The Death of the Invisible Hand: Why the Narrow Pursuit of Self Interest Always Fails

Regulation comes naturally for small human groups but must be constructed for large human groups.

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By David Sloan Wilson

I hope that our economy recovers, but the time has come to declare its guiding metaphor dead. This is the metaphor of the invisible hand, which makes it seem as if the narrow pursuit of self-interest miraculously results in a well-functioning society.

The invisible hand metaphor originates with Adam Smith in The Wealth of Nations(1776). Bernard Mandeville made a similar point with his Fable of the Bees (1705), which fancifully describes human society as a wondrously productive bee hive, even though each bee is as selfish as can be.

Smith was critical of Mandeville and presented a more nuanced view of human nature in his Theory of Moral Sentiments (1759), but modern economic and political discourse is not about nuance. Rational choice theory takes the invisible hand metaphor literally by trying to explain the length and breadth of human behavior on the basis of individual utility maximization, which is fancy talk for the narrow pursuit of self-interest. For the general public, unfettered competition has been turned into a moral virtue and “regulation” has become a sin.

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The collapse of our economy for lack of regulation was preceded by the collapse of rational choice theory. It became clear that the single minimalistic principle of self-interest could not explain the length and breadth of human behavior. Economists started to conduct experiments to discover the actual preferences that drive human behavior. The field of experimental economics was born and two of its founders (Vernon Smith and Daniel Kahneman) were awarded the Nobel Prize in 2002.

Actual human preferences are all about regulation. A microcosm of America’s economic collapse can be created in the laboratory in a single afternoon. Yank a group of people off the street, give them a task that requires cooperation, and most of them will play along as solid citizens. Unfortunately, a few will game the system if there is any way to cheat. Once the solid citizens realize that they’re being ripped off, they withdraw their cooperation as their only defense. Provide them with an opportunity to punish the cheaters, and some (but not all) punish with zeal. Even the cheaters punish other cheaters with zeal! Once the capacity for regulation is provided in the form of rewards and punishments that can be implemented at low cost, cooperation rises to high levels. Regulation is required or cooperation will disappear, like water draining from a bathtub.

These social preferences go beyond our own species. Cooperation and cheating are behavioral options for all social species, even bacteria, and cooperation survives only to the extent that it is protected against cheating. The eternal conflict between cooperation and cheating even takes place within our own bodies, in the form of genes and cell lineages that manage to game the system at the expense of the organism upon which they depend. We call them diseases, but they are really the failure of a vast system of regulations that enable us to function as organisms as well as we do.

Mandeville could not have been more wrong about actual nature of bees. There is a difference between self-organization and self-interest. Beehives and other social insect colonies are indeed self-organized. There is no single bee commanding the troops, certainly not the queen. Each bee plays a limited role in the economy of the hive, just as a single neuron plays a limited role in the economy of the brain. The intelligence of both can be found in the interactions among the parts, which have been shaped by natural selection operating over countless generations. But bee behavior cannot be reduced to a single principle of self-interest, any more than human behavior. There are solid citizens and cheaters even among the bees, and the cheaters are held at bay only by a regulatory system called “policing” by the biologists who study them.

Why are we so different from all other primate species? Because we are so cooperative. Why are we so cooperative? Because it is so easy to regulate each other’s behavior in small face-to-face groups. It happens so naturally that we don’t even notice it. Alexis de Tocqueville, the great French social theorist who wrote Democracy in America (1835, 1840), also said this about small human groups: “The village or township is the only association that is so perfectly natural that…it seems to constitute itself.” This self-organizing ability to function as cooperative groups is “so perfectly natural” because it evolved by a long process of natural selection, in humans no less than bees.

By the same token, functioning as large cooperative groups is not natural. Large human groups scarcely existed until the advent of agriculture a mere 10 thousand years ago. This means that new cultural constructions are required that interface with our genetically evolved psychology for human society to function adaptively at a large scale.

These constructions can work well or poorly. They can arise by a raw process of cultural evolution—many inadvertent social experiments, a few that succeed— or by a less wasteful process of intentional planning. Tocqueville marveled at the vitality of the American democratic experiment planned by the founding fathers, compared to French society as an inefficient accretion of history. He also perceptively observed that America’s vitality could not be attributed entirely to intentional planning. Mexico copied the United State’s constitution, but the results were not the same. Something more contributes to America’s vitality that we vaguely call “culture” but must study to understand. Tocqueville also speculated that the American democratic experiment could unravel in an eerie premonition of our current turbulent times.

Theories and metaphors are the cultural equivalent of genes. They influence our behaviors, which have consequences in the real world. Mother nature practices tough love. When a theory or a metaphor leads to inappropriate behaviors, we suffer the consequences at scales small and large. To change our behaviors, we need to change our theories and metaphors.

For those who wish to learn more about how economics is going beyond rational choice theory, I recommend a book titled Moral Sentiments and Material Interests: The Foundations of Cooperation in Economic Life (2006), edited by Herbert Gintis, Samuel Bowles, Robert T. Boyd, and Ernst Fehr. Gintis, Bowles, and Fehr are eminent economists while Boyd is an eminent evolutionary anthropologist, illustrating how integrative the new economic theory has become. I have also written an essay titled “The New Fable of the Bees” that explores the theme of this post in more detail.

New theories are not good enough, however. We also need to change the metaphors that guide behavior in everyday life to avoid the disastrous consequences of our current metaphor-guided behaviors. That is why the metaphor of the invisible hand should be declared dead. Let there be no more talk of unfettered competition as a moral virtue. Cooperative social life requires regulation. Regulation comes naturally for small human groups but must be constructed for large human groups. Some forms of regulation will work well and others will work poorly. We can argue at length about smart vs. dumb regulation but the concept of no regulation should be forever laid to rest.

2016 September 6

Originally published here.

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  • Gaurav Sinha

    The author is missing the whole point, The debate is not between regulation and no regulation. The discussion is between market regulation and government regulation, which the author does not even try to answer. The example the author repeats again and again related to the 2008 crash is a very clear case of government regulation of the money supply through monetary policy crashing the system. It is a very good example how government regulation is in many cases the problem and not the solution.

    • Jan de Jonge

      Two comments. First, the dichotomy between markets and states (government) is false. If you want markets to expand, you need governments to do the same. Second, the financial crisis in 2008 was clearly caused by failure of the financial market. You should inform yourself by reading some books/articles from economist. Bernanke and Larry Summers and even Greenspan have admitted this publicly. See for instance” Dani Rodrik about monetary policy since WWII in “The Globalization Paradox”.

    • Paulo Pinheiro

      What do you call market regulation exactly?

  • Mike

    Gaurav; I’m afraid it is you who has (spectacularly ) missed the point. You must also be the only person on the planet to believe govt monetary policy was responsible for the GFC.

    Consider the author’s argument; he is talking about regulation that occurred in pre-govt societies i.e. thousands of years before govts or markets even existed. How you can read this article and draw the conclusions you have drawn is beyond me.

    • Duncan Cairncross

      You could argue that
      “govt monetary policy was responsible for the GFC”
      But that is the same argument that not locking your house is responsible for robbery

      On the other hand there is such a thing as leaving too much temptation in public view
      With that in mind govt monetary policy was PARTIALLY responsible for the GFC

      • Mike

        Fair point. I would agree that the LACK of govt monetary policy was partly responsible. Which of course is not the same as an actual component of govt monetary policy being responsible (which was more my point.)

        • Duncan Cairncross

          I would agree 100% with that

    • This article summed up:

      “A guy noticed that small groups autoregulate themselves”
      leads to
      “Self-interest is bad”
      leads to
      “We must abolish the idea that large-scale regulation is anything but good”

      • John M Legge

        It would help if you read the article before trolling it. The author makes the point that the USSR’s large scale regulation led to paralysis and stagnation.

      • Paulo Pinheiro

        Thank God (or someone else) you were not my logic teacher!

        • Thank God I don’t give a fuck.

          • Paulo Pinheiro

            Oh God, I praise thee he doesn’t give a fuck! Thank you God and let me shake your invisible hand!

  • laura mezzanotte

    So, now, we should go down to the business of “how” to change the metaphors.

    • John Kirshon

      How about the “visible brain”?

      • laura mezzanotte


        • John Kirshon

          “Cooperative social life requires regulation. Regulation comes naturally for small human groups but must be constructed for large human groups.” This will take collective intelligence, so I proposed a new metaphor: a brain that is not invisible but transparent to all, the “visible brain.”

  • Captain Person

    The New Fable of the Bees link is broken.

  • It is very ironic that the author uses a proof of auto-regulation (self-regulation) to disprove the idea of the invisible hand (which IS the idea of self-regulation).

    • Paulo Pinheiro

      What the author is saying is that today’s society is to big and to complex to… Oh, never mind, you wouldn’t understand!

  • bob cannell

    Worker cooperatives are good real world laboratories to study self organization and self regulation. The author says humans evolved to co-regulate in small social groups but not in large. When worker coops get too big indeed cooperation degrades. The Italian social cooperatives fixed this by setting a maximum size 100 worker and customer members and starting new coops for extra demand. Result is 14000 social coops but they organise in consortia. A consortium of 1000 coops axcting together has the power of a modern corporation. So they get the benefit of both human scale enterprise and large scale organisation. In the UK ours just grow too big and we lose control to self seeking oligarchies.

    • Ormond Otvos

      Are you saying that the consortia are not subject to the flaw of being to big for face to face cooperation?

      • bob cannell

        The consortia are outside in governed. The representative hub is deliberately kept weak. They avoid representative democracy as much as they can and avoid democratic centralism (which causes elected dictatorship in large organisations). They have congresses and tend to use policy driven strategy.
        My point is that when humans cooperate in extended family size groups (what we evolved to do) it is possible for those groups to then cooperate in larger networks if authority hierarchies are avoided. Hierarchy privileges the biggest freeloaders of all, CEOs.

        • Ormond Otvos

          I don’t see cooperation without authorized representatives, which seems to be hierarchy. What we have, in short.

  • Jan de Jonge

    I have urged this earlier. Another attempt. Try to enter a macro economic approach. Read books of macroeconomists and discover that all the talk about the market and the state, the metaphor of the invisible hand, the discussions b about rational choice theory are not to the point. Try for instance some younger generation economists as Dani Rodrik (The Globalization Paradox) or Acemoglu and Robinson (Why Nations Fail) and you will learn about the importance of regulation and the vital role of institutions. And, not unimportant, you will learn about the strong relation between neoliberal economic policies and microeconomics and rational choice.

    • Okay, that explains your comment on focussing on macroeconomics instead of microeconomics in the discussion of the Hodgson article.

      If you read older economists like Hayek or even better Friedrich List and again later ordoliberals you’ll find arguments for institutions, notably cultural differences and their effects on channeling or ordering economic activities.

      Ordoliberals like Eucken, Röpke, Erhard have put these observations in a more political normative argumentation for regulation to ensure fair and ‘proper’ markets – i.e. institutions. So to me it seems the (US) macroeconomists are re-discovering an old path that others had found before them already. It has been submerged by ‘Benthamite utilitarianism’ in the anglosaxon world – at the expense of Scottish liberal market competition, but (also) community oriented thinking as e.g. in Adam Smith and many others that have been hijacked by individualistic-utility-only free-market radicalism.

      • Jan de Jonge

        I do not know ordoliberalism very good. I think it is close to the European idea of regulated market economies (the Rhineland model) and the idea of free markets that has still a force of attraction in the USA. The idea of free markets is close to the idea of a market society, in contrast to a society with a market economy.

  • Governator

    What definition is used for self-interest?

    If self-interest can be corrected in small communities, but not in large scale society’s, why then can regulations be a solution? Regulations are designed and they are uphold by humans. Have they lost their self-interest? When those humans are out of sight for people in daily life, because they operate in big institutions, invisible for ordinarily people, it almost comes down to self correction. In my opinion, an illusion.
    Unless you see other ways of regulations and upholding them on a larger scale?
    Until now they have all failed (benefited a happy few free riders on al large scale).

    What makes organizing on a larger scale necessary? Human life of corporate profits?

  • Paulo Pinheiro

    One thing: Adam Smith used the term ‘invisible hand’ is his Wealth of Nations only once, and it was not for defending globalisation – on the contrary. And he never said there was an invisible hand, only ‘like there was an invisible hand’. The invisible hand of the economists (not all) is a fantasy they sold us to break down any regulations upon them. The rest is BS.

  • John Kirshon

    Has the field of economics finally welcomed the “visible brain” to its vaunted theory?

  • SLDI

    David correctly states:

    “Cooperative social life requires regulation. Regulation comes naturally for small human groups but must be constructed for large human groups.”

    Origin of Sustainability Movement Leads to Current Challenges –

    The Universal Principles of Sustainable Development –

  • Hi David,

    Some good points in your argument, and some that are simply wrong. On the whole guilty of trying to over simplify what is a very complex situation.

    The major categories are:
    The context of self interest;
    Levels of complexity in human beings, and the trap of over simplifying (Goodhart’s Law);
    Strategic interactions and context sensitivity;
    Stabilising strategies do not have to involve regulations as such;
    Discount rates on future benefits vs exponential technologies;
    Rational choice vs heuristic hacks and the mix and match and evolution of both;
    Where markets and automation come into fundamental conflict;
    The myth of rules in complex systems.

    There is nothing wrong with self interest, provided that it is in a context that is sufficiently aware that it includes the exponential increases in future benefits coming from exponential technology, has a relatively low discount rate on future benefits, and includes a reasonable expectation of living a very long time. In such a context, it is always in one’s long term self interest to cooperate with others in responsible ways in both social and ecological contexts, while at the same time retaining one’s liberty and independence (in as much as either of those things actually exists).

    Human beings are really complex. It seems that we have about 20 levels of complex systems present in us. About half of those levels involve mostly physical systems and are mostly influenced by genetics and physical environment, and about half are mostly software systems, and are most influenced by the context of other software systems, and all of them interact (both within and between levels). We each contain many instances of Turing complete computational systems, but evolution doesn’t care about Turing completeness, it deals only with differential survival in the contexts of costs and benefits actually present. Any heuristic that works in practice with a frequency that means it is more effective in a population than a more flexible but more computationally (energetically) costly alternative, will be selected for (hence, in a sense, the desire for simplicity that we see at every level, including in this forum). Which leads us to Goodhart’s Law from complexity theory “Any observed statistical regularity will tend to collapse once pressure is placed upon it for control purposes”. Which is another way of saying that when dealing with real complexity (like human beings) and simplifying heuristic, taken out of the context in which it existed, will fail. And any change in the system, like using the heuristic for control purposes, changes the context sufficiently to invalidate the heuristic. Simple heuristics never work for long in complex systems where context is changing.
    We live in times where many levels of context are changing exponentially.
    No simple heuristics are going to be useful consistently.
    We need to become very comfortable dealing with real complexity and profound real uncertainty.

    You correctly identify that cooperative systems require attendant strategies to prevent invasion by cheats – games theory 101 that most here should be aware of. However, you then go on to make the unwarranted assumption that those strategies need to be in the form of regulation. That is not a valid assumption. An infinite class of alternative strategic sets are available.
    The other part of the necessary conditions for cooperation to out perform competition is not mentioned, and that is the presence of sufficient abundance for all. Only if there is genuinely enough for all will cooperative strategic systems deliver greater benefits for all than competitive strategic sets.
    To be successful in the deepest of strategic senses, cooperative systems require both effective attendant anti-cheating strategies (an ongoing process of exploration of an infinite strategic space) and a context of sufficient abundance for all.
    It is not enough simply to have such abundance present, it is actually a requirement that every individual actually have both a physical sufficiency for their needs and their long term security, and that they are using an experiential model of reality that allows them to experience such abundance. Having the abundance present isn’t enough if the belief structures and interpretive schema in use do not allow the individual to experience it as such.

    One of the biggest issues we have is the rather short term modelling that most people do, and the rather high discount rates on future benefits that most cultures and people have.
    Evolution has equipped our brains with linear predictors, which worked well in most of our evolutionary past, and were great for predicting regular food sources, or extrapolating the future position of a stalking predator. However, they don’t work well when dealing with exponential change. In the short term, there is little difference between a linear and an exponential sequence, the first two terms are identical, and the third is only one different (linear – 1,2,3 exponential 1,2,4) however, by the 30th term, the linear is at 30, the exponential at a billion. Many exponential technologies are currently doubling in under a year on many key indicators. Once these systems achieve broad spectrum and energetically efficient molecular level precision in manufacturing, the entire game changes. If it takes that first machine two weeks to manufacture a second one, then within 2 years there can be one for every person. Personalised manufacturing. We can already do molecular level manufacturing, but only within very narrow contexts as yet, and energy efficiency is poor. That is going to change, exponentially.

    Rational choice versus heuristic hacks, and what human beings do in practice.
    We all have thousands of heuristic hacks present in us organised in about 20 levels of systems, and sensitive to different contexts in different ways. Many of those we get from our genetic history, in the structure and function of body and brain, and many more we get from the unexamined assumption sets implicit in the cultural paradigms we happen to get born into.
    All human behaviour is a complex mix of these heuristic hacks and rational choice.
    To the degree that we take the time to learn about the heuristics present in both the genetic and cultural realities within us, then we gain some level of rational choice over them.
    To the extent that we lack such awareness of the influence of context upon us, then we are subject to influence by others with greater awareness of such influence, and with the ability to alter contexts to influence outcomes in ways that benefit them (cheating strategies in a sense).
    And not all reality is some sort of conspiracy, much of the reality of complex systems is beyond prediction, it is random or chaotic or unpredictable in many fundamentally different ways.
    And acknowledging all of those many classes and levels of unpredictability, it is still possible for a rational agent, with a sufficiently strong expectation of living a very long time, and with a sufficient awareness of the exponentially increasing benefits possible from technology, to rationally choose to forgo short term benefits in favour of the hugely greater long term security, freedom and physical benefits available from adopting sets cooperative strategies (with evolving sets of attendant anti cheating strategies) in our present.
    It is actually rational to be cooperative, and to be as aware as possible of the long term social, ecological and physical consequences of the actions one takes now, provided one can see that exponential technology is capable of delivering greater benefits to all in our future.

    Which brings us to the greatest conflict of our age, the direct conflict between market values and human values.
    It is undoubted true, that in contexts of genuine scarcity (which have actually existed over most of human history), markets have tended to deliver many benefits, across many domains, the variety and abundance of goods and services, the freedom of individuals, individual security, distributed social coordination, to mention just a few.
    However, there is a catch.
    Markets are fundamentally based in scarcity, in exchange values. There is no exchange value in universal abundance, so no market mechanism will ever (of its own internal incentive structure) deliver universal abundance. Markets require some to be in poverty for others to experience abundance. If you doubt that, consider the market value of air – arguably the single most valuable thing for every human being, yet of no market value in most situations due solely to the fact that it is universally abundant.
    In most of history, that was not a problem.
    But now we have exponentially expanding automation capacity.
    Any fully automated system can deliver universal abundance (provided the system has sufficient mass and energy as inputs, and we are not short of either, the sun emits enough energy for every individual currently alive to have more than humanity as a whole currently uses, and there is plenty of mass in this rock we live on).
    But any such universal abundance has no market value.
    In attempting to slow this devastating impact of automation on monetary values, we have seen an explosion of “Intellectual Property” laws (a legal mechanism designed to prevent universal abundance, and maintain levels of marketable scarcity and profit which our exchange based economic system requires). And vast amounts of human misery and death are directly attributable to these laws.
    Automation changes everything.
    As full automation of processes expands from the realm of pure information into the physical, then markets become the single greatest existential risk to us all, as market values come into direct conflict with the values of the majority of humanity.
    We are on the cusp of that reality right now.

    The last piece of this puzzle is the myth of rules in complex systems.
    David Snowden has created a great little simplification of decision making in complexity that he calls the Cynefin Framework. He divides complex systems into 4 categories, simple, complicated, complex and chaotic, and clearly shows that rule based systems can only deliver useful outcomes in simple systems. In all other systems, to get useful outcomes, individuals need sufficient freedom to develop understandings themselves, to make mistakes, and learn from the constantly evolving reality that complex systems deliver.
    He develops the notion of “safe to fail experiments” and the need to include a significant level of randomness in the selection of which experiments to try – due to the many levels of “expert bias” present in high level decision makers.
    So it seems that we must all be socially and environmentally responsible, and that does not necessarily mean following any set of rules.
    It seems we must all be given respect and freedom, and that freedom is not any sort of unrestricted license to follow whim of fancy, but comes with a set of responsibilities.
    The nature of those boundary conditions, between freedoms and responsibilities, is likely to vary substantially in different contexts.

    When one starts to seriously explore what freedom might mean, in a set of contexts that have a potentially infinite set of levels of awareness, and each level is potentially infinite within itself, then one must develop a profound tolerance for diversity, which is not at all the same thing as accepting cheating strategies.
    No person can explore any infinity, let alone an infinite stack of them.
    There is something fundamentally humbling in such an awareness, and also profoundly empowering.
    Maintaining the benefits of cooperation imposes on each of us a requirement to expose and appropriately punish cheating strategies (something our existing legal systems do very poorly).
    Ostrom clearly showed that there is a very narrow band of punishment that is stable. Punish too little, and there is incentive to cheat again. Punish too much, and there is no incentive for the transgressor to return to cooperative action. Most legal systems have both maximum and minimum penalties, which is the exact opposite of what logic demands. Just one more example of rule bound systems producing profoundly perverse outcomes (or alternatively cheating strategies dominating the cooperative).

  • Harry Alffa

    Link bankers income tax to 10 times the percentage level of unemployment – set bank corporation tax (or bank-levy in UK) to the cost to society of paying unemployment benefits.
    Make this a dynamic system which is adjusted by monthly labour market statistics.

    Forces banks to look for good investments in the real economy; diverts away from “casino” banking.
    As a mere side effect it creates pressure of peer to peer regulation both between individuals within institutions and between institutions.

    You are welcome.

  • The focus of Victorian British intellectuals on competition and violent nature was IMO, an unconscious attempt to justify the ravages of Empire on the world and on Britain’s own working classes (the poor and down-trodden Britain described by Dickens). They were all obliquely arguing that not only Empire, but the Bourgeois take over from Feudalism, was *natural*. It was simply nature taking its course that the Empire would take over the world, and that merchants would rule the empire and take all the benefits of production. Indeed, in the East India Company, the Empire was a merchantilist enterprise. Mill, Darwin, Bentham, at el were all involved in this whitewash to some extent. They shaped British intellectual life right down to the present day.

    The bourgeoisie still think they are the natural leaders, and still feel entitled to the “lion’s share” of the benefits of production, and still exempt themselves from the duties of citizenship (like paying taxes).

    That economics retained this essentially Victorian mode of thinking is not surprising. After all, as late as the 1970s Richard Dawkins was applying the same ideology to biology. And his Neoliberal evolution, the selfish gene, is still the dominant paradigm in biology. It blunts all progress towards the emerging view that cooperation is essential. Those who do acknowledge the role of cooperation argue that even cooperation is self-interested. Altruism completely foxes them, though it has been observed in many primates.

    Amongst scientists one has to go far outside the mainstream to find those who observe cooperation and manage to get published. Lynn Margulis, who in the late 1960s established that mitochondria were once free living bacteria that are now bound in a symbiotic relationship with our cells, met fierce initial and sustained resistance from the mainstream of biology. Dawkins for example, grudgingly acknowledges mitochondria, now in every basic biology textbook, but still refuses to accept that symbiosis might play a continuing role in evolution. Frans de Waal describes the social behaviour of chimps and bonobos as based on empathy and reciprocity. These two behaviours are essential to the survival of any social mammal and probably birds as well. De Waal cogently argues that morality is an extension of these social characteristics. But he too is an outsider in a field that still prefers to deny that animals can possess qualities like empathy and reciprocity, despite their brain architecture being essentially identical to ours, and despite our DNA being nearly identical.

    Many monkeys as well as most apes (perhaps elephants, dogs, and some birds) understand fairness. They punish those who do not play fair, thus displaying a rudimentary interest in justuice also. Once we have fairness and justice, morality is not far behind. And the thing is that these are emotional responses to social situations, rather than reasoned responses to hypotheticals. The Victorian ideas about intellect and reason are as fanciful as their ideas on evolution; yet they also still survive. De Waal’s TED talk is a good introduction to the subject:, but the subject is expanded on in his books.

    We are not in fact that different from other primates, except that we have found ways to co-exist in large groups. We mediate the tension of this through collective activities laughter, dance, singing, story-telling and collective rituals. Compare Robin Dunbar’s wonderful book Human Evolution and Ara Norenzayan’s Big Gods.

  • Encore1fois

    Sometimes, the invisible hand is cloaked in secrecy for a reason. The rumor mills on the Web are an example of its influence.

  • Peter Mersch

    An interesting and well written article.

    Unfortunately, a few will game the system if there is any way to cheat. Once the solid citizens realize that they’re being ripped off, they withdraw their cooperation as their only defense. Provide them with an opportunity to punish the cheaters, and some (but not all) punish with zeal. Even the cheaters punish other cheaters with zeal! Once the capacity for regulation is provided in the form of rewards and punishments that can be implemented at low cost, cooperation rises to high levels. Regulation is required or cooperation will disappear, like water draining from a bathtub.

    This is a sound explanation why markets will not work without policies.

    Unfortunately this is not the death of the Invisible Hand paradigm. Invisible Hand is the opposite of central planing. Even if a society has a lot of rules to prevent and punish cheating the resource allocation of its economy could work as if there was an invisible hand (that means without central control and planning).