Evolution, Ethics, and the Market

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Given the economic roller-coaster ride of the past two years,  the idea that capitalism promotes morality might seem like an oxymoron. The imperfections of the market system, the wild swings of the boom-and-bust cycle, and the "animal spirits" of irrational investors have revealed the gulf between economic theory and financial reality — and have put the advocates of capitalism on the defensive.

But let's not get carried away. As every economist knows, the market system, based on the free exchange of goods, is the greatest prosperity-generating machine ever invented. Nor are markets just a necessary evil that we must regretfully tolerate. To the contrary, trade itself leads directly and measurably to greater virtue — to higher levels of generosity, fairness, and trust. But don't take my word for it. There is plenty of experimental evidence to back me up, and it points to the deep evolutionary foundations of the market's moral effects.

In The Wealth of Nations, Adam Smith observed that no one "ever saw a dog make a fair and deliberate exchange of one bone for another with another dog." But Smith might have come to a different conclusion if he had examined primates. The ethologist Nicola Koyama and her colleagues at Liverpool John Moores University (UK) discovered that their chimpanzee charges performed favors for each other and exchanged them later for alliances, food, and sex. They found that if chimp A groomed chimp B, then chimp B would be more likely to support chimp A in a fight with others the next day, especially if it was chimp A who started the fight. The researchers interpreted this to mean that chimpanzees cooperate with one another through trade in anticipation of possible future needs. In this sense, free and fair trade should be understood not just as an exchange of money for products or services but as any transaction between two individuals that benefits both.

The primatologist Frans de Waal at Emory University has reached similar conclusions about the evolutionary origins of trade. In his book Chimpanzee Politics, he describes a range of chimpanzee behavior that clearly amount to “direct payment for services rendered.” As he writes, “Chimpanzee group life is like a market in power, sex, affection, support, intolerance, and hostility. The two basic rules are ‘one good turn deserves another’ and ‘an eye for an eye, a tooth for a tooth.’”

In one experiment conducted by de Waal and his colleagues, two capuchin monkeys were trained to exchange a granite stone for a cucumber slice. They cooperated 95 percent of the time. But if one monkey received instead a grape (a delicacy for capuchins, greatly preferred over cucumbers), the other monkey cooperated only 60 percent of the time and sometimes even refused the cucumber slice altogether. In a third situation, in which one monkey received a grape without even having to swap a granite stone for it, the other monkey cooperated only 20 percent of the time. These experiments suggest not only that exchange is a deeply evolved aspect of primate sociality but that our sense of justice, shared with our primate cousins, has developed in tandem with market behavior.

The psychologist Joseph Henrich of the University of British Columbia has tested this hypothesis with human subjects. He and his colleagues engaged over 2,000 people in 15 small communities around the world in a two-player exchange called the “ultimatum game,” in which one subject is given a sum of money equivalent to a day’s pay and is allowed to keep or share some or all of it with another person. Let’s say I give you $100 to split between yourself and your partner in the game. Whatever division of the money you propose, if your partner accepts it, you are both richer by that amount, but if he rejects it, neither of you receives any money.

How much would you offer? Why not suggest a $90-$10 split, as classical economics predicts, thus maximizing your personal profit? The other player wouldn't turn down a free ten bucks, would he? As it turns out, he would very often. In Henrich's research, proposals that deviated much beyond a $70-$30 split were usually rejected. But not always. There was variation between groups and societies. Henrich and his team found that people in hunter-gatherer communities shared about 25 percent of the pot, while people in societies who regularly engage in trade gave away about 45 percent. What they called "market integration" was by far the strongest predictor of fairness and generosity.

Henrich concluded that norms of market fairness “evolved as part of an overall process of societal evolution to sustain mutually beneficial exchanges in contexts where established social relationships (for example, kin, reciprocity, and status) were insufficient.” In other words, we are naturally inclined to be fair and generous with our kin and kind because of genetic relatedness and reciprocal connectedness. But to get people to be fair and generous to strangers in other tribes, we need cultural institutions, especially trade. 

Nor are the causal relationships all in one direction. The more such cooperative behavior expands, the more it encourages the creation of wealth and trade. As Paul Zak of the Center for Neuroeconomics Studies at Claremont Graduate University puts it, “Trust facilitates transactions by reducing the number of contingencies that must be considered when ‘doing a deal.’ A deal sealed with a handshake between principals can only occur in a high-trust situation. . . . When transaction costs are higher, fewer transactions occur, and investment and economic growth are lower. Trust is among the most powerful stimulants for investment and economic growth that economists have discovered.”

In short, important as it may be to figure out the causes of the current economic downturn, we should not lose sight of the big picture: trade makes people more trusting and trustworthy, which makes them more inclined to trade, which increases trust — and round and round it goes in a positive feedback loop that generates not just unprecedented prosperity but civilized virtue as well.

Michael Shermer is the publisher of Skeptic magazine, a monthly columnist for Scientific American, and an adjunct professor at Claremont Graduate University. His books include The Science of Good and Evil, Why Darwin Matters, and The Mind of the Market. He can be reached at mshermer@skeptic.com.