By Dr Erik Lidström, acadmic and author of Evolution and Social Order - How our Stone Age brain understands and misunderstands society
“All over the world, we face many serious economic and social challenges. Apart from the immediate effects of cycles of boom and bust, we experience problems that are much more long-term and appear almost incurable. We are suffering from ballooning budget deficits, underfunded social security and pension schemes, ever-falling standards in schools, healthcare sectors in constant states of crisis and drug wars. Since the mid-1970s, much of Western Europe has experienced about 10% chronic unemployment and twice that for the young. If we look back, we see that the best and brightest in all political parties have been struggling in vain to fix these and similar problems for the best part of a century.
“We are also adding regulation after regulation, ban after ban, environmental protection measure after environmental protection measure and safety measure after safety measure, much of the time with the best of intentions and commonly with the approval of the general public. The overall result is that we become less and less capable. It took one year and 45 days to build the Empire State Building. Today, it takes 4.5 years just to carry out the required environmental impact report. Are we better off because of all this caution and bureaucracy? Hardly.”
In a new paper, academic Dr Erik Lidström argues that there is a fundamental mismatch between the world our brains evolved in to, and the society we operate in today.
Human beings evolved over roughly two million years to live in small hunter-gatherer tribes of around 500 people. In that world, instincts around face-to-face exchange, equal sharing of collectively hunted resources, and wariness of outsiders were rational and adaptive.
The extended order of modern capitalism — anonymous, spontaneous, governed by price signals involving millions of strangers — is, in evolutionary terms, a very recent and alien environment. No one has had time to adapt to it.
Drawing on Hayek’s concept of the “extended order”, Lidström argues that large societies self-organise through voluntary exchange, property rights and contract — without anyone designing the outcome. Hunter-gatherer psychology struggles to process this: our minds handle direct, face-to-face interactions well, but not the second and third-order effects of interventions in complex, interconnected systems. Price controls, from Diocletian’s in 301 AD to modern rent regulations, illustrate the pattern: each is an instinctively appealing direct intervention that produces the opposite of its intended effect.
Government expenditure in major industrialised economies rose from around 10.7% of GDP in 1870 to 45.6% by 1996 — a trajectory the paper connects to the repeated human impulse to “do something”, where each intervention tends to generate new problems requiring further intervention in turn. The paper concludes that allowing economies to flourish requires accepting what will always feel counterintuitive: that prosperity emerges from the self-organisation of markets, not from conscious direction.