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What does the work of Charles Darwin have to do with economics? As part of his reporting on Making Sen$e of financial news, Paul Solman talks to Robert H. Frank, author of "The Darwin Economy: Liberty, Competition, and the Common Good," about the connection between economics and the father of evolution.
Now, what does the work of naturalist Charles Darwin have to do with economics?
NewsHour economics correspondent Paul Solman finds out. It's part of his regular reporting on Making Sense of financial news.
There's an idea war being waged over American economics. The left contends that greed and the market have become malign influences which must be brought to heel. The right, which blames government for most of what ails us, has a more positive view of greed.
As Cornell economist Bob Frank puts it:
ROBERT FRANK, Cornell University:
The self-serving actions of greedy individuals will be channeled by market forces to produce the greatest good for all.
And so the right swears by the simple, invisible hand of free market competition, summed up here in simplistic graphics perhaps, but 18th century British thinker Adam Smith's own timeless words.
"It is not from the benevolence of the butcher, the brewer or the baker that we expect our dinner, but from their regard to their own interest."
Smith is widely regarded as the father of economics. But in a new book, Bob Frank says that honor should go instead to another British subject.
A hundred years from now, if people poll professional economists, people like me, and ask, who's the founder of your discipline, most people are going to say Charles Darwin.
Charles Darwin? Mr. Evolution? Yes, claims Frank, who met us at the touring Darwin exhibit now at Atlanta's Fernbank Museum of Natural History.
So, if we think about an animal like the rhea here, how does it get away from predators if it can't fly the way other birds can? Well, it's got to outrun them.
Of course, as Darwin and Frank both acknowledge, competition is, in fact, one key to progress.
And so, generation by generation, small mutations contributed a little bit to the extra speed for an individual animal. That animal is less likely to be caught and eaten by predators, and so it left copies of that mutation in the next generation, and then it spread generation by generation, until the bird is really quite a racehorse.
And that is the survival of the fittest.
That's the invisible hand story. It's good for the individual bird to be fast, and rheas as a species being fast is good for the species. It makes them less vulnerable to predators.
Same with the keen eyesight of hawk — the better their eyes, the better their meals — or the markings on these butterflies that mimic big bad owls, protecting them from predators.
Thus, the invisible hand of natural selection promotes the survival of the individual and the prosperity of the species. In economic terms, this is the greatest good for the greatest number, the grand achievements of a market economy, made possible by competitive individuals like Thomas Edison, Henry Ford, or Steve Jobs.
But to Frank, the Darwin show also depicts the dark side of competition, individuals vying in ways that stultify the species. In the evolution of male elk, for example, the fight for females results in outsized antlers.
Having bigger ones than your rival made you more likely to win your fight. And so every mutation that coded for larger antlers was very strongly favored. And they grew generation by generation.
We see bull elk now with antlers that are four feet across. They weigh 40 pounds. That's great for doing battle with other bull elk, but it's horrible if you get chased into a densely wooded area by a wolf.
You can't get out of the forest.
There's nowhere to turn, literally. That's a feature that absolutely captures the conflict between individual and group.
But returning to Darwin the economist, how does competitive evolution hurt the species known as Homo sapiens?
Years ago, Frank began thinking that we engage in the same sort of wasteful, self-defeating contests that Darwin documented in other animals. In "The Winner-Take-All Society" in the mid-'90s, a younger Bob Frank wrote and explained to us, that, though the use of strength-enhancing steroids in sports was hurting the general health of athletes, for example, it was in no way enhancing the game.
But, from an individual point of view, it's compellingly attractive to take the drug, because, otherwise, you don't land a spot on the team, you don't have a shot at the NFL roster.
Frank's line of thinking continued to evolve. The winners were separating from the rest in almost every field, and their sky-high pay was fueling "Luxury Fever," his 1999 book where he warned of competitive, conspicuous consumption among the super-rich, taunting and tempting us all.
There's no question but that we're in the midst of another Gilded Age. The robber barons had accumulated great wealth, and they spent it in very visible ways. The cyber-barons of today have accumulated great wealth, and they're spending it in visible ways.
Ways so visible that those down the ladder began emulating them. And that's the downside of conspicuous competition, says Frank. With humans, as with other animals, the survival of the so-called fittest may come at a cost to the species as a whole.
So, in one species of seals, for example, 4 percent of the males sire 88 percent of all offspring. That's like the rich get richer that we're seeing in modern society.
And, so, I think you see a very parallel processes. The sexual selection that arises from battles among males in those species produces enormous, outsized animals with huge weaponry that's all self-canceling in the end, wasteful. When you see incomes concentrating at the top of the income ladder, as we have seen for the last three decades, then you see spending patterns that are essentially a duplicate of the waste that Darwin saw.
And that's what you call luxury fever.
Exactly. If everyone builds a mansion twice as big, that just raises the bar that defines how big a mansion rich people feel they need. They build bigger because they have more money.
People just below them who travel in the same social circles, their frame of reference shifts. They have got to build bigger, too, and it cascades all the way down.
And why is that a problem?
If you have to spend 50 percent more on a house and you don't have more money, that's a short explanation of why conditions confronting the middle class have gotten more difficult in the last 30 years.
No wonder there's so much discontent, so bitterly felt, from the other 99 percent on the left to the Tea Party on the right.
Though Bob Frank is usually identified with the left, he was a devout deregulator when he served in government. And he thinks that, for all their earnestness, both sides are missing the essential message of Charles Darwin, that there are two sides to economics: the invisible hand of market competition, to be sure, making us faster, keener, safer, but also the helping hand of the community in the form of government to restrain ourselves when the competition starts costing more than it benefits.
The political conversation these days seems to be dominated by the idea that, if the society tries to act collectively, it's always going to make matters worse. But you can't just turn selfish people loose and hope for the best. In those cases, both in nature and in the marketplace, you get very bad results oftentimes.
So then yours is the message of the benevolent economist, if you will, who says both left and right are, in some fundamental sense, wrong because they don't understand both the value of the market from the left and the importance of government from the right?
That's exactly the point of the argument, yes, that — that there really is much more to the market than its critics realize, and the people who say government can do no good for the society are way off base. They don't understand the fundamental conflict that often arises between individuals and groups.
To Bob Frank, then, as to Charles Darwin, success is a balance between the urge to cooperate and the impulse to compete, a balance in the origin of our species and in its continued evolution.
The Charles Darwin exhibit is on view at the Fernbank Museum of Natural History in Atlanta through Jan. 1.
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