt to construct an alternative to homo economicus.
Brain circuits and the economy
The so-called triune model of the human brain sees it as a collection of three major circuits or regions with different functions. These functions and their associated behaviours are sometimes in harmony, but can also be in conflict.
In particular, there is the potential for conflict between self-regarding and other-regarding behaviour, or the selfish and the social. The instinct for self-regarding or self-preserving behaviour lies in the lower region of the brain, the brain stem. The latter is in evolutionary terms the most ancient part of the brain, known in some fields as the reptilian brain.
The part of the brain associated with more social or other-regarding behaviours is what can be called the mammalian brain, which lies higher up in the middle of the organ, and evolved later than the reptilian brain.
The frontal cortex, the most recently evolved circuit or region, has, at least in part, the task of mediating the motivations of the two lower circuits, which often have opposing demands. As Avsar puts it (p.14):
“This dynamic interaction [between the circuits] produces a wide range of possible behavioral outcomes, from self-sacrifice at one extreme, where empathy dominates, to aggressiveness at the opposite extreme, where egotistic motives win over. Both cases tend to generate a perceptible behavioral tension or a form of disequilibrium. Such unresolved tension, when it accumulates, will prove to be disruptive for the individual (eg., feeling anxious) and the group (eg., animosity towards others). A more balanced behavioral outcome would be characterized by a compromise between the extremes, where the respect for both oneself and for others are present, such as is observed in a reciprocal social exchange setting where favors of (approximately) equal quantity are being swapped either simultaneously or in succession.”
Markets and exchange, contrary to what is often theorised in economics, require social as much as selfish motives to function well, as do all sorts of institutions that have been created in our complex modern economy. In order to work well over time, they require reciprocal and other-regarding factors such as trust, ethics and a developed moral code.
Emotions themselves, though usually associated with irrationality, can be seen as rational in evolutionary terms, having evolved to benefit human life. Along this vein, Avsar cites five behavioural skills among humans which promote and support market exchange:
- Feeling, communicating and recognising positive and negative social emotions in others (eg. shame).
- Having finely-tuned reciprocal behavioural algorithms (eg. trust).
- Being able to mentalise or ‘read the mind’ of others (eg. empathy).
- Being able to exercise self-control (overriding temptations associated with immediate gratification).
- Having the potential to imitate and conform.
In general, well-functioning emotions enable self-preservation, particularly as part of a group, and effective cooperation between individuals. In human history, this began at the familial and tribal levels, but in today’s economies it can extend across society.
For Avsar, the tension between self- and other-regarding motivations needs to be molded into ecologically rational behaviour patterns, both at the individual and the social level, in order for us to sustain humanity.
Another economist who has drawn on biology to inform his thinking is Geoffrey Hodgson, who works in the tradition of institutional and evolutionary economics partly inspired by Thorstein Veblen. He has argued that economics needs to return to being a moral and political science in the spirit of Adam Smith. This is provided that we are informed not only by Smith’s Wealth of Nations, but also his Theory of Moral Sentiments. Together these works portray a more complex picture of the individual in society than today’s microfounded neoclassical economics.
Hodgson’s book From Pleasure Machines to Moral Communities takes a different line to Avsar’s, though it is equally critical of the narrow mainstream theory of economic man. In the book, he seeks to undermine neoclassical economics’ model of the individual as a ‘pleasure machine’, who acts only by responding along a pleasure-pain continuum, known as utility-disutility.
As he points out, the theory of utility maximisation can be stretched to fit any result, even of co-operative and altruistic behaviour, and is therefore unfalsifiable. However it does not distinguish humans from other animals, even down to single-celled organisms, which can be seen to behave in a self-regarding way! As noted above, a richer explanation of the individual in society, the aim of social science, is called for.
Notions of morality, co-operation and social order require a richer conception of humanity in order to explain them than is found in neoclassical economics. In particular, there is a need to employ genetic and cultural factors to explain co-operative behaviour.
The development of a morality irreducible to self-interest in humans was favoured by group selection in evolution. In other words, moral behaviour enabled particular groups to be more successful in evolutionary terms, to survive and flourish compared to groups without it. This is not to say that moral codes are rigid and unchanging. It seems that they need to evolve themselves to some degree as part of a changing society.
According to Hodgson, morality likely develops in individuals from a combination of inherited traits and capacities, and learning how to behave and use them. The latter occurs via social interaction and the acquisition of rules and principles founded on emotions such as sympathy, and is dependent on the transmission of culture via language.
For Avsar and Hodgson, both selfish or self-regarding behaviours, and social or co-operative ones, have allowed capitalism to work as it does. Hodgson uses the example of the firm as an organisation, emergent from the behaviour of individuals, but reliant on internal co-operation, ethics and morality, as well as discipline and pecuniary incentives. The external force of competition can be a spur to internal co-operation. Thus capitalism and its constituent firms involve both competition and co-operation rather than a totality of either extreme.
Harmony or conflict?
The tension between selfish and social behaviour, and its resolution, can therefore occur at the individual and the group level. For the individual this has the potential to lead to dysfunctional or harmful behaviour, if taken far enough. The presence of social conflict, as a matter of debate in economics or other social sciences, is not new, but drawing on brain science and evolutionary biology to highlight its roots in the individual has been relatively neglected.
The foundation of mainstream economics purports to draw on Adam Smith’s argument for the benefits of the so-called invisible hand, which has been twisted into the proposition that individual utility maximisation subject to a constraint will achieve the maximum social welfare. The more sophisticated version allows for market imperfections to interfere with this, but maintains its microfoundations, not least in today’s macroeconomics. This is in contrast to Keynes’ vision of macroeconomics as a separate and distinct theory of the economy as a whole, with its emergent properties.
For Keynes, apparently rational behaviour at the individual level, say the desire to increase one’s savings in the face of an uncertain economic future, could give rise to a recession if this behaviour is widespread, and could in fact lead to lower aggregate savings due to the smaller economy that results.
Neoclassical economics argues for the existence of a kind of harmony between the selfish and the social, so that, taken to its extreme, individual ‘rationality’ will achieve the social good. It neglects the study of the behaviour of social forms that emerge from individual interaction, such as formal and informal institutions, organisations or the economy as a whole. Much of heterodox economics takes a more holistic viewpoint, though sometimes neglecting the individual in doing so. The works discussed above provide a helpful corrective to this.
Moving away from the mainstream into fields such as Marxist political economy and other radical schools of economics, including post-Keynesianism, we find the introduction of concepts such as social conflict, and the idea already mentioned that particular forms of individual freedom to act rationally may not equate with the social or economic good.
When the selfish and the social are working in harmony, then the goals of the individual and the group, even of society, are united and fulfilled. This is a possibility given some of what we know about the functioning of the human brain.
But this is not always or even often the case. The brain can also give rise to conflict between selfish and social motivations, at the individual and the group level. This points to less than harmonious social and economic outcomes, and against the spirit of mainstream economics with its insistence on methodological individualism and equilibrium.
Visions of the economy
Our theories and, more generally, our beliefs, not least in economics, help to shape the parts of reality which we pay attention to and in a way ‘see’ when we think and perceive. Neoclassicists might see a world of harmony and equilibrium, which then necessitates describing departures from such outcomes as exogenous ‘shocks’ to the system. Marxists see more negative outcomes under capitalism, such as exploitation, conflict and crises, which they describe as endogenous and inevitable in the absence of a systemic transformation to socialism. But neither provide the complete picture, as is the case with all theory.
The study of the human brain has much to teach us about the functioning of individuals in society. It shows that we can build institutions whose purpose is to reconcile motivations which would otherwise be in conflict, in order to achieve some degree of harmony in a way which benefits humanity. History tells us that neither state is likely to persist forever.
For this writer, seeing change as the only constant means that, not least in economics, the study of equilibrium makes most sense, paradoxically, as part of an evolving system, endlessly giving rise to new forms of tension and conflict which need to be overcome in order to approach harmony once more. This idea is something like the dialectics of Marxism.
It would be nice if the lessons of Marxism and the flaws of neoclassicism did not require serious crises in order to be repeatedly learned anew. Having said that, in practice the left can sometimes neglect the individual in stressing the primacy of class and systemic change in society.
As Hodgson puts it, one aim should be to build bridges between the political left and right, and in social science, by giving attention to, respectively, human and social needs and choice and liberty. The two ideologies can often be in conflict, particularly when either is taken to an extreme. But it would be beneficial for us to attempt a reconciliation.
The recent history of humanity has shown that we have, intentionally or otherwise, become quite good at building institutions which create wealth, less so at distributing it fairly and efficiently or producing and consuming sustainably. Perhaps the most creative periods can come in the presence or aftermath of crises, whether they be economic, social, political, or natural, and which force change on an otherwise complacent system. It would be helpful if collectively we had greater foresight and could act to prevent systemic crises before they become a threat to life.
Avsar, Rojhat (2020), The Evolutionary Origins of Markets, Routledge.
Hodgson, Geoffrey M. (2013), From Pleasure Machines to Moral Communities, University of Chicago Press.