------------ 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).
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