* Article: An evolutionary theory of resource distribution. By Blair Fix. real-world economics review, issue no. 90

URL = http://www.paecon.net/PAEReview/issue90/whole90.pdf

On the tension between two levels of natural selection.

At the group level, selfless behavior is advantageous.
But at the individual level, selfish behavior is advantageous

Abstract

"This paper explores how the evolution of human sociality can help us understand how we distribute resources. Using ideas from sociobiology, I argue that resource distribution is marked by a tension between two levels of natural selection. At the group level, selfless behavior is advantageous. But at the individual level, selfish behavior is advantageous. I explore how this tension affects the distribution of resources."

In Part I, I discuss how the evolution of human sociality relates to resource distribution. I argue that resource distribution is marked by a tension between two levels of natural selection. At the group level, selfless behavior is advantageous. But at the individual level, selfish behavior is advantageous. Resource distribution, then, is driven by a tension between competition and cooperation. Groups compete for resources with each other (often violently), but suppress competition internally.

In Part II, I look at the building block of groups – the human relation. To cooperate, humans form bonds with each other. Often, these bonds are asymmetric, meaning one person has more power than the other. When this happens, the person with more power can use their influence to get a bigger share of the resource pie. The result, I argue, is that when groups use power relations to organize, the “power ethos” will prevail: to each according to their social influence.

In Part III, I look for evidence for the power ethos inside modern firms. I show that the income of US CEOs tends to increase with “hierarchical power” (control over subordinates within the firm). Case-study evidence suggests that the same is true for all employees within firms. Given these results, I argue that it is time to treat income as a social phenomenon, and to ground the study of income distribution in an evolutionary framework." (http://www.paecon.net/PAEReview/issue90/Fix90.pdf)

Discussion

Markets Suppress Competition

Blair Fix:

"Our thesis is that between human groups there is a war of all against all. But within groups, things are different. To be stable, groups must foster cooperation among members. Put another way, stable groups must suppress competition.

Markets, I propose, are a cultural tool for suppressing competition within groups. When they function well, markets restrict competition to the rules of private property. Resources can’t be taken by force. They must be bought and sold. In other words, markets suppress outright theft and plunder. (I say “outright”, because I still have Pierre-Joseph Proudhon’s slogan “Property is theft!” ringing in my ear).

The main insight from group selection theory is that this suppression of competition must occur within a group. In other words, property rights do not just come from nowhere (although it appears that way in economic theory). Instead, property rights are culturally evolved. They developed within groups as a way to suppress competition.

It is nation-states, for instance, that enforce modern property rights regimes. And when these regimes break down (when states “fail”), competition doesn’t disappear. Instead, it takes a more severe form. Think civil war. Think roaming bands of mercenaries. Think warlords. Think terrorism. Think outright war. Markets maintain the stability of a group by suppressing violent competition within it. When markets fail, groups fail.

As an example of this process, think of Europe. Two centuries ago, European states were almost constantly at war with one another. This group conflict culminated in two world wars – the most violent events in human history. After World War II, European states finally managed to integrate into a larger group. The Eurozone market was born, and peace prevailed. Violent competition was suppressed, and war gave way to market competition.

Markets are, of course, one of many cultural tools for suppressing competition. But within modern states, they are probably the most important.

Firms suppress the market

Markets suppress violent competition within states. But this is just the first of a series of tools for limiting competition. Within states, there are subgroups we call “firms”. Their main role is to suppress the market.

This is, of course, not how economists treat firms. In fact, the existence of firms comes as a shock to economic theory. This is because economists assume that “perfect competition” (a market war of all against all) is the optimal way to organize society. To explain why firms exist, economists have to add auxiliary assumptions. The most popular auxiliary assumption was proposed by Ronald Coase (1937). He argued that firms minimize “transaction costs” – the cost of organizing using the market. But much like marginal productivity, transaction costs are unobservable (Nitzan and Bichler, 2009).

In contrast, an evolutionary theory does not need auxiliary assumptions to explain why firms exist. Our hypothesis is that humans are social animals who compete as groups. To be stable, these groups suppress internal competition. Firms, then, are subnational groups that compete within the confines of the market. And just as expected, firms suppress market competition internally.

How do firms suppress the market? They use hierarchy.

Inside firms, there is no bartering, no bidding, and no auctioning. Instead, firms have a chain of command. Superiors command subordinates, who command their own subordinates, and so on. Like property rights, this chain of command is a set of rules that limit competition. Employees, for instance, can compete for promotions within the corporate hierarchy. But once the position is filled, the competition is over. If the chain of command works well, subordinates will obey the newly promoted person. No such rule exists on the open market."

Excerpts

From the highlighted reading notes by Michel Bauwens:

Blair Fix:

"Nothing in economics makes sense except in the light of human social evolution.

The theories that economists learn make it impossible for them to understand human sociality.

Economists’ selfish model of humanity is best treated not as science, but as ideology.

The crowning achievement of the new discipline of economics was its explanation of resource distribution.

First proposed in the 1890s, this “marginal productivity” theory of distribution has weathered the 20th century unchanged. .. In fact, most critics agree that marginal productivity theory can’t be tested. .. Marginal productivity theory does not persist because of its scientific merit. It persists because it is an ideology that justifies the prevailing social order.

Modern economics, I have come to believe, resembles pre-Darwinian biology.

No more than 400 generations ago, humans lived in small tribes of a few dozen people. The first states formed 200 generations ago. The first empires appeared 120 generations ago. Nation states appeared a mere 10 generations ago. Now we live in states with millions (sometimes billions) of people.

Economics awaits its Darwinian revolution.

What puzzles sociobiologists is the capability of some animals (like humans) to behave both selfishly and cooperatively. This dual nature needs an evolutionary explanation. Sociobiologists think they have one. They call it group selection (or multilevel selection). I propose we use this theory of group selection to create an evolutionary theory of resource distribution.

Humans can behave both selfishly and altruistically .. This selfish/altruistic duality should be at the center of an evolutionary theory of income distribution. So what explains our tendency to be both selfish and selfless?

In some animals (like humans), this selfish instinct is accompanied by a social instinct – a tendency to cooperate in groups. How did this social instinct evolve? The evolutionary biologist E.O. Wilson (2012) thinks it came from group selection.

The idea behind “group selection” is that when organisms live in groups, the benefit of selfish behavior is sometimes trumped by the benefit of altruistic behavior. If groups compete with each other, there can be strong selective pressure for sociality. Wilson thinks this is how humans became eusocial (ultra-social) animals. We competed with each other in groups. The paradox here – explored further by Peter Turchin in his book Ultrasociety – is that the evolution of our altruistic tendencies may have been driven by our most violent impulses. Warfare, Turchin argues, is what drove group selection among humans. Let’s think about how this could happen. In warfare, altruism is extremely advantageous. Imagine that an altruistic group battles a selfish group. The altruistic group charges boldly as a cohesive whole. Faced with this onslaught, the selfish group collapses as individuals flee their posts. The altruistic group triumphs and exterminates the selfish group.

If altruistic groups beat selfish groups, we might naively think that humans should be purely altruistic. But we are not. The catch is that within groups, individuals can still benefit from being selfish. Here’s how. Imagine that you belong to an altruistic group that charges boldly into battle. It’s in your interest to shirk your duty and run from the fight. The group is no less likely to win, but you’re far less likely to die. If your strategy works, then selfishness gets selected.

E.O. Wilson thinks this tension between group benefit and individual benefit is what explains the duality of human nature. Altruism benefits groups. Selfishness benefits individuals within groups.

I find this a persuasive explanation of our dual instincts as humans. I propose we use it to build an evolutionary theory of resource distribution.

Our natural state is a war of group against group. This is the central insight of group selection theory. Humans form groups that compete with each other, often violently.

The existence of groups, so paradoxical in economic theory, should be our default hypothesis in an evolutionary theory of resource distribution. In every human society, we expect to find groups that violently compete with one another – be they tribes, fiefdoms, or states. In other words, theft and plunder between groups is the default way that humans distribute resources.

This level of violence, Turchin thinks, is typical of archaic rulers. Other ancient texts, like the Old Testament, give similar accounts of violent conquests. With this in mind, we should treat violent conflict between groups as the default mode of human competition. It is how we distribute resources in the absence of other mechanisms.

In our evolutionary theory, resource distribution is marked by a tension between two ethoses:

The red-claw ethos: “To each according to his ability to take.”

The communist ethos: “To each according to his needs”

The red-claw ethos is the ethos of selfish competition.

The communist ethos is Marx’s famous slogan for the ideals of a communist society. In evolutionary language, it is the ethos of altruism. If humans were completely altruistic, we would divide the resource pie with perfect equity. We would give every person what they need. Obviously, we fall short of this ideal.

To find pure altruism, however, we need to look inside animals. The human body, for instance, is a marvel of cooperation. It is an amalgamation of trillions of cells that function together.

In human societies, resource distribution lies between the extremes of both the red-claw and communist ethos. We form groups that compete with each other, and this competition leans towards the red-claw ethos.

Organisms capture and transform resources. To say that an organism gets what it produces is nonsensical – meaningless even.

Life, we presume, began as a struggle between replicating molecules. But soon, some of these molecules banded together. Although the steps remain murky, groups of cooperating molecules somehow formed cells. These cells then competed with each other for resources, but cooperated internally. After billions of years of single-celled life, another collaboration occurred. A bacterium merged with an archaeon (another single-celled organism), eventually forming the eukaryotic cell (Lane, 2015).

Millions of years later, eukaryotic cells began to band together in groups, forming multicellular organisms.

Eventually social organisms evolved that organized in groups. These groups competed for resources, and suppressed competition internally.

Humans have continued this evolutionary story. But instead of genetic evolution, most changes in human society occur through cultural evolution. In other words, it is our ideas that evolve, not our genes.

In Part 1, I explored this tension by looking at how groups compete with each other and suppress competition internally. Here, I look at the same tension from the opposite angle. I discuss how individuals cooperate to build groups, and how this cooperation gets used by individuals for selfish gain.

In the late 1950s and early 1960s, theorists like Jacob Mincer (1958) and Gary Becker (1962) proposed that workers’ income was proportional to their “human capital”.

Economists have built a towering theoretical edifice on the idea that there is no such thing as society.

Evolutionary microfoundations

To build a more realistic theory of resource distribution, we need a new “microfoundation” for economics. This is the term economists use to describe their assumptions about human behavior. Most economists assume that humans are purely selfish. But this idea has outlived its usefulness.

A better approach, I believe, is to assume that humans are both selfish and selfless. And we should take a hint from biologists and ground this duality in an evolutionary framework. I argue that the principles of evolutionary biology should form the microfoundation of economics.

I have based my approach on a theory called group selection (sometimes called multilevel selection). According to this theory, the duality of human nature stems from an evolutionary conflict between two “levels” of natural selection. Selfishness stems from selection at the individual level. Altruism stems from selection at the group level.

“Selfishness beats altruism within groups. Altruistic groups beat selfish groups. Everything else is commentary” (Wilson and Wilson, 2007).

I propose that we use this principle as the “microfoundation” of economics. Out with the old assumption that individuals are selfish utility maximizers. In with the evolutionary hypothesis that humans are both selfish and selfless – a duality shaped by the tension between individual versus group benefit.

The building block of our evolutionary theory should be the human relation. By forming networks of relations, humans are able to form groups. These relations then determine how resources are distributed within groups.

Pure altruism is an ideal. It is one end of the spectrum of human relations.

So what is the opposite end of the spectrum? It is tempting to say that the opposite of the purely altruistic relation would be the purely selfish relation. But the problem with this response is that a purely selfish relation is actually no relation at all.

The opposite of a purely altruistic relation is not a purely selfish relation. It is a pure power relation. In such a relation, one person acts selfishly while the other person acts altruistically. But in power relations, “altruism” takes a special form. We call it submission.

In a pure power relation, power is absolute.

Pure altruism and pure power, then, are idealized relations that define the spectrum of human bonds. We will use this spectrum to think about how groups distribute resources.

In purely altruistic relations, resource distribution will follow the communist ethos: to each according to their need.

In power relations only one person acts selfishly. The other person acts altruistically by submitting to the will of their dominant partner.

This submission is key to understanding how resources get distributed.

In pure power relations, then, resource distribution is determined by the whim of the dominant individual.

In power relations, then, resource distribution has its own ethos. We’ll call it the power ethos:

The power ethos: To each according to their social influence.

Economists are bewildered by the power ethos because power is not a property of the individual. Instead, power is a social relation between people.

While incoherent to mainstream economists, the power ethos makes perfect sense in our evolutionary theory.

Power is a social relation shared by both groups and individuals. At the group level, power is a mode of organization – a way to coordinate human activity. At the individual level, power is a tool for selfish gain – something to be accumulated for personal enrichment.

This duality of power creates a tension between levels of natural selection. Concentrating power may be good for the group but not good for (some) individuals within the group.

Likewise, when individuals use their power to enrich themselves, this is good for (some) individuals within the group, but not good for the group as a whole.

Power is a double-edged sword that cuts to the core of our dual nature as humans

So why might centralized power benefit groups? Peter Turchin thinks It is because centralized power allows groups to get bigger.

Centralized power allows group size to grow without increasing the need for social interaction. If Turchin is correct, it still begs a question. Why are bigger groups better? Turchin’s answer is that big groups have a military advantage over small groups. “Providence”, the saying goes, “is always on the side of the big battalions”. Turchin (2016) argues that over the last 10,000 years, large hierarchical groups tended to defeat small egalitarian groups. With each defeat, concentrated power spread as an organizing principle.

Humans’ use of centralized power as a coordination tool is not unique in nature. In fact, it may be an example of convergent evolution. Think of the evolution of multicellular animals. As they have gotten bigger, animals have all evolved centralized control as an organizing principle inside their bodies.

The human body, for instance, is not an aggregate of autonomous cells. Instead, it is a network of cooperating cells that are controlled by the central nervous system. The cells of the brain, in effect, have power over other cells.

Body cells do not use their power for selfish gain.

This because body cells are altruistic. So even though the body is centrally controlled, the communist ethos prevails. Each cell gets exactly the resources it needs.

In contrast to the cells in our body, individual humans are not purely altruistic.

Concentrated power is no panacea for groups. If it were, we would all be living in totalitarian regimes. Yes, power is a tool for coordination. But it is also a tool for despotism. And this despotism can easily undermine the coordinating benefits of power.

There is real-world evidence that inequality undermines groups’ ability to compete. The evidence comes, not surprisingly, from sports – the modern surrogate for violent conflict. In his book Ultrasociety, Peter Turchin notes that sports teams with more equal pay tend to win more games.

If inequality undermines sports teams’ performance, we expect it to do the same among warring groups.

Pathways to power

While power is a double-edged sword for groups, it is a panacea for the individuals who accumulate it (until their group collapses because of their despotism). Amassing power is a proven way to increase reproductive success (Betzig, 1986). So it is no wonder that humans have an urge to seek power. If a behavior leads to reproductive success, organisms will develop an urge to do it.

I am going to discuss three “pathways to power”5. These are ways that individuals can increase their social influence within a group.

Pathway to Power 1: Make your subordinates more submissive

One way to increase your power is to make your existing subordinates more submissive. By doing so, you make your power more absolute.

While potent, coercion is an expensive way to increase your power. The more you coerce someone, the more they will dream of killing you. This is the fear of every despot – that their subordinates will turn on them. So while coercion can exact obedience, it requires constant vigilance. Ignore your coerced subordinates for a moment and you may find a dagger in your back.

A less expensive way to make your subordinates more submissive is to turn to the power of ideas. Convince your subordinates that you have the legitimate right to command them and you immediately increase your power.

What matters is its virulence. To work, your ideology must infect the minds of your subordinates. It must convince them that your power is legitimate.

Whether you use coercion or ideology (or both), making your subordinates more submissive can increase your power. That being said, this approach is not an effective way to accumulate power. Why? Because having absolute power over a few subordinates hardly makes you Napoleon. To achieve great power, you need to become the master of many.

Pathway to Power 2: Accumulate direct subordinates

With Napoleon as your inspiration, you set out to accumulate subordinates. How do you do it? One way is to accumulate direct subordinates. A direct subordinate is someone who is directly under your control. They listen to you and no one else.

While simple, there are obvious limits to this pathway to power. Even the most charismatic person will find it hard to maintain direct power relations with hundreds of people. Yet to be powerful like Napoleon, you need hundreds of thousands of subordinates.

Pathway to Power 3: Accumulate indirect subordinates

If you are not satisfied with the number of subordinates you can control directly, the next step is to encourage your subordinates to find their own subordinates. By doing so, you accumulate indirect subordinates.

We assume here that power is “transitive”. So if Bob controls Charlotte and Alice controls Bob, then Alice also controls Charlotte. When power is transitive, it forms a chain of command.

The advantage of accumulating indirect subordinates is that you don’t need to manage relations with many people.

The disadvantage of having indirect subordinates, however, is that power is not perfectly transitive. Power gets diluted as it is passed down the chain of command.

You have to maintain the chain of command so that power flows smoothly.

The road to hierarchy

The best way to accumulate power is to use all three pathways: make your subordinates extremely submissive, accumulate direct subordinates, and encourage your subordinates to accumulate subordinates. When you pursue all three pathways to power, what do you get? In a word, hierarchy.

A hierarchy is a network in which every relation is a power relation. To maintain the hierarchy, you must make sure your subordinates are submissive (pathway 1). Next, you encourage all of your subordinates to command multiple subordinates of their own. This combines pathways 2 and 3, and leads to the quintessential feature of a hierarchy – the branching chain of command.

Think about the structure of hierarchy. As each new layer of hierarchy is added, the number of subordinates you command grows exponentially.

Now you have power that rivals Napoleon’s. And our evolutionary theory predicts that you will use it to your advantage. You will use your immense power to take an exceptional share of the resource pie.

With a bit of evolutionary reasoning, it becomes clear that our relations must be what drives the distribution of income inside groups. Moreover, when groups organize using power relations, we have a clear prediction for how income should be distributed. I have called this prediction the power ethos: to each according to their social influence. Hierarchies, I have argued, are the quintessential tool for concentrating power. In them, the power ethos should dominate. In other words, in a hierarchy it’s not what you know that shapes your income. It’s who you control.

Part III: Evidence for the Power Ethos

Having proposed that the power ethos should prevail within hierarchies, I now put this idea to the test. I look for evidence of the power ethos inside modern firms.

To test for the power ethos, we need to quantify power.

But because power is difficult to quantify, this idea has rarely been tested.

As a consequence, a promising theory of resource distribution has languished.

To measure power, I propose that we break it down into two dimensions. We will distinguish between the number of people one influences and the strength of this influence. The purpose of doing so is to distinguish between qualitative and quantitative aspects of power. The strength of one’s influence over others is a qualitative aspect of power. It is determined by the obedience of one’s followers, which is difficult to quantify.

Slaves are far more obedient than Twitter followers. So these two forms of social influence are qualitatively different.

In contrast, the number of people one influences is easy to quantify. We just count people!

Here is where our two dimensions of power are useful. While we may not be able to (easily) quantify the obedience of followers, we can probably agree on a rough ranking. We can agree that social media followers are less obedient than employees in a corporate hierarchy.

Once we rank obedience, I argue that we can reduce power to a single dimension.

Let’s first go through this obedience ranking. Then we will discuss why it is relevant for measuring power.

Figure 7 The Two Dimensions of Power. The y-axis ranks different forms of power in terms of the obedience of followers. The x-axis shows the number of followers of the given individual.

In this paper, I am going to stay inside the bureaucratic hierarchy zone of obedience, visualized in Figure 8. Inside the bureaucratic hierarchy zone, obedience is institutionalized. This means that obedience does not depend on personal characteristics. Instead, it depends on institutional position.

The bureaucratic hierarchy zone is where the institutions of capitalism live. Bureaucratic hierarchy is how firms and governments are organized. More broadly, I would guess that it is how all large institutions in human history are organized.

Power is proportional to the number of subordinates one controls.

Figure 10 shows this equivalence between firm size and the hierarchical power of the CEO.

We will use this equivalence to see if the relative income of CEOs grows with hierarchical power.

Figure 11 shows how the CEO pay ratio grows with hierarchical power among US CEOs. Among these CEOs, it seems that the power ethos prevails. Relative income grows with hierarchical power.

Next, I will look at the income of all employees within firms.

In these firms, it seems that the power ethos prevails. Average income within hierarchical ranks is strongly proportional to hierarchical power.

The evidence above does not convince mainstream economists to abandon their theory. It is impossible to disprove that an unmeasured skill causes the returns to hierarchical power. The best we can do is show that measured skill does not explain these returns. In Fix (2018b), I show that common measures of skill (like education and firm experience) cannot explain the returns to hierarchical rank.

Time is important because there is a mismatch between how we learn skills and how we acquire hierarchical power. We learn skills gradually. But we acquire hierarchical power in lumps.

Skills are an individual trait.

To learn a new skill, you must forge new pathways in your brain. This takes time. Like all animals, our ability to learn has physiological limits. But accumulating hierarchical power has no such limits. That is because hierarchical power is a social trait.

The more hierarchical power someone gains during a promotion, the more their income increases. For demotions, the reverse is true.

I have shown you evidence that the power ethos prevails in a sample of modern firms. But how general is this relation? Does income always grow with hierarchical power inside hierarchies? I predict that it does.

Whenever we find institutional hierarchy, I predict we will find the power ethos. It doesn’t matter if we are studying a feudal fiefdom, an archaic kingdom, a totalitarian regime, a democratic state, or a modern corporation. If there is hierarchy, I predict that access to resources will grow with hierarchical power.

Income is a social phenomenon. To understand it, we need to understand social relations. And there is no better place to start than to study the power relations that dominate our working lives.

Evolutionary Theory of Resource Distribution

Contents