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April 06, 2012

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Shinsei1967

So what did primitive man with 20 chickens do ?

Did he just live off a diet of chicken, whilst his mate down the road lived entirely off beef ?

Didn't "modern man" when meeting hunter gatherer types back in the C18th resort very easily to barter ? Kind of assumes that hunter gatherers had already worked out the barter system.

Even if they did get the exchange rate wrong. Manhattan for a handful of glassy beads and trinkets.

Chris Groves

Graeber's point is that the "ordinary mode of economic transaction between neighbours" is not carried out along the lines of barter. He documents a wide range of norms according to which goods are distributed among neighbours in "traditional" societies, and points out that barter typically "takes place between strangers, even enemies" (p. 29) - hence the role of barter in trade between "modern men" and indigenous people.

So Adam Smith's myth takes this highly unusual form of exchange and posits it as the universal mode of exchange.

Other Pete

So what did primitive man with 20 chickens do?

Did he just live off a diet of chicken, whilst his mate down the road lived entirely off beef?

Dunno. Maybe they occasionally gave each other cows and chickens because they were mates, maybe had each other round for dinner a lot, maybe they both gave up cows and chickens to the local ruler who had them all round for dinner, maybe they had a bloody lottery. The point is that there are a lot of other ways to exchange resources than a transaction where you exchange one thing for another and both understand that no further social obligations result from this.

Didn't "modern man" when meeting hunter gatherer types back in the C18th resort very easily to barter ? Kind of assumes that hunter gatherers had already worked out the barter system.

We don't really know what the locals thought they were doing. If you come from a system where gift giving then you may be very happy to swap gifts with someone without signing up to the idea that you've exchanged one thing for another and that's the end of the matter. And if you don't see the exchange as a market transaction, that rather changes your expectations: if I get my sister a more expensive Christmas present than she gets me, I don't conclude from this that she's a business genius and I'm a sucker.

Other Pete

[Reposted with quotation marks, since I can't seem to get the italics tag to work. Must learn to use the preview function more.]

"So what did primitive man with 20 chickens do?

"Did he just live off a diet of chicken, whilst his mate down the road lived entirely off beef?"

Dunno. Maybe they occasionally gave each other cows and chickens because they were mates, maybe had each other round for dinner a lot, maybe they both gave up cows and chickens to the local ruler who had them all round for dinner, maybe they had a bloody lottery. The point is that there are a lot of other ways to exchange resources than a transaction where you exchange one thing for another and both understand that no further social obligations result from this.

"Didn't "modern man" when meeting hunter gatherer types back in the C18th resort very easily to barter ? Kind of assumes that hunter gatherers had already worked out the barter system."

We don't really know what the locals thought they were doing. If you come from a system where gift giving then you may be very happy to swap gifts with someone without signing up to the idea that you've exchanged one thing for another and that's the end of the matter. And if you don't see the exchange as a market transaction, that rather changes your expectations: if I get my sister a more expensive Christmas present than she gets me, I don't conclude from this that she's a business genius and I'm a sucker.

Luis Enrique

does it make sense to use a concept of something being 'natural' for human beings where what's natural is defined as being observed in the most primitive of human societies? If so then almost nothing about contemporary behaviour is natural.

Luis Enrique

If you travelled back in time with some modern technology and gave it to a primitive society, presumably they'd do with it whatever is in their "nature" to do with it. How can we say that market-based exchange does not "accord with human nature" - why aren't we just doing with it (the technology of monetary exchange we have developed) as in our nature to do with it? We seem to take to it pretty easily when given the opportunity. We did evolve it by ourselves without being shown how by aliens.

Richard

Not sure how a state can create free markets given that genuine free markets involve the absence of the state. Perhaps you mean that the state was responsible for the enclosures and other forms of coercion and therefore the particular form of capitalism that arose in 18th and 19th century Britain?

UnlearningEcon

Richard, it's pretty apparent from history that the absence of a state does not lead to anything like the mythological entity that you call the 'free market'. On the contrary, markets and states have always gone hand in hand.

Chris, capitalism is not in the least bit natural. Not that you'll need convincing, but I wrote about this a short while ago:

http://unlearningeconomics.wordpress.com/2012/02/14/how-natural-is-capitalism-exactly/

Sean

There is a big debate as to the evidence that Humans and Neanderthals in Europe Traded goods.

Artifacts from different regions have been found in other regions suggesting there was indeed trade.

Its also theorised that neanderthals went extinct because they lacked the trading skills that Humans had, this is born out in models of population densities.

On balance I would say there is something about human behavior in relation to property that makes us natural traders, and from owning dogs for my entire life. They also seem to have the same sense of property and you can barter with them too.

http://www.guardian.co.uk/science/2012/mar/11/cave-painting-symbols-language-evolution

Andrew

Theory certainly does not say that profit and loss are mirror images if each other!

Identical monetary gains and losses may be highly asymmetric in terms of desirability to an individual, for a variety of pretty obvious reasons.

Andrew

And it is not necessarily irrational to bet the farm to try to make good a loss.

It depends what the actual payoffs are in terms of desirability. If you are going to go bankrupt, might as well go in style.

Sam

He documents a wide range of norms according to which goods are distributed among neighbours in "traditional" societies, and points out that barter typically "takes place between strangers, even enemies"

Well, duh! You don't need barter between neighbours. If you live in a small, stable society, you don't need formal barter - you just need everyone to pitch in. One week we'll kill my pig and share him out, and another week we'll kill yours.

Similarly, amongst my circle of friends we have a regular Wednesday evening dinner at someone's house. Some people cook, some people bring wine, and over time, everything more or less evens out. We don't need to pass cash around - everyone is expected to do their share, and freeloaders would find themselves excluded from our social circle.

These social sanctions don't exist amongst strangers, so we need to make sure each individual transaction is mutually acceptable, rather than just assuring that the long-term average is OK.

Luis Enrique

The more I think about this, the less I like it. Formulations like "does not accord with human nature" carry with them the implication that this is a bad thing and we'd be better off with something more natural. But then it turns out this translates to: was not done in very primitive societies. Why the hell should we care about that?

Metatone

@Luis Enrique

But isn't this exactly the point?

The majority of "free market" "propagandists," who seek to denigrate the role of the state in stabilising trade and markets, almost always posit "free markets" as a "natural state."

You may shrug at that, but there is more... they then extend the metaphor (and this is very prevalent in the economic mainstream too) that if "free markets" are a "state of nature" they must be self-correction and self-stabilising.

This is not borne out by the evidence, it all rests on the "naturalistic" plea...

Keith

It is may be more useful to say that human behaviour is complex. The contemporary theories of economics assume very specialised social customs in the form of market relationships and specialisation that clearly did not exist for most of human evolution. Most of the rational apparatus we use now was only invented slowly over long periods of time, such as mathematics and formal logic. The fact our brains do not map well to our ex post rational apparatus is not a surprise. But it is good to remind our selves often that our primitive reptile/ monkey brains cannot be depended on without careful precautions. Not only in economics.

Tim Newman

"Strictly speaking, this is irrational; the attractiveness of a bet should depend upon its expected pay-off, not upon our financial situation."

I'm not convinced by this. If you have a relatively big pile in poker, you can afford to make bigger and riskier bets. The question of "how much can I afford to lose?" is one asked by any casual gambler (or even when selecting pension funds) and the answer is always based on ones financial position.

Agog

Metatone has it right. Anyone interested in these questions might consider reading Myrdal's 'Political Element'. He lays out how much of neoclassical economics relies on highly questionable notions of Natural Law and the harmony of interests.

http://goo.gl/egtqJ
(link to a page of Myrdal's book through google)

Luis Enrique

I dunno, I'm a fully paid up mainstream economist and never, in lectures, text books, seminars or conversations have I encountered any claims about markets being natural. While I'm on the subject, I think I've only ever met one free market nutter

Other Pete

I dunno, I'm a fully paid up mainstream economist and never, in lectures, text books, seminars or conversations have I encountered any claims about markets being natural.

I'm guessing that you see a lot of claims about markets being "distorted" though. Doesn't this imply that there's some sort of natural state for them to be distorted from?

Luis Enrique

Pete, honestly not. More often than not a "distortion" is recommended to correct some market failure and improve welfare. I remember that unlearningecon chap complaining about being taught the welfare state is a bad idea because it's grossly distortionary, for example. I just don't recognise that from the public economics courses or textbooks I know. The objective in economics is usually to maximise welfare, which invariably entails some unemployment insurance, which obviously changes (distorts) things relative to a zero-insurance world, but is also welfare improving. We may however think about how to design that to minimise the effect on labour supply, for example. Usually imho there is very little correspondance between blog assertions about what economics is like, and the economics I experience.

UnlearningEcon

Not sure about 'grossly distortionary' but welfare is generally presented as a trade off between efficiency and equity. The question of whether higher taxes and welfare might actually increase efficiency is completely ignored: if you were to suggest it you'd be laughed at.

Andrew

To get back tot the referenced paper, it's a good one.

It supports the hypothesis that prior wins or losses preferentially activate different neural mechanisms that in turn bias decisions towards risk-seeking or risk-averse mistakes (where a "mistake" is a deviation from Bayesian belief updating.)

In fact, the bias is towards risk aversion after losses, contrary to the behaviour illustrated in Corrie.

It is hardly suprising, however that we have evolved to use fairly simple heuristics ("risk isn't working for you - not your lucky day - stop taking risks!") and are a little bit away from perfect Bayesian modelling, which after all is a more refined abstraction derived from those basic inductive heuristics we all use.

In fact, in order to support the Bayesian model in the paper as the optimal one, we either need to have performed extensive prior testing of it, or we must have already accepted a contemporary scientific account of the mechanism.

For example, in order to dismiss the "on a roll" or "not my lucky day" heuristics we must reject the potentially explanatory variable of personal luck and sign up to the statistical independence of the trials.

So the experiment doesn't simply show that we aren't good Bayesian operators, but rather that we don't operate Bayesian updating in the context of a scientifically supported theory of the world.

Andrew

"Strictly speaking, this is irrational; the attractiveness of a bet should depend upon its expected pay-off, not upon our financial situation."

Strictly speaking that is untrue. The experimenters chose small amounts of loss and reward to approximate this as closely as was practical, but it is never precisely true.

I don't view losses or gains in the amount of food I can eat symmetrically, and nor does anyone else.

There are also good evolutionary reasons to prefer risky strategies where "winner takes all" dynamics apply, since success is defined by propagation of genetic material, not by the mean success of individuals (ie expected payoff).

Other Pete

@Luis Enrique

It's less a question of whether these distortions are good or bad, and more about seeing them as "distortions", outside interferences, changes from what we would take to be the "natural" state of affairs.

I'm happy to be corrected on this, and it's not that I think that all economists are free market idealogues. But the basic idea of economics is that we're studying something called "the market" and the state sometimes comes from outside to interfere with it, right? So, for example, when you say that measures might try to "minimise the effect on labour supply", the implication is that there's some normal way for the labour supply to be, and that the state can then change this in various ways - minimum wage, unemployment insurance, whatever. This may well be welfare enhancing, but it's still an interference. What am I missing?

Luis Enrique

Other Pete

Well it is definitely done to start from the most simple setting, perfect competition, information etc. and then add complexities. It would be a major error to think the simplest setup somehow represent a natural state of affairs. I'm sure you could find economists who think as you suggest - and many others who would say straight away that's a mistake. I do think economists with daft right-wing views are accepted by the mainstream in a way those with daft left-wing views are not.

Unlearning.

No, you wrote:
"lecturers trying to convince me that the welfare system is hugely distortionary, high progressive income taxes are undesirable and should be replaced by flat taxes, privatisation of industry will improve efficiency and that governments shouldn’t do anything about poverty and inequality because it would “distort” their beloved market."

I'd be very interested to see the course web pages so I could look at the reading list, because I'm very surprised such things are being taught, to the point of not quite believing you.

Luis Enrique

O Peter,

Sorry, I got that wrong. Complications, information problems, oligopolistic market structure, and so on, aren't the same thing as "distortions" introduced by governments. And I think generally one starts by analysing the market outcome then considering possible tax or subsidies, for example. I think this is analytically convenient, if any economists do think it implies the free market is somehow more natural in some fashion tat makes it preferable, well I think they're mistaken but I can't tell you it doesn't happen.

Account Deleted

Re ... "So what did primitive man with 20 chickens do? Did he just live off a diet of chicken, whilst his mate down the road lived entirely off beef?"

Neither. The example is unrealistic as it assumes specialisation, not to mention roads. In most pre-industrial societies, animals might be private property but they would usually be grazed on common land, as this was more efficient than separate smallholdings.

Most families in the vicinity would have some chickens, and all but the poorest would have a cow or a pig. As livestock was often a unit of wealth, the number would reflect social status, with the "higher orders" of the tribe possessing a larger share of the commonly-managed herds.

Smith's use of the word "propensity" indicates his aspiration that exchange be considered as much part of the "natural law" as a sense of right and wrong. While morality is a common feature of all societies, trade and barter are not. Interestingly, gift-exchange (as a ritual of social investment) does appear to be common and persistent (e.g. "borrowing" sugar and lawnmowers, sharing fruit or vegetable gluts).

What is also common is man's tendency to adapt to his surroundings. Trade and exchange occur where there is an uneven distribution of resources. It's the solution to a problem, not a necessary behaviour. This means the basis of exchange is property, whether private or collective.

The enclosure of the commons (in all its different global manifestations) was key to the enormous expansion of exchange. Smith provides an ideological justification for property, not an explanation of man's natural state.

KV

Didn't "modern man" when meeting hunter gatherer types back in the C18th resort very easily to barter ? Kind of assumes that hunter gatherers had already worked out the barter system.

Even if they did get the exchange rate wrong. Manhattan for a handful of glassy beads and trinkets.


They quite famously didn't understand it, which is where the "trade Manhattan for beads" example comes from, as well as the phrase "indian giver". The natives who accepted those beads were quite surprised when the settlers took that as justification to drive them off the land, as were the settlers who found they were expected to pay back what they were told were gifts.

Metatone

@Luis

I'd love to know (roughly of course, no stalking here) where you are an economist, because I've noticed in the past that your experience of the economics profession is radically different to some of my experiences.

My experiences in the UK match yours, to some degree, but my experiences in some other parts of the world, notably the USA, definitely do not...

Worth noting that there's a depressingly large section of "economists who have actually heard of and thought about complexity studies" who fit the rubric of "economists nothing like Luis Enrique's experience" which doesn't bode well for the next wave, I fear.

UnlearningEcon

Luis,

I didn't write that - that was a commenter.

Luis Enrique

Unlearning,

Oh, my mistake. I do apologise.

Metatone,

A mid-table uk university, not at the UCL, LSE, Oxford grade, in the pack behind them. I'm only a lowly post-doc so my anecdotal experience doesn't count for much, but thus far my experience has been that econimoists are farmore sensible than their blogosphere stereotype. I have met some with what I consider rather cartoonish free market ideas, but there are people with rather odd ideas in all walks of life.

Luis Enrique

Economoist. I rather like that.

Metatone

@Luis Enrique

Well, that makes sense to me - in aggregate UK economics profs are fairly pragmatic - (economoist has nice overtones of Thatcher's wets) - but getting down to cases, it does seem to get worse the further up the grades you go. My most vivid UK experiences are mostly with health economists and the cartoony privatisers in that arena are concentrated on UCL and LSE. Oxford is a mixed bag on health...

The real cartoonish free-market central is in the US and some of the high ranking journals there. The UK universities haven't been hit as hard because up to now they've had a more balanced view of which journals count as high ranking. We'll see if that survives the next RAE.

One extra point worth bringing to the discussion is that the academics who move into giving policy advice are often more cartoony than the norm. That flaw could well be in the politicians for choosing to listen to them... but it's important because that's where the economics rubber hits the road of public discourse.

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