From countless films and books we all know that, historically, pirates were criminally insane, traitorous thieves, torturers and terrorists. Anarchy was the rule, and the rule of law was nonexistent.

Not so, dissents George Mason University economist Peter T. Leeson in his myth-busting book, The Invisible Hook (Princeton University Press, 2009), which shows how the unseen hand of economic exchange produces social cohesion even among pirates. Piratical mythology can’t be true, in fact, because no community of people could possibly be successful at anything for any length of time if their society were utterly anarchistic. Thus, Leeson says, pirate life was “orderly and honest” and had to be to meet buccaneers’ economic goal of turning a profit. “To cooperate for mutual gain — indeed, to advance their criminal organization at all — pirates needed to prevent their outlaw society from degenerating into bedlam.” There is honor among thieves, as Adam Smith noted in The Theory of Moral Sentiments: “Society cannot subsist among those who are at all times ready to hurt and injure one another…. If there is any society among robbers and murderers, they must at least … abstain from robbing and murdering one another.”

Pirate societies, in fact, provide evidence for Smith’s theory that economies are the result of bottom-up spontaneous self-organized order that naturally arises from social interactions, as opposed to top-down bureaucratic design. Just as historians have demonstrated that the “Wild West” of 19th-century America was a relatively ordered society in which ranchers, farmers and miners concocted their own rules and institutions for conflict resolution way before the long arm of federal law reached them, Leeson shows how pirate communities democratically elected their captains and constructed constitutions. Those documents commonly outlined rules about drinking, smoking, gambling, sex (no boys or women allowed onboard), use of fire and candles, fighting and disorderly conduct, desertion and shirking one’s duties during battle. (The last could lead to the “free rider” problem in which the even division of loot among uneven efforts leads to resentment, retaliation and economic chaos.) Enforcement was key. Just as civil courts required witnesses to swear on the Bible, pirate crews had to consent to the captain’s codes before sailing. In the words of one observer: “All swore to ’em, upon a Hatchet for want of a Bible. When ever any enter on board of these Ships voluntarily, they are obliged to sign all their Articles of Agreement … to prevent Disputes and Ranglings afterwards.” Thus, the pirate code “emerged from piratical interactions and information sharing, not from a pirate king who centrally designed and imposed a common code on all current and future sea bandits.”

From where, then, did the myth of piratical lawlessness and anarchy arise? From the pirates themselves, who helped to perpetrate the myth to minimize losses and maximize profits. Consider the Jolly Roger flag that displayed the skull and crossbones. Leeson says it was a signal to merchant ships that they were about to be boarded by a marauding horde of heartless heathens; the nonviolent surrender of all booty was therefore perceived as preferable to fighting back. Of course, to maintain that reputation, pirates occasionally had to engage in violence, reports of which they provided to newspaper editors, who duly published them in gory and exaggerated detail. But as 18th century English pirate Captain Sam Bellamy explained, “I scorn to do any one a Mischief, when it is not for my Advantage.” Leeson concludes, “By signaling pirates’ identity to potential targets, the Jolly Roger prevented bloody battle that would needlessly injure or kill not only pirates, but also innocent merchant seamen.”

This economic analysis also explains why Somali pirates typically receive ransom payoffs instead of violent resistance from shipping crews and their owners. It is in everyone’s economic interest to negotiate the transactions as quickly and peacefully as possible. Markets operating in a lawless society are more like black markets than free markets, and because the Somali government has lost control of its society, Somali pirates are essentially free to take the law into their own hands. Until Somalia establishes a rule of law and a lawful free market for its citizens, lawless black market piracy will remain profitable. Until then, an-arrgh-chy will reign.

Shot and edited by Dan Hayes

First of all, why is it okay to mix science and religion (with atheists eagerly do in debunking religious claims) but not okay to mix science and politics/economics? Why is it okay for liberal atheists to stick it to religious believers and twist the knife slowly, but when it comes to getting your own (political/economic) beliefs challenged, that’s off limits — NOMA (nonoverlapping magisterial) for science and politics? I don’t see how they are different in principle. Skeptic is a science magazine, not an “atheist” magazine; nevertheless, we routinely deal with religious claims and no one ever complains about that. The closest we have come to political/economic issues is environmentalism (Vol. 9, No. 2 — sold out), overpopulation (Vol. 5, No. 1), and global warming Vol. 14, No. 1). For all three we published several articles; in Vol. 14, No. 1, for example, we published articles both skeptical of global warming and accepting of global warming. So I don’t see what would be wrong with publishing articles pro, con, and neutral on political and economic claims.

One person wrote me a private email that said he thought of me as the next Carl Sagan, but now that I’ve gone to the dark side (turning Right, although I’m as critical of the Right as I am the Left), because Carl was “apolitical.” Carl Sagan was many things, but apolitical was not one of them. Carl was a Liberal and proudly wore his politics on his sleeve, such as when he marched in protest at nuclear sites or testified before Congress about the dangers of nuclear winter. I admire him for having the courage of his convictions, which intimately blended his science and (Left) politics. If you think Sagan was apolitical it is because you happen to agree with his politics and so those ideas seem simply correct, not political. If you don’t share his politics (I share about half of them), then it’s obvious that Sagan was not apolitical.

The liberal bias in the skeptical community was identified by many people in the comments section of my blog, for example by “DR,” “James,” and “Devil’s Advocate”:

… Sadly, there is a lot of hatred toward libertarianism at JREF [he means TAM]. I can be an atheist, believe gay marriage is ok, think nothing of smoking pot, and I won’t get half as much grief from a conservative that I do from an American liberal who reels and squirms when I say that the welfare state is immoral or that free trade and voluntary transactions in capitalism promote fair and just outcomes. It’s like the only reason why I have rationalized this set of morality is because I’m a supremely evil person and must be wrong… —DR

… I’m disappointed, but not surprised by the large group of liberal skeptics. I’ve talked to too many Democrat-card-carrying skeptics that spout the same unoriginal, canned rhetoric and continual spewing hatred of Republicans. For a group that supposedly supports tolerance, they’re anything but tolerant …
—James

I’ve three times over twenty years joined local skeptic groups and all three times there was a presumption that if I was a skeptic, then of course I’m also liberal in my politics. Two times I tried to be what I am but was marginalized, treated like a Goldwater (or Reagan, or Bush) mole. The third time I tried to avoid political discussion, but it was not possible, so, unwilling to lie, I left. My refusal to come over to pure liberalism clearly wasn’t going to be tolerated. All I wanted to do was examine UFO claims and crop circles, but… —Devil’s Advocate

Another critic named John D. Draeger makes a good point that I wish to acknowledge: “He [me] does NOT believe that political persuasions and different economic models for how societies should be run are moral value judgements…. Social services can be paid for in different ways, and in a democratic society it’s up to the majority to define how that is done. Social services can be paid for in different ways, and in a democratic society it’s up to the majority to define how that is done.” That’s true, in a democracy the majority rules how to divvy up public funds for social services, and that tends to be more of a value judgment than a science. But as someone else wrote just below that, quite cleverly I think…

First of all, democratic societies can still be evil, as the famous saying goes: “democracy is two wolves and one lamb voting on what to have for lunch.” And then in another famous quote (attributed to several), “A democracy cannot exist as a permanent form of government. It can only exist until the voters discover that they can vote themselves largesse from the public treasury. From that moment on, the majority always votes for the candidates promising the most benefits from the public treasury with the result that a democracy always collapses over loose fiscal policy, always followed by a dictatorship. Thus our founding fathers gave us a republic … if we can keep it.

Even this is a value judgment, I agree, but surely we can apply some forms of social science to inform our value judgments. For example, we may as a society make the value judgment that it would be good if every child received a basic K–12 education. I agree with this value judgment, and would add to it the value judgment that it would be equally important for every child to have a computer and Internet access because that is the future of education. So we share that value judgment. However, the next question is a pragmatic one: who is going to pay for this education (and computers/Internet)? Parents? Churches? NGOs? Charities? Government? If the latter — the value judgment we have made — then do parents get to choose among the various government schools of where to send their children? (No.) Do parents who choose to send their children to private schools have to also pay for government schools? (Yes.) Is that fair? You make that value judgment. I don’t think that it is fair. To be consistent, if you are pro-choice on abortion you should also be pro-choice on education. The deeper value judgment here is being pro-choice about everything. Choice = freedom.

Some correspondents hated the political diagram because it seems to elevate libertarianism above the traditional left-right spectrum. Okay, then you come up with something other than the left-right linear spectrum to visualize where someone would fall on that line who is socially liberal and fiscally conservative. You draw it and I’ll publish it in a future blog.

Some people hate the word “libertarian.” I’m not crazy about it either, but haven’t thought of a better label. Labels are useful because they enable people to take cognitive shortcuts, but they also lead to shortcuts to nuanced thinking about what someone believes. “Oh, you’re one of those…” full stop. We all do this, of course, but I call myself a libertarian for the same reason I call myself a feminist, an atheist, and a pro-choicer — because it is the accepted language and we have to communicate ideas with language. But I much prefer to be assessed on specific issues.

Several of you said that I am a victim of one of my own central tenets of baloney detection: the confirmation bias, where we look for and find confirmatory evidence for what we already believe and ignore the disconfirmatory evidence. Yes, I will admit, I do this. Everyone does, and we must guard against it, especially when it comes to religion, politics, and economics. To combat this problem, I read the conservative Wall Street Journal and the liberal Los Angeles Times. I listen to such conservative talk radio hosts as Hugh Hewitt and Dennis Praeger as well as the very liberal Bill Maher. I have read Karl Marx’s books as deeply and carefully as I have read Adam Smith’s books. I have read a host of books from liberal and conservative and libertarian authors on the current economic meltdown. And although I have a few libertarian and conservative friends, because I work in the sciences and in publishing, the vast majority of my friends, acquaintances, staff, co-workers, and colleagues are liberals who I can assure you are never shy about letting me know where they think I’ve gone off the political or economic rails.

Finally, let me add that one of the appealing things to me about the libertarian worldview is that it is optimistic, uplifting, and most importantly (to me) anti-elitist. I’m in favor of doing whatever we can to allow the little guy to succeed and to break up power blocs that prevent the average Joe or Jane from reaching their full potential. The Constitutional divisions of power in our Democracy — emulated by many others around the world — are a huge improvement from centuries past that allowed or enabled some to succeed at the expense of others. That was a zero-sum world. Over the past 200 years the spread of democracy and capitalism has done more toward achieving a Nonzero world than anything else — more people in more places more of the time have more power and liberty and wealth than any time in the previous four millennium. Therefore, the more we can spread democracy and capitalism the better off more of us will be more of the time.

• FOLLOW MICHAEL SHERMER ON TWITTER •

ORDER the book from skeptic.com

On Thursday June 4, I attended the Cato Institute half-day conference in Century City, California, which started out with a lecture by U.C. Santa Barbara evolutionary psychologist Leda Cosmides, one of the founders of that science along with her husband John Tooby. Cosmides’ talk was on the evolution of cooperation, but for this audience she tailored her lecture toward politics and economics (Cato is a libertarian think tank in D.C.), by asking “Why do free societies arise so rarely and with such difficulty?”

Unfortunately, Leda tried to squeeze about two hours of material and powerpoint slides into a 35-minute talk, and so she was necessarily brief as she blasted through slide after slide, each up on the screen for only seconds, making note taking impossible. That’s too bad because there was a lot of data slides that I think the audience would have liked to absorb (I know I would have). Nevertheless, Leda’s central point was this: our brains evolved for solving specific problems in the EEA (the Environment of Evolutionary Adaptation — the Paleolithic), and so we have domain specific programs that help organize our experiences. The problem is that the modern world is so different from the EEA that it causes conflicts. For example, most hunter-gatherer societies are egalitarian because they live in relatively resource-poor environments and are often unsure about their safety and nourishment, and so we evolved many cognitive instincts for cooperation, food sharing, and group cohesiveness, because everyone in the group was either related to you or you know very well, so as the political saying goes, we must hang together so that we don’t hang separately. But the modern world is nothing like this.

I’ve written about this problem in my book The Mind of the Market, which focuses on evolutionary economics, whereby the world in which we evolved of small bands of egalitarian hunter-gatherers is radically different from today’s world that is resource rich and with vast disparities of wealth between the richest and the poorest. Thus, we have a natural tendency to resent wealthy people, distrust free markets, and misunderstand the bottom-up process of modern economies and try to control them from the top down, usually with disastrous consequences (e.g., Alan Greenspan and the Fed’s constant manipulation of interest rates sent false signals into the market for the price of money, leading to artificially large bubbles that then burst).

Leda noted the difference between hunting and gathering in terms of risk and uncertainty: Hunting meat is highly variable, success is as much due to luck as it is skill, and 4/10 times the hunter comes home empty-handed. Thus, hunter-gatherers must pool risk to deal with frequent reversals of fortune through food sharing. By contrast, gathering foods is a low risk process that depends on effort, not luck, and the results are mostly shared only within the family and trusted partners, but not to the group at large. Cosmides explained that this evolved psychology can be seen today in which we make distinctions between people in need of our help because they were unlucky (as with the hunters who return empty-handed) versus the gatherers who don’t bring home the vegetables because they were lazy and were loafing on the job. We are inclined psychologically to want to help the former but not the latter.

The political and economic consequences of this evolved psychology can be seen today in debates about healthcare, welfare, social security, etc., which are all attempts to pool risk among everyone in society, but without any distinction between those who suffer because of bad luck versus those who suffer because of laziness or lack of ambition. Modern political states are in the business of redistributing wealth from those who have it to those who do not, and since there is no attempt to discriminate between those who were unlucky from those who were just lazy, the people who earn that money through hard work and talent who then have it confiscated by the government and given to people they do not even know, naturally feel resentful, even though statistically the wealthy are extremely generous in giving to private charities that they voluntarily choose.

Cosmides also noted the psychological difference between working land that you own versus working land that the government owns: the agricultural policy of the USSR allowed 3% of land on collective farms to be private, and it turned out that between 45% and 75% of all food in the USSR was the product of that 3% of private farms.

So, in conclusion, Cosmides noted that there is a mismatch between the ancestral and modern worlds, our minds evolved to navigate family and friends and small groups, certain laws and institutions satisfy the moral intuitions these programs generate whereas other laws and institutions regularly fail in the modern world. Cosmides concluded: “Liberty provides the solution to most social problems, but few appreciate it because of our evolved minds.”

The second talk of the day was by Dan Mitchell, the Cato Institute expert on tax reform, supply-side tax policy, the flat tax, and tax competition. His talk was titled: “America’s Looming Fiscal Meltdown.” We are shifting to a European size welfare state, he noted, dolling out blame to both Democrats and Republicans, starting with George W. Bush, who Mitchell noted in his eight year term increased the Federal budget from $1.8 trillion to $3.5 trillion budget, and then noted Obama says he wants change to even more government, adding another trillion dollars to the budget in his first term, if not more. Mitchell also busted the myth that Bush increased the budget for natural security after 9/11. Not true, he said: most of it was for pork projects for his political cronies.

Mitchell then noted that Keynesianism is bad theory: borrow money and then give it to people so they will spend it — but moving money from the right pocket into the left pocket does not produce more wealth; it’s just redistribution. It does not increase wealth. Only free markets can do that. And in any case, where does the government get the money to redistribute? From us! But they take their cut as the middleman, and therein lies the problem. Bigger government did not work for Hoover or Roosevelt, and all that federal spending to get us out of the depression did not work: we did not get back to 1929 GDP levels until WWII. Neither did federal stimulus plans work for Presidents Ford or Bush I during their recessions, and Keynesianism failed utterly in Japan during the 1990s, when its national debt went from 60% of GDP to 150% of GDP. I.e., Keynesianism does not work, and yet politicians on both the right and the left insist that the only reason it doesn’t work is because: “government isn’t spending enough.” Wrong!

We are on the road to serfdom, says Mitchell, as our federal spending is projected to jump from 22% of GDP today to 45%–55% of GDP in the coming years (mostly because of Social Security, Medicare, and Medicaid). Unless our GDP doubles along with federal spending (it won’t) the collapse is coming. Well, not a collapse, per sey: America will not become Argentina or Zimbabwe. But we will become France: instead of growing 2.5–3% a year, we’ll grow 1–1.5%, a difference that has enormous long-run implications, lowering per capita GDP 30–40% below what it otherwise would be. More spending means more taxes: more income taxes, payroll taxes, death taxes, double taxation of dividends and capital gains. And this doesn’t work. In 1980 Ronald Reagan cut the top tax rate from 72% to 28%, and between 1980 and 1988 the number of rich people (millionaires) rose from 116,800 to 723,700, and their share of paying for the federal government rose from $19 billion in income taxes to $99.7 billion in income taxes. In other words, lowering taxes on the rich generates more revenue for the federal government, which is counterintuitive.

In the end, however, there are moral consequences to such economic decisions. Mitchell: “Today there are over 2 million people in America who completely depend on welfare: prisoners; well, the welfare state is a prison for the human soul.”

Let’s dispense with the “deregulation” myth right here. The list of new regulations called the Federal Register averaged 72,844 pages during the Carter administration, 54,335 pages during Reagan’s presidency, climbed to 59,527 pages for Bush the First, escalated during the Clinton years to 71,590 pages, and set an all-time record during Bush the Second at 75,526 pages, supposedly the era of deregulated markets run amok. So much for the Republicans as the party of government nonintervention.

It gets worse. The number of full-time U.S. government employees in regulatory agencies increased 63 percent between 1980 and 2007, from 146,139 to 238,351, while U.S. government spending on regulating the market tripled from $13.5 billion in 1980 to $40.8 billion in 2008 (in year-2000 dollars for the comparison). During that time the population of the United States rose from 226.5 million to 301 million, an increase of 33 percent (compared to the 63 percent increase in regulatory employees). One final comparison: spending on regulation increased from 0.26 percent of GDP in 1980 to 0.35 percent of GDP in 2007, an increase of 35 percent.

By now your Baloney Detection Devices should be going off. “Hey, wait a minute Shermer, you’re throwing out figures for general regulation and we’re talking about the regulation of the financial industry.” Okay, fair enough. In point of fact, the biggest growth in regulatory spending came in the form of national defense — so called “homeland security” — where spending quintupled from 1980’s $2.9 billion to 2007’s $16.6 billion (again, in year-2000 dollars for comparison).

But the second-largest rate of growth in regulation was in finance and banking, where regulatory spending increased from $725 million to $2.07 billion from 1980 to 2007 (in year-2000 dollars), nearly triple. And there is a cry for more regulation? Please!

If deregulation is not the problem, then what is? The current economic collapse is due to a concatenation of natural business cycles, black swan contingencies, and government intervention into the housing and financial markets — most notably the Clinton administration’s drive to achieve an “ownership society” that forced Freddie Mac and Fannie Mae to lower interest rates on high risk loans — which triggered the collapse of the housing and financial markets, and with them the rest of the economy.

The good news is this: In time the economy will recover. It always does. Don’t regulate. Be patient.

In the midst of our financial crisis it was inevitable that there would be references to the 1987 film Wall Street, in which Michael Douglas’s character Gordon Gekko explains what really drives market capitalism: “The point is, ladies and gentleman, that greed — for lack of a better word — is good. Greed is right. Greed works. Greed clarifies, cuts through, and captures the essence of the evolutionary spirit. Greed, in all of its forms — greed for life, for money, for love, knowledge — has marked the upward surge of mankind. And greed — you mark my words — will not only save Teldar Paper, but that other malfunctioning corporation called the USA.”

Is greed good? Bad? Consider an analogy. Would sports’ writers say that Lance Armstrong, Michael Phelps, and Kobe Bryant are greedy in the same way that pundits describe financial officers, professional traders, and home flippers? Of course not. The whole point of competing in sports is to do the best you can and to win within the rules established by the governing sports organizations. In fact, if you are not greedy in the sense of wanting to succeed in your sport, you will likely be cut from the team. It is in the nature of sports for athletes to greedily desire to succeed and win.

The analogy holds for everyone in the marketplace — from you and I as shoppers and home-buyers looking for the best bargain we can find, to corporate CEOs and Wall Street traders looking for the largest profit they can attain. The whole point of shopping and investing, in fact, is to do your best to succeed and win — defined by finding better deals and making more money — within the rules established by the organizations governing the marketplace. We should no more blame greedy home buyers, loan officers, and stock traders for the current financial crisis than we should blame individual athletes for making so much money playing sports.

Who should we blame? The organization governing the marketplace — the government — for interfering with the normal signals of risk. Let me explain.

People and corporations are normally risk averse. Behavioral economists who study risk aversion have discovered that most people will reject the prospect of a 50/50 probability of gaining or losing money, unless the amount that can be gained is at least double the amount that can be lost. That is, people feel worse about the pain of a loss than they feel better about the pleasure of a gain. Twice as worse in fact.

Since corporations and financial institutions are run by people, they should show the normal risk aversion when investing money and granting loans. Why didn’t they? In short, the risks were removed or delayed by government intervention. Fannie Mae and Freddie Mac, for example, do not make loans directly to customers — they buy loans from banks who make those loans directly. The more removed the direct risk is from the brains of those granting the risk, the less risk averse they will be.

Well, a remarkably prescient September 30, 1999 article in the New York Times, entitled “Fannie Mae Eases Credit To Aid Mortgage Lending,” reported that the Fannie Mae Corporation began a program that spring to encourage banks “to extend home mortgages to individuals whose credit is generally not good enough to qualify for conventional loans.” Why? According to the Times, “Fannie Mae, the nation’s biggest underwriter of home mortgages, has been under increasing pressure from the Clinton Administration to expand mortgage loans among low and moderate income people and felt pressure from stock holders to maintain its phenomenal growth in profits.” In point of fact, in July of 1999 the Department of Housing and Urban Development insisted that Fannie and Freddie increase their portfolio of loans made to lower and moderate-income borrowers from 44 percent to 50 percent by 2001.

Now, there’s nothing wrong with corporations taking higher risks — whether under political or profit pressure — as long as they adjust for it by charging more. The higher price acts as a risk signal to keep the market in balance. This is what Fannie Mae was doing by only purchasing loans that banks made charging three to four percentage points higher than conventional loans. But under the new program implemented in 1999, higher-risk people with lower incomes, negligible savings, and poorer credit ratings could now qualify for a mortgage that was only one point above a conventional 30-year fixed rate mortgage (and that added point was dropped after two years of steady payments). In other words, the normal risk signal sent to high risk consumers — you can have the loan but it’s going to cost you a lot more — was removed. Lower the risk signal and you lower risk aversion.

When sports governing bodies either relax the rules or fail to enforce them (think of steroids in baseball or doping in cycling), it signals to the athletes that there is little risk in pushing the boundaries of the sport. Lowering the risk aversion encourages gaming the system, and once the top competitors do it, everyone else in the sport has to do it just to compete. The result is a catastrophic collapse in the integrity of the sport.

Analogously, when the government encourages corporations to relax the rules of financial transactions, and then signals to them that if the system fails it will bail them out (as the government did when it rescued the savings and loan industry in the 1980s), it signals to the players in the marketplace that there is little risk in pushing the boundaries of the market. Lowering financial risk aversion encourages gaming the system, and once the top corporations do it, everyone else has to do it just to compete. The result is what we have today.

Are markets moral? Is our hunter-gatherer brain geared for modern capitalism, and do economies work like evolutionary organisms? The rise of neuroeconomics, the extinction of Homo Economicus and more…

Those were the topics discussed in last week’s ABC Radio National show All in the Mind, a debate recorded for National Science Week in Australia, with outspoken founder of the Skeptics Society, Dr Michael Shermer, and shareholder activist and Crikey founder, Stephen Mayne.

LISTEN to the debate

Since 99 percent our evolutionary history was spent as hunter-gatherers living in small bands of a few dozen to a few hundred people, we evolved a psychology not always well equipped to reason our way around the modern world. What may seem like irrational behavior today may have actually been rational a hundred thousand years ago. Without an evolutionary perspective, the assumptions of Homo economicus — that “Economic Man” is rational, self-maximizing, and efficient in making choices — make no sense. Take economic profit versus psychological fairness as an example.

Behavioral economists employ an experimental procedure called the Ultimatum Game. It goes something like this. You are given $100 to split between yourself and your game partner. Whatever division of the money you propose, if your partner accepts it, you are both richer by that amount. How much should you offer? Why not suggest a $90-$10 split? If your game partner is a rational self-interested money-maximizer he isn’t going to turn down a free ten bucks, is he? He is. Research shows that proposals that deviate much beyond a $70–$30 split are usually rejected.

Why? Because they aren’t fair. Says who? Says the moral emotion of “reciprocal altruism,” which evolved over the Paleolithic eons to demand fairness on the part of our potential exchange partners. “I’ll scratch your back if you’ll scratch mine” only works if I know you will respond with something approaching parity. The moral sense of fairness is hardwired into our brains and is an emotion shared by most people and primates tested for it. Thousands of experimental trials with subjects from Western countries have consistently revealed a sense of injustice at low-ball offers. Further, we now have a sizable body of data from peoples in non-Western cultures around the world, including those living close to how our Paleolithic ancestors lived, and although their responses vary more than modern peoples living in market economies do, they still show a strong aversion to unfairness.

The deeper evolution of this can be seen in the behavior of our primate cousins. In studies with both chimpanzees and capuchin monkeys, the Emory University primatologists Frans deWaal and Sarah Brosnan found that when two individuals work together on a task for which only one is rewarded with a desired food, if the reward recipient does not share that food with his task partner, the partner will refuse to participate in future tasks and expresses emotions that are clearly meant to convey displeasure at the injustice. In another experiment in which two capuchin monkeys were trained to exchange a granite stone for a cucumber slice, they made the trade 95 percent of the time. But if one monkey received a grape instead — a delicacy capuchins greatly prefer over cucumbers — the other monkey cooperated only 60 percent of the time, sometimes even refusing the cucumber slice altogether. In a third condition in which one monkey received a grape without even having to swap a granite stone for it, the other monkey cooperated only 20 percent of the time, and in several instances became so outraged at the inequity of the outcome that they heaved the cucumber slice back at the human experimenters!

Such results suggest that all primates, including us, evolved a sense of justice, a moral emotion that signals to the individual that an exchange was fair or unfair. Fairness evolved as a stable strategy for maintaining social harmony in our ancestors’ small bands, where cooperation was reinforced and became the rule while freeloading was punished and became the exception. Apparently irrational economic choices today — such as turning down a free $10 with a sense of righteous injustice — were at one time rational when seen through the lens of evolution.

Just as it is a myth that evolution is driven solely by “selfish genes” and that organisms are exclusively greedy, selfish, and competitive, it is a myth that the economy is driven by people who are exclusively greedy, selfish, and competitive. The fact is, we are both selfish and selfless, cooperative and competitive. There exists in both life and economies mutual struggle and mutual aid. In the main, however, the balance in our nature is heavily on the side of good over evil. Markets are moral and modern economies are founded on our virtuous nature. The Gordon Gekko “Greed is Good” model of business is the exception and the Google Guys “Don’t Be Evil” model of business is the rule. If this were not the case market capitalism would have imploded long ago.

In his magnum opus on the power of free markets, Human Action, the Austrian economist Ludwig von Mises noted: “The truth is that capitalism has not only multiplied population figures but at the same time improved the people’s standard of living in an unprecedented way. Neither economic thinking nor historical experience suggest that any other social system could be as beneficial to the masses as capitalism. The results speak for themselves. The market economy needs no apologists and propagandists. It can apply to itself the words of Sir Christopher Wren’s epitaph in St. Paul’s: Si monumentum requires, circumspice.” If you seek his monument, look around.

Capitalism may not need apologists and propagandists, but it does need a vigorous scientific and rational defense as evidenced by the fact that so many people still distrust free markets. Market solutions to social problems are generally received with skepticism. Businessmen are distrusted, corporations looked at askance, and there is a well-known resentment against those who have most benefited from markets. (As one New Yorker cartoon featuring two people in conversation reads: “I hated Bill Gates before it became so fashionable.”) Why do people distrust free markets?

Part of the answer can be found in our history. Because we lived for so long in small groups of a couple of dozen to a couple of hundred people in hunter-gatherer communities in which everyone was either genetically related or knew one another intimately, most resources were shared, wealth accumulation was almost unheard of, and excessive greed and avarice was punished. Thus, we naturally respond to a free market system in which conspicuous wealth is paraded as a sign of success with envy and anger. Call it evolutionary egalitarianism.

Throughout most of the history of civilization as well, economic inequalities were not the result of natural differences in drive and talent between members of a society equally free to pursue their right to prosperity; instead, a handful of chiefs, kings, nobles, and priests exploited an unfair and rigged social system to achieve gains best described as ill gotten.

People also have a remarkably low tolerance for economic ambiguity. Free markets are chaotic and uncertain, uncontrollable and unpredictable. Most of us have little tolerance for such environments, and we have learned to expect that social institutions such as the government will bring a level of certainty to society. People who cannot afford (or who choose not to purchase) insurance against acts of God typically expect acts of government to save them.

As well, there is well-documented liberal bias in the academy and the media against free markets. A 2005 study by the George Mason University economist Daniel Klein, for example, found that at two of America’s leading institutes of higher learning Democrats outnumbered Republicans among the faculty by a staggering ratio of 10 to 1 at the University of California, Berkeley and by 7.6 to 1 at Stanford University. Measuring political attitudes through voter registrations among faculty in twenty different departments, in the humanities and social sciences the ratio was 16 to 1 at both campuses (30 to 1 among assistant and associate professors), and in some departments, such as anthropology and journalism, there wasn’t a single Republican to be found.

In another 2005 study on “Politics and Professional Advancement Among College Faculty,” Stanley Rothman, S. Robert Lichter, and Neil Nevitte discovered that only 15 percent of those teaching at American colleges and universities describe themselves as conservative while 72 percent said they were liberal, and that figure climbed to 80 percent in such departments as English literature, philosophy, political science, and religious studies, with only five percent labeling themselves as conservative. In a 2005 publication in the Georgetown Law Journal, Northwestern Law Professor John McGinnis reviewed the faculties of the top 21 law schools rated by the 2002 U.S. News & World Report graduate-school rankings and found that politically active professors at these top law schools overwhelmingly tend to be Democrats — 81 percent contributed “wholly or predominantly” to Democratic campaigns while just 15 percent did the same for Republicans.

In a manner and potency matching academia, the bias in the media is against free market economics. A comprehensive 2005 study conducted by UCLA political scientist Tim Groseclose and University of Missouri economist Jeffrey Milyo, published in the Quarterly Journal of Economics, measured media bias by counting the times that a particular media outlet cited various think tanks and policy groups, and then compared this with the number of times that members of Congress cited the same groups. “Our results show a strong liberal bias: all of the news outlets we examine, except Fox News’ Special Report and the Washington Times, received scores to the left of the average member of Congress.” Not surprisingly, the authors discovered that CBS Evening News and the New York Times “received scores far to the left of center” and that “the most centrist media outlets were PBS NewsHour, CNN’s Newsnight, and ABC’s Good Morning America.” Interestingly, USA Today — that ne plus ultra of pop print media — was closest to political center of all newspapers.

The strongest reason for skepticism of capitalism, however, is a myth commonly found in objections to both the theory of evolution and free market economics, and that is that they are based on the presumption that animals and humans are inherently selfish, and that the economy is like Tennyson’s memorable description of nature: “red in tooth and claw.” After Charles Darwin’s The Origin of Species was published in 1859, the British philosopher Herbert Spencer immortalized natural selection in the phrase “survival of the fittest,” one of the most misleading descriptions in the history of science and one that has been embraced by social Darwinists ever since, applying it inappropriately to racial theory, national politics, and economic doctrines. Even Darwin’s bulldog, Thomas Henry Huxley, reinforced what he called this “gladiatorial” view of life in a series of essays, describing nature “whereby the strongest, the swiftest, and the cunningest live to fight another day.”

If biological evolution in nature, and market capitalism in society, were really founded on and sustained by nothing more than a winner-take-all strategy, life on earth would have been snuffed out hundreds of millions of years ago and market capitalism would have collapsed centuries ago. This is, in fact, why WorldCom and Enron type disasters still make headlines. If they didn’t — if such corporate catastrophes caused by egregious ethical lapses were so common that they were not even worth covering on the nightly news — free market capitalism would implode. Instead it thrives, but just as eternal vigilance is the price of freedom, so too must it be for free markets, since both are inextricably bound together.

How did we evolve from ancient hunter-gatherers to modern consumer-traders? Why are people so irrational when it comes to money and business? Dr. Michael Shermer argues that evolution provides an answer to both of these questions through the new science of evolutionary economics. Drawing on research from neuroeconomics, Shermer explores what brain scans reveal about bargaining, snap purchases, and how trust is established in business. Utilizing experiments in behavioral economics, Shermer shows why people hang on to losing stocks and failing companies, why business negotiations often disintegrate into emotional tit-for-tat disputes, and why money does not make us happy. Employing research from complexity theory, Shermer shows how evolution and economics are both examples of a larger phenomenon of complex adaptive systems. Along the way, Shermer answers such provocative questions as: Do our tribal roots mean that we will always be a sucker for brands? How is the biochemical joy of sex similar to the rewards of business cooperation? How can nations increase trust within and between their borders? Finally, Shermer considers the consequences of globalization and what will happen if nations allow free trade across their borders.

This event took place January 29, 2008 at Google Headquarters in Mountain View, CA.