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Adam Smith created one of the most famous ideas in economics. The brilliant Scottish economist called his idea The Invisible Hand and through its creation removed from our minds the fear of free markets theory, making people believe that the best way to regulation is self-regulation.
According to his theory, nowadays embraced by the majority of economists and followed by most western governments, competition without restriction always produces the best possible, for all. Always the best possible? Well, to be fair to the author of The Wealth of Nations, this is what he said about the individual entrepreneur: "by pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it."
But does it really work like this? Is the relation between individual and collective interest so linear, that to create conditions or to stimulate the pursuit of self-interest is enough to simultaneously promote the collective interest, benefiting society as a whole? Robert Frank, in his book The Natural Economist, tells us that Charles Darwin does not seem to agree. He illustrates that idea with some very real and captivating examples, from which we choose to describe in the Prescription of Antibiotics and the Use of High Heels.
Darwin was the father of evolutionary biology. He was also strongly influenced by the ideas of Adam Smith, Thomas Malthus, and other economists. Nevertheless, through the theory of Natural Selection, he demonstrated that he did not agree with Smith. Indeed, it was Darwin who identified a large and profound conflict between individual and collective interests, thus contradicting, the theory of The Invisible Hand.
Although he profoundly shocked, at the time, the Catholic Church, the truth is that the Natural Selection theory does not even offend, incomprehensibly, the faithful followers of Smith. Incomprehensibly because, as we shall see further ahead, the two perspectives are deeply incompatible. That this mismatch has become evident only today, can be explained by the way social sciences has been exercised until not long ago: autonomously and independently, in academic silos that prevented communication between different disciplines. The Internet has changed that reality a lot. The social sciences has changed perspective, and it even allowed the birth of new disciplines such as behavioral economics. It also showed how wrong economists were about human nature, and why that matters so much.
According to Darwin's theory, natural selection favors the traits and behaviors that increase individual reproductive success. Nevertheless, Darwin's theory advocates that this may not always contribute positively to the wider interest of the species. Sometimes, certain traits and behaviors favor individual success but affect the group as a whole. The following illustrates this phenomenon splendidly:
Moose's Antlers
The moose, like elephant seals and males of other species, fight between themselves for access to females. The antlers are the main weapon used for battle. Battle outcome depends on the size of the rods that make up these antlers. Thus, those who have larger antlers possess a competitive advantage and get more mates, increasing the likelihood that their genes spread to the next generation.
Nevertheless, although having large antlers promotes greater access to females, large antlers also make it more difficult for males to escape from wolves and other predators in densely wooded areas. Therefore, Natural Selection, determining which individual characteristics must be passed onto the next generation, is also the origin of a collective problem. In this case, an increase in the size of the antler from generation to generation makes the moose more vulnerable to predators that inhabit densely forested areas.
This example of the moose antler was extracted from nature and illustrates a social phenomenon dubbed "intelligence for one, stupidity for all." In fact, it would be beneficial and desirable (for the total moose population) if the size of the antler be reduced by half. That would substantially increase the moose population's chances of escaping predators, and the battle for females would still be decided in the same way (what counts in those clashes is the relative size of the antlers).
In everyday life, we are also often confronted with similar situations, where the "pursuit of personal interest with no restrictions" frequently inflicts negatives to a given society or group as a whole.
Over-Prescription of Antibiotics
When patients present minor ear-and-respiratory infections, many doctors prescribe antibiotics. If the infection is caused by bacteria, the treatment with antibiotics accelerates recovery. However, it also helps to make the strain of the bacteria more resistant to the antibiotic. Because of this, public health officials have recommended that physicians only prescribe antibiotics to treat serious infections. Several countries have developed campaigns to reduce the misuse of antibiotics, to diminish resistant strains. Nevertheless, health professionals frequently disrespect these recommendations. Why does this happen?
Certainly the medical community is aware of this impact on the increase of resistant strains of bacteria. However, as in the case of the moose and natural selection, health professionals pursue their individual interests without restriction and contribute to the deterioration of the collective interest.
A single prescription of antibiotics does not lead to bacteria resistance, but the aggregate effect of all prescriptions. Thus, although some practitioners refuse to treat mild infections in this way, the truth is that many end up giving in to pressure from their clients. If they do not abide by this, they run the risk of their patients choosing another doctor, or even call into question a doctor's professional reputation, due to the slow recovery of treatment. By applying The Invisible Hand ideology to health care, competition and the pursuit of self-interest ensures that we will all become worse, not only in terms of health but also fiscally. In the United States, a country where the health system is driven by market forces, about one-third of the 150 million annual antibiotic prescriptions issued are totally unnecessary.
Uncomfortable High Heels
High heels are uncomfortable and complicate walking. Its prolonged use can bring foot, knee, and back injuries. Why do women continue to wear them? The immediate response: Women who wear them are more likely to draw attention to themselves, in a positive way. Besides making women look taller, high heels also increase their sex appeal, forcing the back to arch, pulling the chest up, and accentuating the female silhouette.
One more time, and as in the case of the moose, the individual interest of each women seems to conflict with the collective interest. Indeed, if all women wear high heels, the advantage of wearing high heels tends to blur. Height is, like all other human dimensions, a relative metric. If I add 15 cm to the height of all American women, the height of each in relation to all others remain. In other words, the relative distribution of the height of all American women does not change. If in terms of personal interest, adding 15 cm to the height of all women in America does not change anything, in collective terms, the difference would be for the worse, since all the women would be putting themselves in a less comfortable and unhealthy condition.
Moose's antlers, antibiotic prescription, and the use of high heels, are all examples of the fallacy created by Adam Smith in The Invisible Hand. It may be seductive, but it is also extraordinarily dangerous. As demonstrated by Darwin's theory of Natural Selection, the struggle for self-interest, very often originates severe damage of the collective interest. By making self-interest the engine of societies, capitalism has forgotten this could transform itself in greed and egoism, and that personal satisfaction of citizens is always relative. This little subtlety ignored by Smith, recognized by Darwin, and recently pulled to the center of socio-economic debate, helps us understand why societies sustained exclusively in the pursuit of individual interests are taken on a naive walk to collective suicide.
