In a previous essay, I announced a new concept of the invisible hand to replace the old and erroneous idea that the pursuit of self-interest robustly benefits the common good. The new version is based on examples of the invisible hand that exist in nature, such as cells that benefit multi-cellular organisms and social insects that benefit their colonies. These lower-level units don’t have the welfare of the higher-level units in mind. They don’t even have minds in the human sense of the word. Instead, they exhibit behaviors that have been winnowed by higher-level selection to benefit the common good. Higher-level selection is the invisible hand.
Absorbing this fact leads to a robust conclusion about the design of our own societies. We must learn to function in two capacities: 1) As designers of social and economic systems; and 2) as participants in the systems that we design. As participants, we need not have the welfare of the whole system in mind, in classic invisible hand fashion. But as designers, we must. The invisible hand must be constructed, which would be a contradiction of terms according to the old concept.
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Yet, this does not mean that the invisible hand must be constructed by centralized planning, the main alternative to laissez faire economic policies that is typically imagined. Instead, the design process needs to be evolutionary, iterative, and collaborative, resulting in mechanisms that work like the invisible hand, even though they never could have arisen on their own. This constitutes a middle path between laissez faire and centralized planning that could be a breakthrough in solving the problems of our age.
I have stated the new concept of the invisible hand in terms of evolution, which provides the strongest and most general theoretical foundation that one could ask for. However, the concept has also been formulated by others from different perspectives. Peter Barnes is one such person. A co-founder of Working Assets (now CREDO Mobile), his most recent book is With Liberty and Dividends for All: How To Save Our Middle Class When Jobs Don’t Pay Enough and he has written two articles for Evonomics (1,2). In this conversation, we discuss his own vision for constructing a market economy that respects the needs of nature and society as a whole, using a middle path between laissez faire and centralized planning.
DSW: Greetings, Peter! I am looking forward to this conversation.
DSW: Please introduce yourself to our audience, bearing in mind that while you are already well known to some, you will be new to others. In fact, this kind of “patchiness” is something that I want to explore from a cultural evolutionary perspective.
PB: As an entrepreneur and writer, I’ve been exploring the inner workings of capitalism for — gosh — almost fifty years. Like you, I’ve come to realize that the Invisible Hand, if it ever worked, is now broken, and we need a new one that is suited to our current realities. That is, we need a set of market-based mechanisms that transform the self-serving behavior of autonomous agents into system-wide outcomes that benefit the majority of individuals, society and the planet.
DSW: Thank you! Now let’s get right down to business. I have made a three-fold distinction between laissez faire, centralized planning, and a middle path that needs to be explored. Is this also how you see it?
PB: Yes. I don’t think markets, at least as currently constituted, can self-regulate for the common good, nor do I think governments can plan, much less administer, a vast dynamic economy. So we need something in the middle. The first question is what? And the second is how do we get there?
Regarding the first question, what we need are markets in which the interests of nature, future generations and the great majority of living humans are effectively represented. That is not the situation today. Hence we have massive market failure.
Regarding the second question, I agree with you that there’s no time for unplanned cultural evolution, which in any case wouldn’t take place at the necessary scale. We need to re-rig our economy as intelligent designers, using a complex systems perspective.
DSW: Exactly. In my vocabulary, what you call “the interests of nature, future generations and the great majority of living humans” must become the target of a conscious evolutionary process, which employs variation, selection, and replication procedures to hit the target.
PB: The Invisible Hand as envisioned by laissez faire enthusiasts requires competition and prices to function properly. Competition is necessary for efficiency, innovation and preventing a small minority from garnering too much wealth and power. Prices are needed to transform a vast sea of dispersed information into single data points that economic decision-makers can use. But market failure arises when competition is insufficient or prices are missing critical information. And both are happening today, bigly.
Let’s talk about prices. Prices are driven by transactions between buyers and sellers. In order to participate in the pricing process you must either have money to buy or something to sell. On the selling side, you can offer either your labor or your rights to products or assets, which is to say, your property rights.
The root of the Invisible Hand’s current failure is that nature and future generations have neither money, votes or property rights. As a result, their needs are completely ignored by the pricing process and (absent government regulation) by all economic decision-makers. It is no wonder that nature is trashed and future generations forsaken for the sake of short-term gain.
At the same time, concentrated market power — when three or four companies dominate entire industries — leads to higher prices and more money flowing to owners of property rights (including corporate stock and intellectual property) than to labor. Hence, escalating inequality, insecurity and anger, with no end in sight.
The remedy to both crises — destruction of nature and concentration of wealth — is to create new forms of property that represent and benefit nature, future generations and all of us together as co-inheritors of common wealth. This is where system design comes in. If markets as they now exist aren’t sufficiently self-regulating, and we don’t want centralized control by government, then changing the mix of property rights is the only other imaginable solution.
Property rights are critical to our economy and our society. They determine who pays whom and who works for whom. What’s more, they have staying power: once amassed, they are repositories of wealth and power that shape markets and societies for generations. At a deeper level, they determine the direction in which the whole economy moves, as if by a gravitational pull. At this moment, a near-total domination of our economy by the interests of private property owners pulls our entire economy toward the goal of maximum short-term profit, which leads inexorably to concentrated wealth and destruction of nature. That is how the Invisible Hand works today. That is how our economy is rigged.
If we want to change that, we need new forms of property rights to complement and counter-balance the old. The new property rights, if we design them properly, will tug our economy toward the preservation and equitable sharing of nature’s and society’s gifts. There will still be profit-maximizing, but its pull on the entire system will be offset by pulls in these other directions. In effect, we will have re-rigged our economy to balance the needs of nature, society and private property owners.
DSW: OK, but cultural evolution, like genetic evolution, is path-dependent process. How do we get there from here?
PB: More than 200 years ago, Thomas Paine distinguished between private property and common property. It’s time to revive that distinction. Private property is rightly allocated to individuals in proportion to their roles in creating it; hence it is necessarily distributed unequally. By contrast, common property, representing wealth created by nature and society, is rightly shared equally. The trouble is, there is very little common property out there.
About twenty years ago, Nobel prize-winning economist Herbert Simon estimated that about 80 percent of the income we enjoy today comes not from the efforts of living individuals or corporations but from our shared inheritance — gifts of nature plus the knowledge, infrastructure and social institutions created collectively by our ancestors. Yet the financial value that comes from our shared inheritance isn’t broadly shared. It flows mostly to private property owners who are able to monetize and capture it in a variety of ways.
But imagine an economy in which common property is much more prevalent. This common property can take many forms, just as private property can. One form, for example, would be not-for-profit trusts that hold rights to use vital ecosystems. These trusts would have a legally binding duty to preserve their ecosystems for generations to come. They would fulfill this duty by limiting and charging for use of their ecosystems based on peer-reviewed science. In effect, they’d be guardians of their ecosystems with control over toll bridges into them.
Why would the public and politicians conceivably support such trusts? A key reason is that they would use a substantial portion of their income to pay equal dividends to all residents within their borders. The better the trusts protect ecosystems, the higher the dividends. There will then be a virtuous alignment between living and future generations, and between humans and nature. Humans won’t be any less selfish or short-sighted, but the economic framework in which we operate will push us and our businesses to act with nature’s and society’s interests in mind. That is the new Invisible Hand. At a large enough scale, it would create a kind of homeostasis between our economy, our society and our planet.
DSW: Exciting! This actually appears to be happening, with ecosystems being granted the rights of individuals around the world. What examples have come to your attention?
PB: The Alaska Permanent Fund uses royalties from North Slope oil to pay equal dividends to all Alaska residents. In Britain, the National Trust (a non-profit established in 1895) owns and preserves over 600,000 acres of landscape and historical buildings. Just north of San Francisco, where I live, the Marin Agricultural Land Trust owns permanent conservation easements on about half the farmland in the county. In the U.S. Congress, legislation recently introduced by Sen. Chris van Hollen (D-MD) would cap and auction rights to emit carbon dioxide into our atmosphere, steadily lowering the cap year by year, and returning 100 percent of the income in equal dividends to every American. There are also thousands of land trusts with many shapes and forms. There is no shortage of common property seedlings. What we need now are social entrepreneurs to help them multiply and evolve. It is hard work, but it can be done.
It’s worth remembering that, early in the 19th century, private corporations barely existed in America, yet by the end of the century they had become the dominant business form. It is possible that, in the 21st century,common property institutions could proliferate in a similar way.
DSW: There is one final topic area that I want to explore. I began by saying that we must learn to function in two capacities: as designers of social systems and as participants in the systems that we design. Operating in designer mode requires having the welfare of the whole system in mind. This is required not only for the designers—people like you and me—but for a majority of the population for any policy that must be passed by a vote. Yet, when describing the market system that you have in mind, you seem to switch to a Homo economicus view of human nature as entirely selfish and short-sighted. For example, you said “we need a set of market-based mechanisms that transform the self-serving behavior of autonomous agents into system-wide outcomes that benefit the majority of individuals, society and the planet”.
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This strikes me as not quite right. What we know, from multiple lines of inquiry, is that the majority of people expect to cooperate in their social endeavors and to punish those who don’t. The cooperators expect to benefit from their joint efforts, but that’s a far cry from being entirely self-regarding. A market system must be protected against the minority that is inclined to cheat and free-ride, but that’s not the same as assuming that everyone wants to cheat and free-ride. In short, we shouldn’t need to change our basic conception of human nature when we shift from designer mode to participant mode. What are your thoughts on this?
PB: Like you, I believe that humans are capable of both cooperation and competition, and that that’s why market economies work. The market economy I envision also relies on both sides of human nature. In the production of goods and services, self-centered behavior would still reign. But in the institutions of common property, loyalty to nature, future generations and the majority of fellow humans would prevail.
What’s new here is that the innate human impulse to serve the greater good would be buttressed by appropriately designed property rights and institutions. Hopefully, when both sides of human nature are adequately represented in markets, the aggregate behavior of our economy will have the right balance as well.
That said, I don’t want to leave our self-centered impulses entirely on the side of profit and growth maximization. If we do that, nature will continue to lose. We need to reward ourselves for doing the right things as well as the wrong things, ecologically speaking. That’s the reason for making diminishing use of ecosystems pay immediate monetary dividends to ourselves. Also, it’s good politics as well as good economics to reward good behavior, and if we want to win enduringly on the economic playing field, we have to win enduringly on the political field as well.
DSW: This has been a terrific conversation and I look forward to following it with others who are traveling the “middle path” between laissez faire and centralized planning. Thanks very much!
PB: Thank you!
2018 March 3