Vlad Tarko

The main psychological ingredient that enables social organization is trust. When trust is present, physical threat is not necessary in order to guarantee agreements, and trades are mutually beneficial. Aggression plays a role in persuading someone to accept to do something that’s not in their interest. Thus, in the absence of trust, we cannot distinguish between a voluntary trade and a power relationship.

In the case of small groups of people (hundreds maximum) trust networks can be created through direct interaction. This is how human society have worked for more than 90% of mankind history, until approximately 10,000 years ago, when due to the discovery of agriculture, communities were able to flourish. Our social instinctive feelings, such as the feeling of equity, have evolved in the primitive societies, being a good way to tell free riders or scams apart in small groups. To some extent, these social feelings create wrong intuitions about today’s world; beyond the instinctive call to xenophobia which we have discussed in a previous workshop, the most significant phenomenon is the conflict between the individual freedom to act without causing harm to someone else and the equity feeling. Individual actions which cause no harm may seem instinctively unjust because they result in inequality.

In the case of large groups, trust among different participants cannot occur directly; mediators are needed, or in extremis, formal rules and institutions (governments). Imposed formal institutions are good when the result is trust among strangers. The transition from informal institutions to formal ones shows the transitions from “exchange among friends and family in a small community to exchange among strangers in a large community” (Shermer). Problems which a society with many people has to solve (Diamond):

1. Solving and preventing conflicts between individuals

2. Taking decisions related to public issues

3. Overcoming barter -> introducing money -> monetary system issues

4. High population density -> insufficient resources -> the need for trade

Our social tribal intuitions do not offer suitable solutions to these problems, on the contrary, they suggest:

1. The necessity of forcefully imposing a single moral system

2. Interference in the private sector (everything is public

3. Disapproval of the interest concept, of middlemen, call for inflation

4. Mercantilism and protectionism (rejection of free trade)

Historically, state did not emerge as of necessity or voluntarily, but because of aggression: either tribes have united to better withstand external threats, or one of the tribes conquered their neighbours and became more powerful and large. Well-documented study cases: External threat: Cherokee Confederation (18th century), The making of the United States of America (18th century), German unification (19th century). Through conquest: Zulu state (18th century), Polynesian states (18th-19th centuries), the Aztec and Inca Empires (15th century), the Roman and Macedonian Empires. Until now our intuitions led to the development of not so efficient formal institutions, based on excess of authority – something which Jared Diamond calls kleptocracies:

Considerations of conflict resolution, decision making, economics, and space thus converge in requiring large societies to be centralized. But centralization of power inevitably opens the door—for those who hold the power, are privy to information, make the decisions, and redistribute the goods—to exploit the resulting opportunities to reward themselves and their relatives. To anyone familiar with any modern grouping of people, that’s obvious. As early societies developed, those acquiring centralized power gradually established themselves as an elite, perhaps originating as one of several formerly equal-ranked village clans that became “more equal” than the others. (Guns, Germs, and Steel)

Michael Shermer cites and critiques at least a part of what Diamond stated about the necessity of centralization:

„Large societies can function economically only if they have a redistributive economy in addition to a reciprocal economy. Goods in excess of an individual’s needs must be transferred from the individual to the centralized authority, which then redistributes to the individuals with deficits.”

This conclusion makes sense from a folk economic perspective, where we simply scale up the social structure of hunter-gatherers into that of consumer-traders. In fact, societies have done just this throughout history. While it is true that most societies included top-down solutions in the form of chiefdoms, kingdoms, monarchies, theocracies, dictatorships, and the like, in the last half millennium the development of diverse economic and political institutions has flipped back to bottom-up solutions. And we have not simply increased the size and number of hunter-gatherer institutions and rules; we have added entirely new categories of similarly modelled social institutions, which in turn have created the need for entirely new categories of rules.

In particular, democratic capitalism offers a bottom-up solution based on the guaranteed right of private property and a democratic vote as well as the free and fair trade between citizens in the nation and with citizens in other nations. […] The addition of the relatively new concept of property rights – which assigns the right and use of a commodity to someone with stipulated rules of conduct that are socially recognized and mutually binding among all members of the group regardless of the owner’s ability to physically (and convincingly) threaten aggression – are counterintuitive to our evolutionary instincts and therefore require constant vigilance. (The Mind of the Market)

The institution of private property seems to solve the 4 issues mentioned by Diamond. It is not a satisfying condition, but a necessary one.

At the workshop held this Friday, June 13, 4PM, I would like to discuss:

• Which are the other necessary formal institutions

• The way in which there is the implementation of needless formal institutions, whereas informal ones function very well (the topic discussed by Shermer in the attached text)

• In what way the establishment of formal institutions should take into account informal pre-existing regulations (Anglo-Saxon Law v. French Law)

• How formal institutions evolve

To read: Michael Shermer – fragment from The Mind of the Market

Jared Diamond – fragment from Guns, Germs, and Steel (optional)