Charles Darwin, not Adam Smith, will one day be considered the father of economics, says Cornell University professor and New York Times columnist Robert H. Frank in his new book, The Darwin Economy. He argues that Darwin's theory of evolution by natural selection gives a better description of how markets work, and fail, than Smith's theory of the invisible hand.
This insight reverses two centuries of intellectual traffic. Thomas Malthus' ideas shaped Darwin's, and many of the tools of modern evolutionary biology, such as game theory, are borrowed from economics. It leads Frank to many excellent suggestions for improving society by means of a fairer and more efficient tax system that takes the laws of biology into account.
The same insight also leads him to say some misleading things about how natural selection works. Frank's biological misfires aren't mere naivety; they touch on ideas at the leading edge of evolutionary thought and show what stands in the way of the reforms he advocates.
Frank bases his argument on the Darwinian notion that life is graded on a curve. How much is enough depends on what others have got. Most people, for example, would rather live in a 4,000-square-foot house that was bigger than their neighbor's than a 6,000-square-foot house that was the smallest on the street. Economists call these positional goods, and contrast them with things that aren't so relative, such as safety at work, where most people think it's better to be safe in absolute terms than the safest worker in a hazardous factory.
Positional goods lead to waste, says Frank, because people end up living in bigger houses than they need to, throwing lavish parties, and spending money on pool cleaners. This pressures other people to do the same, and so takes money from the better uses that might be predicted by Smith's rational model.
As a biological analogy, Frank suggests the difference between running speed and antler size. A faster gazelle is better equipped to outrun a cheetah, and so, he writes, "being faster conferred advantages for both the individual and the species." Antlers, on the other hand, are used for fighting with other males. The pressure to have bigger ones than your rivals leads to an arms race that consumes resources that could have been used more efficiently for other things, such as fighting off disease. As a result, every male ends up with a cumbersome and expensive pair of antlers, says Frank, and "life is more miserable for bull elk as a group."
This has a lot going for it as an economic metaphor. Sometimes competition results in cheaper, better products, like loft insulation or computer memory, and sometimes it results in Louis Vuitton luggage. (Often, of course, it delivers a combination of utility and status, like the iPad.) But evolutionarily speaking, the distinction is bogus.
Natural selection sees no difference between running speed and antler size: All evolution is positional. When one gazelle got faster, the slower ones got eaten (a point Frank relegates to a footnote). And when gazelles got fast, so did cheetahs. Cheetahs and gazelles would all be better off if they'd stayed slow, because running fast uses energy you might "better" invest in offspring, and legs that are built for speed are more prone to fracture. The lissome cheetah, meanwhile, is bullied and often killed by bigger carnivores such as lions.
Frank could just as well have reversed the analogy: Male gazelles happen to spend a lot of time and energy fighting over mates, and few predators will risk getting on the wrong end of a bull elk's antlers. If the latter's headgear turned out to be a burden, natural selection would make them smaller. That actually happened, thanks to human trophy hunting, to populations of bighorn sheep.
There's not nice evolution and nasty evolution, in other words. There's just evolution.
Frank's elk vs. gazelle example may not be so useful, but in exploring the tension between natural selection and the common good, he touches on the toughest question in evolutionary biology: How has natural selection, which drives individuals to compete with their own kind, nevertheless produced so many examples of cooperation and altruism?