------------ EH.NET BOOK REVIEW --------------
Published by EH.NET (January 2007)

Paul Seabright, _The Company of Strangers: A Natural History of 
Economic Life_. Princeton, NJ: Princeton University Press, 2004. x + 
304 pp. $30 (cloth), ISBN: 0-691-11821-3.

Reviewed for EH.NET by Haim Ofek, Department of Economics, 
Binghampton University.


Organized along several central themes, this book is essentially a 
collection of self-contained short essays ranging from core economic 
ideas to the hazy borderlines with other fields of science, and the 
social sciences. The book seems to be intended (and is certainly 
highly accessible) to the general reader. It includes, however, a 
number of innovations of interest to students of economics, chief 
among them, the notion of "tunnel vision" (a concept closely 
associated, but not entirely interchangeable, with the "invisible 
hand"). At the core of the discussion are repeated attempts 
throughout this book of meeting head-on three of the most important 
(and perhaps most elusive) concepts in economics: division of labor, 
cooperation and trust. Of special interest to readers of the present 
outlet is the attempt by Paul Seabright (Professor of Economics at 
the University of Toulouse, France) to put current economic issues 
not only into their historical and pre-historical context but also to 
add an evolutionary perspective going back, it seems, to our last 
common ancestor with the chimpanzee. I greatly enjoyed reading 
sections of the book and agonized over others. On both counts, this 
uneven experience is reflected in the following review.

1. What's in a Title?

The study of economic history, as I understand, deals only with 
agents that are in all respects people like us. Chronology changes 
but anatomy stays fixed and, other things being equal, so does 
behavior. The subject matter, understandably, must stay clear of 
evolution. No speciation events are permitted in history or, for that 
matter, in the historically conceived notion of prehistory. Confined 
to anatomically modern humans, the beginning of prehistory itself can 
thus go back only as far as the appearance of Homo sapiens (some 
120,000 years ago). Some paleoanthropologists and prehistorians 
(e.g., Klein 1999, Mithen 2003) would probably prefer not to push the 
prehistoric envelope anywhere before the first appearance of 
undisputed evidence consistent not only with a modern human anatomy 
but also with a modern human mindset (50,000 or so years ago). The 
most skeptical may even postpone the beginning of prehistory, as they 
see it, to the rise of agriculture (10,000 years ago). These 
benchmark dates facilitate a coherent extension of history into 
prehistory (by separating both from evolution). On the downside, 
however, these dates come far too late in the record to allow 
prehistory any chance of accounting for some of the major 
developments in the human system of subsistence: the transitions from 
woodland to grassland and from the feed-as-you-go routine to 
hunting-gathering, tool making, transport and redistribution of food 
items, and domestication of fire -- to mention but a few (and not 
necessarily the most important) early developments that set humans 
economically apart from the chimpanzees. The task of filling the gap 
is left to paleoeconomics: a new field of economic study best defined 
(perhaps) as the _study of natural history in its application to 
economic life_ -- to slightly paraphrase the subtitle of this book. 
Indeed, the subtitle helps to build expectations of a long journey 
into the remote past of the human experience. The author fully meets 
these expectations at least in one sense: the separation between 
history and human evolution is a requirement that does not inhibit 
the discussion in this book. On the contrary, it smoothly moves from 
history into evolution and, if there is a need for it, back to 
current affairs.

Inasmuch as the subtitle makes the connection to natural history, the 
title itself holds the key to the fundamental economic question 
associated with it. If you ask the fundamental question (what set 
humans economically apart from all other forms of life?), then the 
main title to this book (_The Company of Strangers_) provides nearly 
enough of an answer. Indeed, it has been recognized for some time in 
the literature that the single most striking feature that 
distinguishes humans from all other animals is the (properly defined) 
practice of cooperation and the division of labor among members of 
the species that are genetically unrelated to each other -- sure 
enough -- among strangers (Ridley 1996, Ofek 2001, now Seabright in 
this book, and perhaps others that I am unaware of). In its role as a 
uniquely human distinguishing feature the division of labor among 
strangers should be an argument quite compelling to any economist 
familiar with the unprecedented extent and intensity of division of 
labor in human society. I would dare to speculate, however, that the 
argument would be even more compelling to any biologist familiar with 
animal affairs and with the intricacies of kin-selection. To those 
familiar with both human affairs and animal affairs it should 
probably come as an empirically true, or nearly true, argument.

The point of an argument, however, is not to be compelling or to be 
true but to be testable. Arguments that use poorly defined concepts 
typically do not easily lend themselves to rigorous tests. Division 
of labor is a primary example. For all its importance in economics 
and in biology, division of labor remains to this very day a poorly 
defined analytical concept in both. As such, it is vulnerable to 
counterexamples for no other reason than semantically or otherwise 
contrived ambiguities. To devise a test free of such ambiguities 
requires further refinements that can be provided, in my opinion, 
only by economics. I will be more explicit about this issue toward 
the end of this review. With this understanding, we can now move 
beyond the extraordinarily informative title to the body of the text 
itself.

Like natural history itself, Seabright's book does not exclude 
history in its conventional sense, nor does it exclude current 
economic affairs. On the contrary, it is an excellent book on both 
counts, and it will remain equally excellent on both even if all 
references to evolution are removed.

The material in this book is organized under four parts. Each part 
comes with its own prologue or epilogue (or both) which can be added 
as stand-alone chapters in their own right. Within each part, the 
chapters seem to wander form topic to topic with such vitality that 
the original outline of this book comes to serve it more as a 
straitjacket than as an organizing procedure. For that, if not for 
other reasons, the subject matter is perhaps better conceived, or at 
least better evaluated, not under the narrative of its original scope 
but under the narrative of time; that is, under each of the three 
separate time scales -- current, historical, and evolutionary.

2. Current Affairs

In its capacity as a survey of current economic affairs this book 
makes an excellent job of bringing to the attention of the reader, 
especially the lay reader, a wide economic spectrum of public issues. 
Ranging from water and pollution, to auctions and unemployment, and 
from air travel and globalization, to suicide and laughter, it seems 
to include the widest possible set of applications that an 
economically-trained mind can be brought to bear upon in one place. 
The author deserves high marks for making many of these applications 
amiable and highly accessible by replacing otherwise tedious 
technical explanations, with jargon-free highly intuitive 
illustrations (e.g., the story of shirts (chapter 1) which is 
reminiscent of Rose and Milton Friedman's (1990) discussion of 
pencils, the example of a better mousetrap (p. 181), the fable of a 
sailor in charge of a small boat in a storm (p. 25), and a community 
making a living by extracting strawberries from strawberry ice cream 
(p. 233) -- to mention but a few).

The most impressive applications and most compelling arguments are 
those deduced from first principles (economic, evolutionary, or 
otherwise). These include, for instance, the treatment and 
elaboration of many ideas associated with the invisible hand of the 
market, in the first part of the book, or the treatment of 
information (viewed essentially as a public good) toward its end. On 
many occasions interesting applications are deduced from sets of 
first principles borrowed from other fields; e.g., repeated 
applications based on the law of large numbers (borrowed from 
statistics). Unfortunately, not all the applications follow from 
first principles. All too many seem actually to rely at least in part 
on ad hoc explanations. Consequently, the overall quality of the 
argument shifts occasionally without prior notice from the discourse 
level of ideas to the discourse level of mere opinions -- albeit, for 
the most part, very interesting ones.

The approach to many issues discussed in this book is not only 
descriptive but, notably, also prescriptive. Policy recommendations 
typically invoke the government as part of the solution to problems 
resulting from market failure. The role of government is a subject of 
economic interest for two partly unrelated reasons. First, there is 
the general interest in the role of government as a political 
institution per se. As such, the role of the government is fairly 
well covered in this book (toward the end of Chapter 13 and 
elsewhere). In addition, however, there is also an economic interest 
in the role of government purely as an instrument, or as a set of 
instruments, in the service of specific economic policies. Any given 
economic policy can probably be implemented under one branch of 
government at lesser cost and with better results than under another. 
It is incumbent, therefore, on any policy recommendation to make 
clear to what branch of government (administrative or legislative) 
and to what level (central or local) it is best addressed. Broadly 
defined, the Coase theorem helps, for instance, to draw attention to 
a typical situation in which the legislative branch outperforms the 
administrative branch simply because unlike the intrusive style of 
the latter, the former keeps much of the action in the private 
sphere. Seabright considers the Coase theorem to be too optimistic 
(apparently because negotiations are not always costless and bargains 
may not be credible, pp. 132-33). Readers of his book are often left 
to wonder, however, to what level of government and to what branch he 
would relegate the responsibility for many of his own recommendations.

3. Historical Affairs

The historical dimension of the discussion in this book cuts across 
four or five major topics: the rise and spread of agriculture, 
warfare, city-states and ancient civilizations, and the urban 
environment (especially in medieval Europe). For lack of space I will 
review here only the last: the urban environment in relation to the 
medieval city. The discussion on the urban environment in Chapter 7 
deals with the devastating effects of urban externalities on city 
dwellers, their quality of life, their health, and their property. 
The general approach that Seabright takes is focused more on cultural 
and environmental implications than on economic explanations. Largely 
overlooked, for instance, is the role of the urban real estate 
market, to say nothing about optimal location decisions in response 
to it. The primary example is the medieval European city.

A brief passage (pp. 114-18) under the title "Stench and Waste" 
depicts the plight of a typical city in medieval Europe. As the title 
suggests, the depiction is graphic and its effect on a reader may be 
staggering. However, if true, it certainly sounds like a golden 
opportunity for the real estate market (as shown shortly). I have 
little doubt that the situation as described could have come to pass 
at one time or another in almost any city (especially during periods 
of great economic or demographic transitions, in time of plague, or 
in the aftermath of natural disasters). I also have little doubt that 
the situation could have persisted in particular quarters of a city 
for decades, if not for generations at a time. I do have some doubts, 
however, about the possibility that such a situation could have come 
to be endemic; namely, that it could have endured for long throughout 
the entire space of any city. First, the evidence in support of this 
description is not beyond dispute. Alternative largely contradicting 
evidence on almost all counts can be found in the literature dealing 
with urban history (see for instance, Mumford, pp. 288-93).

Another source of doubt, as already indicated, is the existence of an 
active urban real estate market. As waste (presumably) piles up and 
the stench is no longer bearable, property prices are bound to reach 
rock bottom. It is then high time for professional land owners, 
developers, and speculators of all kinds to get into action and do 
what they do best; buy the affected properties by the block, remove 
the neighborhood disamenities, renovate or rebuild and then, of 
course, resell at great profit (perhaps even to the original owners). 
Indeed, starting with Crassus and his likes in ancient Rome, and 
perhaps long before, the real estate market served always as a great 
mechanism for the internalization of (certain) urban externalities. 
The end result is a balance between amenities and disamenities that 
produces, at equilibrium, certain predictable patterns - not 
necessarily pretty ones, to be sure, but if they are ugly, they must 
be ugly in ways quite different from the depiction relayed in this 
book..

4. Evolutionary Affairs

As already indicated, the phrase "the company of strangers" serves 
both as the main title to this book and as the answer to the 
fundamental paleoeconomic or, for that matter, bioeconomic problem: 
what set humans economically apart from all other forms of life? The 
author undoubtedly puts great effort both in the attempt of 
establishing this answer and in the attempt of extracting from it the 
maximum possible implications. The approach Seabright takes, if I 
understand correctly, is to break down the phenomenon under 
investigation (essentially, the interaction between unrelated members 
of the same species) into its three conceptual components -- division 
of labor, cooperation, and trust -- and then he tries to gain the 
most insights from each. This approach is undoubtedly a natural and 
perfectly logical course of action to take, though, I am not sure it 
is the easiest to follow.

Any attempt to meet head-on concepts such as division of labor, 
cooperation, and trust may take us back to Adam Smith who dealt with 
many of the same concepts in his own time and by his own devices. One 
of the first things that Adam Smith does in the opening pages of the 
_Wealth of Nations_, however, is to represent, if not replace, the 
concept of division of labor with the concept of exchange. Exchange, 
he tells us, facilitates division of labor. Exchange, in other words, 
is a necessary (if not sufficient) condition for division of labor 
and thus can serve as a proxy for it (and by extension, for 
cooperation and for trust, as well). Unlike division of labor, 
exchange is a semantically, and analytically, well defined concept. 
It can be measured and can serve both as a quantitative or 
qualitative variable, it can be aggregated or disaggregated, it can 
be estimated and can be used as an estimator and, above all, it can 
be used as a null hypothesis. Specified in terms of exchange (the 
existence or volume of transactions), the null against the 
company-of-strangers' hypothesis is unequivocally as clear as your 
last paycheck (your personal share in the division of labor among 
strangers in society). Now, try to specify the same hypothesis 
directly in terms of division of labor.

The extent of division of labor, further argued Adam Smith, is 
limited by the size of the market. This is particularly true of 
division of labor among strangers because the market is where 
strangers make exchanges. The entire argument from division of labor 
among strangers boils down, I argue (here and elsewhere), to the 
existence or nonexistence of market exchange (Ofek 2001). What I am 
trying to suggest, in conclusion, is that the judicious use of 
exchange as a measure or as a proxy for division of labor could have 
improved the overall discourse in many parts of this book, and could 
still do so (assuming a second edition).

Moving from methodology to substance, it should be noted that despite 
its title, this book in not a comprehensive discussion of human 
evolution or a complete picture of the human place in natural 
history, nor is it intended as such. Aside from the considerable 
amount of attention paid to the evolutionarily pivotal issue of 
interaction among strangers, the total amount of space allocated to 
the course of human evolution hardly exceeds a dozen of pages and 
comes for the most part in the form of brief unrelated comments 
scattered throughout the entire book in no particular order. Overall, 
it may leave in the mind of the general reader an image of human 
evolution that is, in my opinion, somewhat distorted at the very 
least in two or three ways.

First, the transition to agriculture is overly emphasized. The reader 
may be left with the impression that the major features that makes us 
economically most distinctly human evolved in the span of the most 
recent 10,000 years -- the age of agriculture -- a blink of the eye 
in the evolutionary time scale. The appearance of agriculture is 
undoubtedly an exceedingly important transition in the course of 
human evolution. However, it is only one of five or so major 
transitions and, in that, it is hardly equivalent to some, let alone 
the most important of all (see Ofek, 2006). Second, the role of 
hunting-gathering as a pivotal economic innovation in human evolution 
is largely overlooked. Hunting-gathering is much more than a pair of 
outdoor activities. It is a complete and self-contained system of 
subsistence that introduced, for the first time, into the human (and 
primate) repertoire such activities as food redistribution, food 
transport and, by all indications, division of labor among strangers 
in the acquisition of food. In fact, it already included almost all 
the fundamental economic elements of modern industrial society, 
albeit in embryonic form, going back nearly two million years before 
agriculture. Finally, I should add a correction in relation to timing 
in the process of encephalization: the process of brain expansion. 
The discussion at the bottom of page 58 leaves the impression that 
this process was at work starting six or seven million years ago. 
That is far too early. For the first four or five million years of 
that time our remote ancestors apparently managed to survive with a 
brain no larger than a chimpanzee's. Almost all anthropologists would 
agree that the expansion in the human brain commenced only as late as 
two million years ago, or even slightly later.

References

Klein, R. G. (1999). _The Human Career: Human Biological and Cultural 
Origins_. Second edition. Chicago: University of Chicago Press.

Mithen, S. (2003). _After the Ice: A Global Human History, 
20,000-5000 BC_. London: Phoenix.

Mumford, Lewis (1961). _The City in History, its Origins, its 
Transformations, and its Prospects_. New York: MJF Books.

Ofek, H. (2001). _Second Nature: Economic Origins of Human 
Evolution_. Cambridge: Cambridge University Press.

Ofek, H. (2006). "Ape to Farmer in Five Uneasy Steps: An Economic 
Synopsis of Prehistory." A paper presented at the First Conference on 
Early Economic Developments, The University of Copenhagen. 
Copenhagen, Denmark. Downloadable from 
http://www.econ.ku.dk/eed/programme_friday.htm

Ridley, M. (1996). _The Origins of Virtue_. Harmondsworth, U.K.: 
Viking Penguin.


Haik Ofek is author of _Second Nature: Economic Origins of Human 
Evolution_ (2001).

Copyright (c) 2007 by EH.Net. All rights reserved. This work may be 
copied for non-profit educational uses if proper credit is given to 
the author and the list. For other permission, please contact the 
EH.Net Administrator ([log in to unmask]; Telephone: 513-529-2229). 
Published by EH.Net (January 2007). All EH.Net reviews are archived 
at http://www.eh.net/BookReview.

-------------- FOOTER TO EH.NET BOOK REVIEW  --------------
EH.Net-Review mailing list
[log in to unmask]
http://eh.net/mailman/listinfo/eh.net-review