An Evolutionary Lens on Free Markets

Why we should think about free markets in much the same way we think about evolution

Photo by Steve Harvey on Unsplash

Both biological evolution and the free market are powerful forces that shape our world. They create both immense suffering and stratospheric success. While we might judge the outcomes based on our values, at their core, these processes are amoral.

By viewing economic policy in much the same way we approach evolutionary biology, I believe we can begin to resolve a lot of our ideological grievances.

Evolution

Evolution, driven by mechanisms like natural selection, is the process by which organisms change (evolve) over time due to shifts in inherited traits. These changes unfold from one generation to the next over extended periods, primarily driven by mutations, which are random genetic changes.

While many, perhaps most, mutations are neutral or even harmful, some can offer an edge in specific environments or circumstances. Organisms with such adaptive mutations have a better shot at survival and reproduction, enabling these beneficial genes to be passed on to future generations. As the changes that confer an adaptive advantage accumulate, it leads to noticeable differences in successive generations.

While an organism might not differ significantly from its immediate ancestor, these tiny changes can compound over time. Evolution can lead to increased complexity, specialization, or even simplification, depending on the demands of the environment.

The naturalistic fallacy

We are prone to perceive the products of evolution as a static part of nature, and we take for granted that it has been created for a purpose and so it must be good in some way. But having the characteristic of being “natural” (as if there are things that are not?) does not make something good or bad, better or worse. This misinterpretation is so prevalent that it even bears a label: the appeal to nature fallacy

It’s trivial to see how not everything that is natural is good. No sane person would suggest that cancer is good because it is a “naturally” occurring phenomenon. As sentient beings, we make moral judgments. We consciously decide to combat and prevent cancer, not because nature deems it so, but because it conflicts with our values. Because we value living long and healthy lives.

It is not necessary for us to accept, with a sense of helpless resignation, everything that evolution has produced “just because it is natural.” Indeed, when we can change, improve or prevent various natural things that we don’t like, we often do so because it enhances our well-being.

That’s not to say evolution is something we can or should prevent; it’s a continuous process that happens whether we are aware of it or not. But we can manipulate the outcome and change the direction to fit our needs and wants. Agriculture and animal domestication are two examples of artificial selection at play. We’ve been doing it for millennia. And we’re doing it even more successfully with the introduction of GMOs. In the future, we will probably be able to edit our own genes and that of our offspring directly. This will certainly bring with it a host of moral and ethical dilemmas, but the point is that we decide what we think is desirable and undesirable, good or bad — not “nature.”

How to make a bicycle

The thing that makes market economies work so well is that they produce growth and (sometimes increasingly complex) products, much like evolution produces change and complex organisms. Namely, by a kind of bottoms-up emergent process or what Adam Smith referred to as the invisible hand.

Although Smith’s invisible hand sounds mysterious, there is nothing magical about it. It is an inherent property of the system. A system in which the selective pressure of all its subsystems and components (chiefly supply and demand) causes feedback loops that iteratively produce more and more complex products, economic growth, and welfare - despite the fact that everyone is acting mostly out of their own self-interest (not unlike the selfish genes).

In the free market, these subsystems and components are consumers buying products and services and producers competing against each other for consumers.

As an example, consider the bicycle - probably the most common transportation vehicle in the world. Early versions were not very reliable and much harder to ride than modern ones. Today there are many different types of bicycles, at different prices and for different purposes. Even the cheapest of bicycles are very complex pieces of engineering. They are the result of more than a century of incremental improvements. Improvements driven by competing producers and the needs of customers. A modern bicycle didn't just materialize out of thin air.

Externalities

Just like biological systems, market economies are best thought of as systems whose constituent parts co-evolve along with each other and the environment, producing change and often increasing complexity. Like evolution, remarkably complex things can be “created” given enough time. But not everything resulting from such a complex adaptive system is inherently good or “meant to be.”

Different kinds of selective pressures, like incentives and competition, create unpredictable outcomes that are not always beneficial to all the actors within the system.

Just like biological evolution has produced things we dislike, such as parasites, viruses, and cancers — things that we actively try to inhibit — market economies sometimes result in undesirable outcomes, like economic recessions and wealth inequality. It would be an understatement to say that this has devastating consequences for individual people, families, and communities.

The “tragedy of the commons” is another example that comes to mind. It refers to a situation where the best choice for individuals acting in their own self-interest is not in the best long-term interest of the group or population as a whole. A company choosing to discard waste from its factories in a lake is acting in its own self-interest. But their choice has long-term negative consequences for the ecosystem as well as the people who drink the water from the lake, for example. Clearly, it is in the best interest of everyone else that someone (like a government) imposes certain constraints and regulations on the disposal of toxic waste. Enough that people are not needlessly harmed but not so much that the company cannot produce its products and compete. Needless to say, this is not always easy.

People on the right of the political spectrum tend to overestimate the ability of the market to regulate itself and tend to view the free market as inherently virtuous, that all outcomes are good and necessary. Laissez-faire capitalism. Leftists, on the other hand, typically believe that the market is a beast that must be tamed and put on a leash - if it’s allowed to exist at all. Only the government or a state can be trusted to control it.

The amoral nature of nature

Biological evolution is analogous to the free market in that both are complex systems whose outputs are neither inherently good nor bad. Just as we attempt to cure cancer, we also attempt to steer the market economy to produce outcomes that are beneficial for everyone. We don’t lay down and die at the first onslaught of disease, just as we don’t let an economic recession turn into depression without trying to soften the blow.

As with so much else, the middle ground is where one must look for the right course of action. On the one hand, we must recognize that the free market produces welfare and growth that is unmatched by any other system in human history. Yet we are also completely justified in regulating at least some aspects of a free market in order to avoid the worst outcomes (as we are already doing). The question is how often, in what circumstances, and to what extent. I don’t claim to know that, but I do know that one must be very careful when imposing regulations. Because of the nature of such a complex adaptive system as the economy, it is rarely clear what the second and third-order consequences turn out to be. We just know that they are almost never predictable in advance.

A good way to think about it is that we must try to “harness the power” of the free market, but we don’t have to accept everything it throws at us.