Book Review: The Mind of the Market

(Author’s Note: The following review was solicited and is written in accordance with this site’s policy for such reviews.)

Summary: A libertarian political tract disguised as a work of science.

Michael Shermer’s The Mind of the Market concerns “evolutionary economics” – the way that evolutionary forces have shaped human instincts about trading, value and exchange, and how those tendencies have played out in creating the variety of economic systems in the world today. There’s enough material on these topics for a good book. Unfortunately, Shermer didn’t stop with presenting the science. Instead, he took a large step beyond it and presumed to make conclusions about which is the best economic system. Unsurprisingly, those conclusions lined up with the political views he holds, which appear to be an extreme form of libertarianism. (Even Timothy Sandefur, himself a libertarian, found Shermer’s arguments unconvincing and lacking in scientific rigor.) I found it hard to believe that this was the same Michael Shermer who once wrote a biting expose of Ayn Rand titled “The Unlikeliest Cult”. Evidently, he retains considerable sympathy for her ideas.

In this review, I’m not going to focus on the scientific studies Shermer discusses. The book covers topics like the evolutionary roots of fairness and reciprocity in primates, the parts of the brain involved in economic reasoning, and some common fallacies in human decision-making. For people who’ve read books like Blink or Stumbling on Happiness, most of this will not be new. At least in my eyes, Shermer’s condescending political lectures drowned out the relatively uncontroversial scientific material. This review will likewise focus on those chapters.

The political moralizing begins in chapter 2, titled “Our Folk Economics”. The analogy is to “folk science” – incorrect and superstitious ways of interpreting the world that result from our brains only being wired to comprehend the types of phenomena we encounter every day. Human beings originally lived in egalitarian hunter-gatherer societies, where food and goods were equally shared out of survival necessity, and where the accumulation of individual wealth was an outrage against the group. Shermer claims that this psychology survives today, and that it is for this reason and this reason only that people believe in redistributive taxation. If we could get past this primitive mentality, he says, we would understand that there is no injustice in having a few people be vastly wealthier than the majority, no matter how large the wealth gap is or how abject the poverty of the majority is.

As part of his argument, Shermer does something that many libertarian works do: he considers the potential worst-case scenarios of socialist policies, pronounces them undesirable and thereby asserts he has settled the issue – but he never attempts to examine the potential worst-case scenarios of the libertarian position.

For example, consider universal health care. Shermer expresses concern that this policy would lead to waste, inefficiency, and cost overruns. I quite agree – these are things that can go wrong with government-provided universal health insurance. Now, let’s consider the alternative: what can go wrong with private health insurance? I can think of one obvious negative consequence: people die painfully from treatable conditions because they cannot afford medical care. This seems like an obvious followup point, but Shermer ignores it. In a similar passage, he discusses the phenomenon of confirmation bias as it applies to members of both American political parties – again, a serious and legitimate issue, I agree – but never shows any acknowledgment that this is a problem which might apply to him as well.

Shermer also discusses the creative power of free markets and their role in fostering efficiency and innovation. This is true, as far as it goes, but he then goes on to claim that fewer restrictions on markets are always better. He also argues that markets’ ability to create innovation without top-down regulation is comparable to the way evolution creates novelty through random changes in individuals. As a consequence, he states explicitly that people who advocate any sort of regulation or restriction on markets – laws against collusion and monopoly, import duties and tariffs, even patent protections – are analogous to evolution deniers. (I hope you can see why this book raised my hackles.)

I’m not denying the power of markets. Directed to the right ends, they are potent tools for generating wealth and fostering innovation. They fully deserve the credit for the millionfold rise in the number of goods and services available to us as compared to what is available to hunter-gatherer tribes. But they are not panaceas to solve every problem, nor are they sources of omnipotent wisdom whose choices are always the best ones.

Shermer’s analogy between markets and evolution is an excellent one in more ways than he realizes. Both processes emerge in a bottom-up fashion from the interaction of many local decisions; both can produce superbly adapted results directed toward their given ends; but both processes also tend to be short-sighted, concerned more with immediate gain than with long-term sustainability, which can lead to dead-ends in design space and catastrophe when the environment abruptly changes, and in both processes, the winners prosper while the losers suffer disastrous consequences. Contra Shermer, the reason many people advocate legal controls on markets is not because we do not understand their similarity to evolution, but because we understand it all too well.

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