22 August 2007

Evolution or incentives?

From an article about Gregory Clark's A Farewell to Alms:

Historians used to accept changes in people's behavior as an explanation for economic events, like Max Weber's thesis linking the rise of capitalism with Protestantism. But most have now swung to the economists' view that all people are alike and will respond in the same way to the same incentives. Hence they seek to explain events like the Industrial Revolution in terms of changes in institutions, not people.

Dr Clark, though, argues that institutions and incentives have been much the same all along and explain very little, which is why there is so little agreement on the causes of the Industrial Revolution. He believes natural selection - genetic transmission of capitalist values - is the answer. To me this sounds far-fetched and unnecessary, though I haven't read the evidence that Dr Clark has compiled. I don't often find myself in the position of agreeing with "the economists' view", but I do think incentives are critical. Looking at the failure of certain countries to develop, I can't point to any lack of resourcefulness on the part of their citizens. More compelling to me is how this simple question would be answered: "if people work hard, what is the chance that they will be allowed to keep most of their earnings?" For most societies in the past, and for many today in the poor world, that probability has been too low to make capitalism worthwhile.


Harald Korneliussen said...

This author takes the "economist's position" that people are equally capable of responding to incentives, to turn it on its head and recycle the old arguments of racial superiority.

But he's trying to answer a question that has already been answered far more plausibly by Jared Diamond in "Guns, Germs and Steel" - fully from the "economist's position", that there are no significant differences in inherent ability to respond to incentives.

The economist is arguing for biological explanations, and the biologist for economical ones...

I came across this article which tells about the historical tension between economists and racists, and it probably did more to better my impression of your profession than anything else I can think of. I would read that as background to Clark's claims.

Unfortunately, many modern econ-bloggers seem to be flirting with the zombie of scientific racism.

Ronnie Horesh said...

Thanks Harald for your comment, and the link to the fascinating Levy and Peart article.