Our hunter-gatherer past helps explain opposition to free markets.
Marian L. Tupy —
Summary: This article argues that capitalism faces persistent opposition because it goes against some of our innate psychological traits that evolved in the Stone Age. It explains how our ancestors lived in small bands of hunter-gatherers who shared food and resources, and how they developed tendencies toward tribalism, egalitarianism, and zero-sum thinking. It suggests that these tendencies make us susceptible to anti-capitalist ideologies and suspicious of markets, trade, and innovation.
The free market, or, to use a more loaded term, capitalism, produces more wealth and higher standards of living than any other economic system that humanity has conceived and implemented. The differences in economic performance between South and North Korea, West and East Germany, Chile and Venezuela, Botswana and Zimbabwe, not to mention the United States and the Soviet Union, speak for themselves. In spite of that generally recognized fact, capitalism has never enjoyed anything close to universal long-term support. In fact, quite the opposite is true. As the commentator and retired classicist Steven Farron put it:
There have been innumerable political parties called socialist. In the history of the world, there has never been a single political party called capitalist. There is not even a name for a supporter of capitalism. A socialist champions socialism; a democrat champions democracy. But a capitalist is someone who owns and manipulates capital.
Why? The primary reason for the constant struggle to preserve the freedom of the market is that capitalism rubs against some very important parts of human nature. As Jerome H. Barkow, Leda Cosmides, and John Tooby put it in their 1992 book The Adapted Mind: Evolutionary Psychology and the Generation of Culture:
What we think of as all of human history — from, say, the rise of the Shang, Minoan, Egyptian, Indian, and Sumerian civilizations — and everything we take for granted as normal parts of life — agriculture, pastoralism, governments, police, sanitation, medical care, education, armies, transportation, and so on — are all the novel products of the last few thousand years. In contrast to this, our ancestors spent the last two million years as Pleistocene hunter-gatherers, and, of course, several hundred million years before that as one kind of forager or another. These relative spans are important because they establish which set of environments and conditions defined the adaptive problems the mind was shaped to cope with: Pleistocene conditions, rather than modern conditions.
Among the relevant psychological characteristics that humans developed in the Pleistocene were our propensities toward tribalism, egalitarianism, and zero-sum thinking. We evolved in small bands composed of 25 to 200 individuals. We all knew and were often related to one another. Everyone knew who contributed to the band’s survival and who shirked his or her responsibilities. Cheaters and free riders were targets of anger and, sometimes, punishment. Just as important, cheaters and free riders lost valuable cooperative partners. The latter would work with more reliable or generous individuals instead.
In such bands, the sharing of food was common. The storing of food for future consumption, on the other hand, was not practical for seminomadic people. So, when hunters or gatherers acquired more food than their families could consume, they “stored” it in the form of social obligations (i.e., they shared it with other members of the band, in the expectation that the favor would be returned in the future). How widely the foragers shared food was sensitive to whether variation in foraging success was due primarily to luck or to effort.
Luck played a large role in hunting success. Hunters who had worked hard often came home with nothing. So meat was shared widely within the band as a way of pooling risk and buffering against hunger. When effort played a larger role in foraging success, as it did with the gathering of many plant foods, sharing was more targeted. In these cases, the gathered foods were shared primarily within the family and with specific reciprocation partners.
Moreover, the volume of personal possessions was limited by what our ancestors could carry on their backs as they moved from one location to another. In other words, accumulation of property and wealth inequality could not have been major concerns. Also, like other animals, we have evolved to form hierarchies of dominance; an individual’s survival and ability to pass on his genes were enhanced if he could rise within a group and control access to greater resources. But humans also evolved to form coalitions, in which less dominant individuals cooperated to take down the stronger and more successful. Finally, sharing and cooperation among hunter-gatherers ended at the band’s edge, so to speak. In a world without specialization and trade, disproportionate gains by one band often came at the expense of another. By forming aggressive coalitions, men could expand their band’s foraging territory or gain more wives by cooperating to kill men from other bands.
The hunter-gatherer psychology helps to explain our contemporary attitudes toward the extent and freedom of the market. Consider, for example, the provision of health care. When a hunter got sick or injured, he could not go on hunting. His sickness or injury was a double whammy for the band. Not only did the stricken hunter cease to contribute to the band’s survival, but he also needed to be fed and cared for. Furthermore, no one could guarantee that a stricken hunter would ever be able to hunt again. So humans benefited as they evolved the ability to feel compassion and surrounded themselves with caring individuals. Feelings of compassion and acts of caring contrast with calculated and profit-seeking exchanges in the marketplace. Employers, for example, tend to pay wages and provide benefits to their employees not because they care about their employees’ welfare but because they want to make money. In other words, the employer calculates that the productivity of the employee outweighs the cost of the employee’s compensation.
Market exchanges, then, are signs of social distance, whereas illness or injury activates our hunter-gatherer intuitions about helping others. The notion of socialized medicine as a fix to the problem of bad luck, which is usually the cause of sickness or injury, satisfies those intuitions. Conversely, the notion of market-based health care is completely counterintuitive — and remains so even if it can be shown that people get better results from a market-based health-care system. Note that people are much less sympathetic to the government’s paying for the health care of patients whose illness is not caused by bad luck, such as smokers with lung cancer. When people want to advocate helping patients with lung cancer, they usually turn to arguments about addiction — e.g., he or she could not help smoking; the evil tobacco company knowingly sold an addictive product to him or her as a teenager, etc.
The hunter-gatherer psychology also helps to explain why it was relatively uncontroversial for many governments to pass huge spending bills at the beginning of the COVID-19 pandemic. It was not a lack of effort that prevented most people from working. Instead, government-enforced stay-at-home orders kept them from earning money. Moreover, it helps to explain why later spending bills, such as the $1.9 trillion “American Rescue Plan” that was passed by the Congress after the economy had already largely reopened, were much more controversial. Put differently, many arguments about the various aspects of the welfare state and the extent of market exchanges follow straightforwardly from the different sharing rules that have evolved to deal with the variance of fortunes due to luck and the variance due to effort.
To summarize, the psychology that evolved when our ancestors lived in small hunter-gatherer groups prepared us to cope with a world of personal cooperation and exchange in small communities. It did not prepare us to cope with a world of impersonal cooperation and exchange between millions of people (i.e., a typical advanced economy) or billions of people (i.e., the global economy). In a way, the complexity of the modern economy outran the ability of our Stone Age minds to understand it. Yet it is that transition, from personal simplicity to impersonal complexity, that makes capitalism so effective at producing great wealth. To complicate matters further, the extended marketplace of millions or billions of people enables enterprising individuals with value-creating ideas to amass greater wealth than they would be able to amass while catering to small communities. That resulting wealth inequality rubs against our egalitarian predispositions and zero-sum thinking. Finally, our tribalism helps to explain why, even when we do consent to trade with other nations, we often continue to resent them and suspect them of thriving at our expense.
To understand capitalism — let alone to appreciate its benefits — requires all of us to distinguish between the personal and the impersonal, between the simple and the complex, and between the limited and the extended. Or, as the ever-insightful Friedrich Hayek put it:
Part of our present difficulty is that we must constantly adjust our lives, our thoughts and our emotions, in order to live simultaneously within different kinds of orders according to different rules. If we were to apply the unmodified, uncurbed rules of the micro-cosmos (i.e., of the small band or troop, or of, say, our families) to the macro-cosmos (our wider civilization), as our instincts and sentimental yearnings often make us wish to do, we would destroy it. Yet if we were always to apply the rules of the extended order to our more intimate groupings, we would crush them. So we must learn to live in two sorts of world at once.
Striking a balance between those two sets of rules is a difficult task, and we often fail to do so. When we do fail — as, most recently, in Venezuela — the results can be catastrophic. The predictable collapse of Venezuela’s “21st-century socialism” should provide a warning to future generations; given our inability to learn from the very similar socialist failures of the 20th century, though, it’s unlikely that it will be heeded. I suspect that the defense of free markets will remain, thanks to the predispositions of the Stone Age mind, a never-ending struggle.
Poverty Declines in Georgia as Income Inequality Decreases in 2024
“The National Statistics Office recently published data revealing that Georgia saw a significant decline in poverty in 2024, with the national absolute poverty rate dropping to 9.4%, down 2.4 percentage points from the previous year.”
Wage Inequality Declined in Most Countries Since Start of 21st Century
“The Global Wage Report 2024-25 finds that since the early 2000’s, on average, wage inequality, which compares the wages of high and low wage earners, decreased in many countries at an average rate that ranged from 0.5 to 1.7 per cent annually, depending on the measure used. The most significant decreases occurred among low-income countries where the average annual decrease ranged from 3.2 to 9.6 per cent in the past two decades.
Wage inequality is declining at a slower pace in wealthier countries, shrinking annually between 0.3 and 1.3 per cent in upper-middle-income-countries, and between 0.3 to 0.7 per cent in high-income countries”
In some ways, this is perhaps a somewhat boring answer about facts, but that’s what makes it important; we have to get the facts straight. The numbers that people’s opinions are based on are not correct. There are various ways in which they aren’t, but two big ones.
The first is that when the US census measures income, it doesn’t count two-thirds of what are called transfer payments, or money that the government gives to people for not doing anything. In other words, a transfer payment is not what we pay civil servants or the military. Transfer payments are things like food stamps or Medicaid, which are also two examples of things that the census does not count. They also don’t count 88 percent of the transfer payments that go to people who are classified as poor. They don’t count Medicare for the senior population. They don’t count what is called Supplemental Security Income. They don’t count many state and local transfer payments to poor people. They count some housing subsidies, the so-called Section 8 subsidies, but they don’t count others.
When you add all the pieces up, two-thirds of the total amount of transfer payments aren’t counted. So that’s one big piece.
The other big piece is they don’t adjust for taxes. At the bottom end of the income scale, people pay about seven and a half percent of their income in taxes, mostly sales taxes and excise taxes. At the upper end of the income scale, people pay between 35 and 40 percent of their income in taxes, mostly income taxes. So, if you don’t adjust for those taxes, you end up with a very skewed view of the income distribution.
The census splits US households into five groups based on income. The bottom quintile has the least income, and the top quintile has the most. Using the official census definition of income, the ratio between the top and the bottom is 16.7 to 1, so the top quintile has 16.7 times more income than the bottom.
Now, the first thing we did was ask what income was missing. Well, the first thing we found that was missing was capital gains. Capital gains are not counted as income for reasons that aren’t clear. That, of course, is missing mostly from the top half of the income distribution. At the low end of the distribution, there’s all sorts of income misreporting. Not terribly large, but there is some, people just don’t report all their income. And in the middle, employer-paid benefits are missing. So, adding all that earned income data made the ratio between the top and bottom much bigger. The top quintile earns 60 times more income than the bottom quintile.
But we’re still missing two-thirds of the transfer payments. If we add all the transfer payments, the difference between the top and bottom drops to 5.7 to 1.
So that’s all the money coming in, but the census also ignores the money the government takes through taxes. If we compare after-tax income and after-transfer payment income, the difference drops to only 4 to 1.
So, we’ve gone from 16.7 to 1 to 4 to 1 after counting all the money. We didn’t have to redefine anything.
Let me hit a couple of other points here.
It’s not only that the difference between the top and the bottom became smaller after adding all the income data and accounting for taxes. The differences between the bottom, the next to the bottom, and the middle virtually disappear. The bottom 60 percent of Americans all have almost the same amount of income. Let me explain that a bit.
Income in the second quintile is only 8 percent larger than in the bottom quintile. And yet there are 2.8 times more people working in second quintile households. And when they work, they work 1.8 times more hours. They work nearly 40 hours, and people in the bottom quintile work less than 20. And in the middle quintile, there is 32 percent more income, but over three times more people are working, and they work more than twice as many hours. They put out a whole lot more effort and don’t get much more income.
Now, there’s another important wrinkle: adjusting households for size. Households in the bottom quintile tend to be single individuals, retired individuals, people who’ve just graduated from college, and so on. Households become larger as you go up the income scale. When you adjust for size, the bottom quintile actually receives 5 percent more income than the second quintile does. And only 7 percent less than the middle.
There’s also the issue of change over time. There’s something called the Gini coefficient. It’s a measure that’s set up so that at zero, you have perfect equality. Every household has the same income. And at 1, all the income is in one household. The census publishes this measure, and it has risen over the long term. When President Obama or Chuck Schumer says income inequality is awful and it’s getting worse, this is what they’re referring to. But they don’t count all the transfer payments, which have gone from being like 10 percent of our federal budget to 75 percent over time. If you count all the transfers and take away the taxes, the Gini coefficient has actually fallen.
There’s also the question of economic mobility. In a previous paper, you found that two-thirds of children reared in the lowest quintile at some point escape to a higher quintile as adults. I don’t think people realize just how economically mobile Americans are.
Your last point there is really important. Almost all income distribution data are a slice in time. So, the statement that “the poor are getting poorer and the rich are getting richer” is just wrong because these categories are not static: people who were poor ten years ago are rich today, and some previously rich folks have fallen into lower income levels. Now, there are studies that track the same people through time, and during one’s lifetime, you generally move up. Almost everyone’s income goes up, except for those who choose not to participate in the labor force. Although their income goes up too because we keep raising the transfer payments.
The same also applies to income groups. In 1967, the top quintile of households were those that made around $60,000 or more in 2017 dollars. The people in the bottom quintile made between zero and $15,000 in 2017 dollars. In 2017, 77 percent of the population was making incomes that would have placed them in the top quintile 50 years earlier. That’s inflation-adjusted. And fewer than 2 percent of the people in the bottom quintile in 2017 would have been in the bottom quintile 50 years ago. So, throughout the income distribution, we’re all a whole lot better off.
Now, are we better off than five years ago? Well, some of us are, and some of us aren’t, but the overwhelming majority of us are better off than our parents and grandparents were. Far better off.
What is another hopeful fact about the US economy right now that people may not be aware of?
If you measure it right, the share of Americans in poverty has dropped from about 14 percent back when the war on poverty began to 1.1 percent.
So, when Lyndon B. Johnson declared the war on poverty in 1964, the poverty rate had declined from over 30 percent in the 1940s and 50s to around 17 percent. Now, what happened after that? Well, poverty continued to decline at the same rate for another four or five years. Then, it stopped going down and started rising and falling with the business cycle.
Why do you suppose that happened?
Mismeasurement.
Exactly. We declared a war on poverty. We started giving people a lot of money, but we didn’t measure that money as income. And so, it bounced between 11 percent and 15 percent, back and forth, back and forth. It dropped below 11 percent last year, but it’s still in the same range. But if we count all the transfer payments, it’s only 2.5 percent. And if we correct for the CPI overstating inflation, poverty would be less than 2 percent.
So, poverty has virtually disappeared. The people in that 2 percent are people who are especially challenged, either mentally or physically, and they may need help. But most people who are called poor are simply getting lots of money from the government, and they’re not poor anymore.
Johnson had two objectives for the war on poverty. One was to alleviate the suffering of those who were poor, but the other was to enable them to become productive citizens. We completely failed at that one. Only one third of work-age adults in the bottom quintile have a job. Back when Johnson started the war on poverty, two-thirds of them did.
Why? The government’s paying them to do nothing. So, they do nothing.
Get John Early’s book, The Myth of American Inequality: How Government Biases Policy Debate, here.
John Early, a mathematical economist and adjunct scholar at the Cato Institute, joins Chelsea Follett to discuss popular misconceptions about inequality in the United States and the measurement errors behind them. To see the slides that accompany the interview, watch the video on YouTube or the Spotify app.