EVOLUTION'S ARROW

The direction of evolution and the future of humanity

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(new) The most recent and refined version of the evolutionary worldview that was first presented in Evolutionís Arrow can be found in the 34 page document The Evolutionary Manifesto which is here

Chapter 15.    The Rise of Governed Societies        

 

The human societies that we see about us began to emerge on this planet about 10,000 years ago. It is only since then that governments and other powerful rulers have managed complex human societies, establishing the most cooperative organisations of multicellular organisms to emerge on this planet. Like the complex cooperation found within cells and within multicellular organisms, the cooperation found within these human societies has been made possible by appropriate management, applied in this case by governments or other external managers. Typically these managers have organised cooperation by raising taxes to fund public works, defence forces and other collective activities that benefit the society as a whole. They have also used their power to establish legal systems that punish and deter behaviours which would otherwise undermine economic and other cooperation. In just 10,000 years this management has produced a cooperative division of labour far more extensive than we see in insect colonies or tribal human societies. The division of labour is even greater than we find within our bodies and within cells. The members of a modern nation state are specialised into many thousands of different roles. This immense division of labour is organised to produce knowledge, weapons, technology, food and consumer goods on a scale and complexity unknown to tribal societies.

Since its emergence, the scale of this cooperative human organisation has increased rapidly, from small agricultural communities, to cities, then to nations and empires, and now to global markets[1]. All this has evolved in just 10,000 years, while it took over 500,000,000 years to evolve the division of labour found amongst molecular processes within the eukaryote cell. And it took a further 500,000,000 years or so to evolve the division of labour found between specialised cells and organs within ourselves and other complex multicellular organisms.

This extraordinary explosion in the scale and complexity of cooperative organisation in the last 10,000 years would not have been possible without the emergence of a new form of management. In contrast to the distributed internal management of tribal societies, the new management was external. The members of human societies were no longer controlled only by inculcated behaviours. They were now governed externally by powerful rulers. But it was not the externality of the new management that enabled it to organise human societies that were far better at exploiting the potential benefits of cooperation. It was the ability of the new management to adapt its controls during the life of the society[2]. The ruler could continually try out new controls in the search for improved management. He could adapt his management as circumstances changed. In contrast, the internal management of tribal societies had a very limited capacity to evolve during the life of the tribe. As we have seen, successful internal managers must include behaviours that actively suppress alternative management within the society. If alternatives cannot be tested within the group, internal management cannot adapt or evolve during the life of the group.

The immensely greater evolvability of externally-managed human societies has enabled them to discover much more effective forms of cooperation, including complex divisions of labour. In just 10,000 years societies governed by rulers have ousted tribal societies over the entire planet. This is obviously not because of any innate difference in the capacities of the members of the tribal societies compared with governed societies. It is due to differences in organisation. Governed societies have a much greater capacity to exploit the benefits of cooperative organisation than tribal societies. They are better at discovering ways to ensure that the members of society can capture the effects of their actions on others and on the society as a whole.

Humans were the first organisms on this planet to produce this new form of management because we were the first to evolve a capacity for systemic mental modelling. Systemic modelling is essential if a manager is to be able to adapt his management of a complex organisation competently. This capacity enables the manager to mentally model and therefore to understand how a complex society will unfold through time in response to his management. The use of blind trial-and-error will not enable him to manage effectively. This is because the effects of alternative management actions often will not be felt immediately by the manager. Frequently the effects will unfold only in the future. It will therefore be no simple matter for the manager to determine which effects are the result of any particular management act. Unaided by systemic modelling, the manager will be unable to tell which acts are errors and which are not. As a result, a simple trial-and-error approach will not work. A capacity for linear modelling will be insufficient to overcome this difficulty. The circumstances will be far too complex to be understood by a manager who uses only linear modelling.

Only a manager with a capacity for systemic modelling can plan management changes in a complex organisation, trace the effects of changes when they are implemented, and assess whether a particular change has produced improvements or not. Such a ruler and his associates will be able to construct mental models of how the society unfolds through time, and how it would be affected by alternative management acts. When the effects of an act are different to what was predicted, the ruler can change his assessment of the usefulness of the act, and amend his mental models to improve their predictive ability.

External managers without a capacity for systemic modelling are unable to continually adapt their management of a complex organisation in this way. Examples are the RNA molecules that produced proto cells when they became the external managers of autocatalytic sets. Unlike us, RNA molecules have no internal adaptive processes that enable them to adapt continuously during their life. Instead an RNA molecule adapts by producing offspring, some of which are different and might prove to be better adapted. But, as we have seen, RNA cannot use this process to adapt within a cell during the life of the cell. If it and its offspring reproduce freely in the cell, destructive competition between different RNA molecules will result. So the cell must synchronise the reproduction of the RNA with the reproduction of the cell, preventing competition between RNA offspring within the cell. This ensures that competition can occur only between cells. The only way an RNA molecule can then do better than another is by enhancing the competitiveness of its cell. The interests of the RNA and the cell are aligned.

So the RNA molecules had little ability to adapt their management during the life of the cell. And they had to suppress any change or innovation within the cell that could lead to destructive competition or that could undermine cooperation by producing free riding and cheating. In these respects they were no different to the internal managers of human tribal societies and the genetic internal managers of multicellular organisms and of insect societies.

As we have seen in detail, the inability of these managers to adapt their management during the life of their organisations drove the evolution of new internal adaptive processes. These new internal change-and-test processes searched for better ways to organise cooperation and to adapt cooperation as circumstances changed. A long sequence of progressive improvements in the adaptability of the new internal adaptive processes led eventually to the evolution in complex multicellular organisms of a capacity to use mental models. In humans this culminated in the evolution of an ability to communicate with each other about the knowledge used to produce the mental models, and about the adaptations discovered by the models. This enabled knowledge and adaptations to be accumulated across the generations, and a new evolutionary mechanism was born.

We can now see that this enormous improvement in the internal adaptability and evolvability of multicellular organisms also paved the way for the evolution of societies that were also much more adaptable and evolvable. The critical step was the emergence of an organism with an internal capacity for systemic mental modelling. An organism with this capacity could continually adapt and evolve its management. The emergence of such an organism paved the way for the emergence of organisations whose external management could adapt and evolve continuously. Provided the interests of the management were aligned with those of the organisation, this management would continually adapt its controls in the interests of the organisation as a whole.

On this planet, it was humans that evolved a capacity for systemic modelling, and humans who have produced this new form of organisation. On other planets where life evolves, the organism that develops this capacity might be quite different to us. But the broad evolutionary sequence should be similar. Initially, evolution will produce cooperative organisations whose management is unable to adapt the organisation during its life. The potential benefits of cooperation will drive the evolution of new internal processes that adapt and evolve the organisation. Eventually this will produce organisms with a capacity for systemic modelling. These organisms will be able to form larger-scale organisations whose management can evolve and adapt continually. As we will see, this new form of organisation has the potential to form a unified planetary organisation in which the living processes of the planet are managed to support the pursuit of evolutionary objectives.

The ability of human rulers to manage cooperative social systems has improved considerably over the last 10,000 years. Humans have been able to build better mental models of social systems as we have accumulated knowledge about how the systems unfold through time, and how they react to alternative management acts. As well as producing better management, this has enabled humans to manage cooperative organisations of greater complexity. Government and other rulers have got better at instituting management that ensures members of the society capture the effects of their actions on others and on the society as a whole.

This improvement in systemic modelling has enabled management to be less restrictive and more tolerant of difference. We saw in relation to tribal groups managed by inculcated behaviours that management must be extremely conservative if it is unable to assess whether changes in the behaviour of group members are harmful or not. Such a manager cannot afford to let the members change their behaviours in ways that have any possibility of undermining cooperation. If the manager cannot distinguish changes that have good effects from those that have bad effects, it must suppress all those changes. This seriously restricts the ability of the group to adapt and evolve.

As a result, early human rulers with limited capacities for mental modelling had to manage conservatively. They had to greatly limit the freedom of their subjects to try our new behaviours. Freedom, creativity and innovation had to be restricted to what the ruler and his associates could cope with, given their limited ability to model and understand the consequences of social innovation. In the same way, poor managers in modern human corporations have to suppress the creativity and freedom of bright staff if they are to retain full control over everything that happens under their management. And the built environment humans construct for themselves is simple, predictable and mechanistic so that it is easy to control and manage.

The management task of the early rulers was much easier when the behaviour of the members of the society was already straight-jacketed by effective internal management[3]. As we have seen, distributed internal management could suppress cheating, free riding, theft and destructive competition within a society. An external manager could get away with being far less competent if the society was restrained by a system of mythological and religious beliefs that entrenched and reproduced suitable moral codes and norms. Leading an army to defend the society, organising collective projects such as irrigation schemes, fostering productive economic exchanges and maintaining harmonious and cooperative social relations within the society were all much easier where the behaviour of the members of the society was controlled by appropriate inculcated belief systems[4].

As with the evolution of tribal societies, some systems of myths and religious beliefs were better at underpinning effective external management, and they were favoured in competition between societies. Belief systems were likely to do better if they produced behaviours that made it easier for the ruler to organise effective cooperative activities, legitimated the authority and power of the ruler, and predisposed individuals to behave in ways that benefited society. It was in the interests of rulers and their associates to promote the inculcation and reproduction of belief systems that strengthened their own positions, whether or not they were believers themselves.

As externally-managed human societies increased in scale, producing cooperative organisations of peoples from a number of tribal and ethnic backgrounds, the religions that survived and flourished were those that were more inclusive, and did not preach hatred and aggression against others of different ethnicity. Mythological and religious belief systems that produced acceptance of others from different tribal and ethnic backgrounds produced societies that were able to grow in size, incorporating and managing more and more peoples. Such a belief system could help to produce a cohesive and effective multi cultural society, such as the Roman Empire.

But external management could not rely on the assistance of these internal belief systems forever. As the capacity for mental modelling amongst the members of society improved with the accumulation of knowledge, the consistency of the belief systems with external reality was increasingly questioned. Mythological and religious belief systems were undermined further as individuals developed the ability to turn their modelling capacity inwards to analyse, evaluate and criticise the validity of their own thoughts and beliefs.

Particularly in the last two hundred years, a significant proportion of individuals in more complex human societies has developed a strong capacity to use internal linear modelling to critically evaluate their own beliefs. Increasingly, this has produced a decline in the extent to which individuals are internally hard wired by inculcated beliefs to behave in ways that produce a cooperative and easily-managed society. For more and more individuals, god, tradition and duty are all dead. Their behaviour is now guided largely by internal reward systems that are mostly self-centred, except for the legacy of the kin selection and reciprocal altruism mechanisms. These continue to predispose us toward some cooperation within our families and friendship groups. But this aside, our reward systems tend to promote behaviour that advantages the individual—they largely ignore the effects of our behaviour on others.

This undermining of belief systems that previously helped organise social behaviour has led to the explosive rise in individualism of the last century. Increasingly, it has been left solely to external management in the form of government to manage self-centred individuals in ways that align their interests with those of the society as a whole. In large part, the rise of self-centred individualism has necessitated the massive increase in the size and scope of government that we have seen this century.

As the capacity of rulers for systemic modelling improved during the last 10,000 years, they were better able to cope with diversity and creativity within their societies. Increasingly they could distinguish between changes in behaviour and technology that would benefit society, and those that would harm it. Instead of straight-jacketing society, suppressing all innovation in areas that might be harmful, they could now target their suppression only at harmful changes. Rulers no longer had to rely as much on the assistance of inculcated belief systems to suppress all changes that might be harmful.

Competition between societies tended to favour those that were able to achieve greater adaptability and evolvability in this way. The result has been a potential for greater freedom for members of human society, and societies that are far more creative and innovative. As the capacity of rulers and governments for systemic modelling has improved, human societies have become more evolvable, not only because of the improved ability of management to adapt its controls, but also because it has allowed greater freedom of adaptation amongst the members of the society.

Improved ability to manage diversity and change also enabled governments and other rulers to establish the controls that have allowed large-scale economic markets to arise and flourish. At their heart, economic markets are made up of the same types of exchanges between individuals that underpin reciprocal altruism. An individual gives goods or services to another, and the other reciprocates with goods, services, or money of equivalent value. But the reciprocal altruism mechanism is incapable of establishing the types of exchanges that are essential to modern markets. As we have seen, reciprocal altruism cannot organise exchanges between individuals who are not known to each other and who may not deal with each other again. Rather than cooperate, strangers will pursue their own immediate interests by cheating in exchanges and by stealing. And without cooperative exchange between strangers, modern markets will not emerge.

So the reciprocal altruism mechanism was not responsible for the emergence of large-scale modern markets. Large-scale markets were made possible only by the existence of governments or other rulers. External managers could make market exchanges work by patching up the failings in the reciprocal altruism mechanism. They could do this by establishing a system of controls that prevented cheating and theft. Governments and other rulers typically developed laws and enforcement systems that punished cheating in exchanges, enforced contracts, and prevented theft by establishing enforceable property rights[5].

As we saw in the previous Chapter, systems of inculcated beliefs were also able to patch up the reciprocal altruism mechanism to some extent. But external governance was far more effective. It could implement controls across different cultural groups, and its superior evolvability enabled external governance to discover more effective controls. Importantly, governments were also much better at adapting the controls as individuals found ways around them and as circumstances changed. Without the superior ability of external managers to establish management controls, reciprocal economic exchanges in modern societies would be as limited as those found in tribal societies. Without governments or other rulers, the large-scale complex market systems we see today would not exist[6].

With appropriate management controls, economic markets are extraordinarily good at enabling the benefits of cooperation to be fully explored and exploited in some circumstances. This is because in these circumstances markets enable individuals to fully capture the benefit to others of their cooperative acts. How do markets achieve this? If an individual in an economic market can produce anything that benefits others, he will be able to exchange it for money. If the money exceeds the cost of production, both the producer and the consumer can end up in front from the exchange. The market mechanism creates the opportunity for individuals to benefit by satisfying the needs of others. Individuals can help themselves by helping others. Often they can pursue their own interests best by satisfying the interests of others. Where economic markets are effective, individuals can capture the benefits of cooperating with others. Individuals will treat the other as self.

In a market, individuals have an incentive to search for new ways in which they can satisfy the needs of others. The more innovative and creative they are at producing new goods and services that benefit others, the better off they will be themselves. If members of society have a particular need, a market system will reward the development and production of goods and services that satisfy that need. The market will call the goods and services into existence by making their production profitable.

Competition between producers tends to ensure that the needs of consumers will be satisfied in the cheapest way possible. In principle, any individual in the society can decide to make a particular good or deliver a particular service and try to do it more efficiently than existing producers. A producer who can find a way to manufacture an item more cheaply than his competition will be able to sell it at a lower price while making the same profit. He will increase his total profits as his share of the market expands. In a competitive market, a producer can capture the benefits of satisfying the needs of consumers more efficiently.

The market will organise an efficient division of labour. It does so because the market rewards producers whenever they specialise in ways that produce goods or services more efficiently. A market will also tend to match supply and demand. When demand from consumers for a good is higher than supply, producers can charge more and make higher profits. This will attract more production until supply and demand are in balance[7].

Individuals can participate directly in the market as individuals, or they can be organised cooperatively into firms. Firms are organised cooperatively by a manager in the same way as other cooperative groups. The management of the firm obtains power over employees by giving them wages in return for their submission to its authority. Management uses this authority to organise the individuals to cooperatively pursue the economic interests of the firm.

In summary, modern economic markets have an extraordinary ability to efficiently call into existence an enormous diversity of goods and services that are matched in type and quantity to the needs of the members of the society. And this ability is all a consequence of the capacity of markets to make cooperation pay. Within an economic market, an individual can capture the beneficial effects on others of many of his actions. It is in his interests to do things that benefit others. As a result, markets are able to harness the self-interest and creativity of individuals to produce benefits for all who have purchasing power in the market. Economic markets are one of the most effective ways that evolution has yet discovered to organise cooperation amongst self-interested components.

In this century in particular, markets have proven to be immensely more effective at organising efficient economic activity that the direct actions of government. Centrally-planned command economies such as those in the old Soviet bloc countries have been clearly inferior at satisfying the human needs that markets target. In a command economy, the government and its bureaucracy decides what types of goods and services will be produced and the quantities that will be made, and then organises their production. The inability of command economies to match production to the needs of members of the society was largely responsible for the recent collapse of the old Soviet system of governance.

Why are economic markets so superior to centrally-planned economies? Why cannot a government with all its resources and the ability to employ the brightest people work out the mix of products and services that will best satisfy the populace, and organise production efficiently? The answers to these questions are extremely important. They point to fundamental limitations in the ability of our current forms of government to effectively organise and adapt human society. These limitations impede the capacity of current governments to fully exploit the benefits of cooperation in human organisation, and point to the ways in which governance must evolve if humanity is to fulfil its evolutionary potential.

The most fundamental limitation of centrally-planned governance is that governments and other rulers will always lack the information needed to work out what sort of economic activities are best for the society[8]. A government would need an immense amount of knowledge to decide what range of goods and services would have to be produced to best satisfy the preferences of citizens. Imagine what you would need to know even to work out the quantities and types of shoes that would have to be produced in a complex society to match the diverse and changing needs and preferences of consumers. There is no way that central planners can ever collect the information needed to model a complex society with sufficient detail and accuracy to properly plan economic activity.

Markets do not share this limitation. They leave the final decisions about what goods and services will best match consumer needs in the hands of the only people who know those needs and preferences at any instant: the individual consumers[9]. In a market, producers initially try to work out what goods and services will best satisfy consumer needs and make the largest profits. But the market does not leave these decisions to producers with whatever information they can collect. Instead, through the pricing system the market continually feeds back to producers information about consumer preferences. If prices and profitability are high, the producer increases production. If they are low, the producer decreases production of those goods, and might produce alternative goods. The producers who match consumer preferences most closely and efficiently will generally make the highest profits.

It is important to recognise here that the market mechanism uses a standard change-and-test process to discover the mix of goods and services that will match consumer needs. Like central planners, producers never can know consumer preferences accurately, so they try out their best guesses when they make production decisions. These production decisions are tested by consumers. Production that does not match consumer preferences will be rejected, prices will fall, and production will be changed. This change-and-test process will continually search for the best match between production and consumer needs, and will adjust production to changes in the needs of consumers, the types of goods that can be made, and other circumstances change.

There are three important features of this change-and-test process that are worth noting. Firstly, the process is not internal to humans. It operates through the collective actions of individuals, just as the adaptive processes in our brains operate through the collective actions of cells. It is truly a supra-individual adaptive process. Secondly, the change-and-test process can solve the problem of how to match production to consumer needs even though no human involved in the process might know how to do this. The supra-individual adaptive process can get the right answer even if the producers who happen to be rewarded by the market for best matching the needs of consumers have done so by luck or accident. Like any trial-and-error process, it can get the right answer even if the trial-and-error is completely blind and ignorant.

Finally, the test in the change-and-test process is applied by consumers. It is the purchases made by individuals in a market that ultimately decide the quantity and nature of goods and services that are produced. Through the market mechanism, consumer preferences determine the profitability of each good and service, and thereby control its production.

So markets are much more effective than command economies at exploiting the benefits of cooperation in economic activities. They enable participants to capture the effects of their actions on others, as assessed by those who feel the effects. In contrast, in a command economy the effects of actions are assessed by central planners, who are in no position to judge them accurately. They do not know enough to organise the cooperative economic activities that best satisfy the needs and preferences of consumers. As a result, members of centrally-planned societies will often not capture the actual effects on others of their actions. Things they could do to satisfy the needs of others will not be profitable. The society will fail to fully exploit the potential benefits of cooperation.

The inability of governments to get the detailed information needed to run any complex activity also produces another fundamental limitation of government. A government or other ruler must employ a large bureaucracy if it is to attempt to run a complex system such as an economy. It will need the assistance of many individuals, each of who must develop detailed knowledge of some particular area of the complex system. The government or other ruler cannot accumulate by itself all the knowledge and skills needed to run the economy, and cannot physically do all the things necessary.

The challenge for the government is to get its bureaucracy to do what the government wants them to. It must align their interests with those of the society. If the government fails to do this, the bureaucrats will pursue their own personal interests at the expense of the society. In principle, the government can do this by rewarding bureaucratic work that serves its objectives, and punishing work that does not. But the government is in no position to do this effectively. To do so, it would have to know exactly what actions of the bureaucrats would benefit the system and what would not. The government would have to have a sufficiently detailed knowledge of the circumstances and issues being dealt with by each bureaucrat to independently work out and check what each should be doing. But it does not have this knowledge. If it did, it would not need the bureaucrats in the first place. 

It can try to get around this difficulty by developing multi-level bureaucratic hierarchies, with each level attempting to manage the level below to align its interests with the higher levels, and ultimately with the interests of government. But unless a level completely duplicates the work of the level below, it will never have the detailed knowledge necessary to fully and accurately evaluate the work of that level. Employees in bureaucracies always have more detailed work knowledge than their supervisors, unless their supervisors completely duplicate their work. And a level that completely duplicates the work of the level below would not solve this problem. The interests of the duplicating level would not be aligned with those of the government unless it was managed by a level that duplicates its work and knowledge, and so on.

As a result, bureaucracies employed by governments and other rulers are notoriously inefficient at carrying out the tasks set for them[10]. Members of bureaucracies can serve their own interests at the expense of the organisation. Without fear of being held to account by their superiors, they can avoid risk, avoid responsibility, hide behind rules even when the rules are ineffective, work inefficiently, and avoid difficult and demanding work. When they do these things, they can claim that they are doing their job efficiently. Their supervisors will generally not know enough detail about their work to show otherwise. As a result, individuals will not capture the effects of their actions on the objectives of the organisation.

Of course, the same problem applies to any large bureaucracy. The bureaucracies of large multi-national companies are as ridiculously incompetent as those of governments. Corporations spend a large amount of time and resources trying to overcome this problem. For example, they often try to convince their employees to embrace voluntarily values and a vision that will motivate them to act in the interests of the corporation. But most employees find it easier to appear to have internalised company values, rather than to actually do so.

Because governments are unable to align the interests of their bureaucracies with those of the society, the actions of governments and their bureaucracies will often be incompetent. In contrast, effective economic markets align the interests of producers and consumers. Producers capture the effects of their actions on consumers.

It is not only the interests of bureaucracies that are not aligned with those of the society. A further limitation of central planning by rulers is that often the interests of the rulers also do not coincide fully with those of the society they are managing. As we saw in Chapter 5, it will be broadly in the interests of a ruler and his associates (or a government and its supporters) to find better ways to promote cooperation in the society they manage. The greater the productivity of the society, the more the ruler and his associates can take from it. And if the ruler is completely dependent on the society for his future success, he can survive only to the extent he can make it competitive with other societies. The more the society is subject to continual and strong competition from other societies, the more the interests of the ruler and the society will be aligned. The competition will provide rapid feedback to the ruler about his management. If, for example, a ruler significantly increases the share of resources that are taken for consumption by associates of the ruler, he will reduce the competitiveness of the society. If the society is subject to continual and strong external competition, its future will be endangered. A ruler who ignores this feedback does so at his peril.

When human societies were small, numerous and continually competing with one another, competition provided rapid feedback to their rulers. But as human societies have increased in scale, competition has become more intermittent and often less intense. Empires have been able to escape strong competition for long periods of time. Whenever external competitive pressures are weaker, the alignment of interests between the ruler and the society is lessened, and the pursuit by the ruler of his interests may be inconsistent with the interests of the society. The ruler will no longer capture all the effects of his actions on the society. He can get away with using more of the resources of the society for the personal benefit of himself and his favoured associates. He can damage the effectiveness of the society by requiring citizens to work and behave in ways that benefit him rather than the citizens and the society. If external competition is weak, a government can get away with diverting more of the resources of the society to its close supporters and associates.

Weaker external competitive pressures also mean that a ruler who does not use his power competently can cause a lot more damage to the society before competition makes his continued rule impossible. The societies that were incompetently managed by Hitler and Stalin were eventually destroyed by competition. But their mismanagement caused enormous misery and suffering before competition ended their rule.

It is now widely accepted that markets are far superior to centrally-planned economies at producing efficient economic outcomes in many circumstances. We can thank the obvious failures of the communist command economies for proof of this. But before this evidence emerged, many economists and other thinkers found it very hard to recognise the superiority of markets[11]. They saw that if they accepted that government planning was inferior, they must also accept that the power of the human intellect is fundamentally limited. This is because economic planning involves the use of the human intellect in a standard and systematic way. Economic planners proceed by identifying the outputs wanted from an economic system, collecting the information and data needed to understand the system, and using this to work out the best way to intervene in the system to produce the desired outcomes. In general, this is the way we use our intellects to attack any complex problem. It is how humans have gone about attempting to conquer nature. Most of us think it is the best method for solving any complex problem, and it is what we think we do better than other organisms. But what many found very hard to accept is that this standard use of the human intellect is far less effective than a market system at solving the economic problem of matching production to consumer needs. The human mind is clearly inferior to market processes even though markets are not conscious and have no brain.

From where does the intelligence of the market come? As we saw earlier, the superior ability of the market to solve economic problems comes from its use of supra-individual change-and-test processes. These processes use trial-and-error in addition to the knowledge of participants to solve complex adaptive problems. Markets can solve economic problems even though they do not contain the knowledge to build a model that could be used to work out a solution. Change-and-test processes are particularly superior to mental models where there is insufficient knowledge to build an accurate model. Because of this, the best that humans can do to solve complex social problems where there is uncertainty and incomplete knowledge is to set up supra-individual change-and-test adaptive processes such as a market. The use of the intellect alone will fail, as central planners have demonstrated. In these circumstances, governments and other rulers have found that they can promote cooperation better by establishing markets than by direct intervention. Markets are better than calculated and planned interventions at ensuring that citizens can capture all the effects on others of their actions.

*                 *                 *                 *                 *

To summarise the main themes of this Chapter, external management by governments or other rulers has proven far more effective at organising human societies than internal management by inculcated beliefs. The evolvability of societies that are externally managed by rulers capable of systemic modelling is vastly superior. Human societies managed by governments or other rulers have been able to discover and establish far more complex and effective cooperation between their members, and to adapt their management as circumstances change. In the 10,000 years since external managers first emerged, their management ability has improved significantly. But governments and other rulers are still limited in their ability to directly organise cooperation. They lack the information to plan and implement the detailed interventions that would be necessary to ensure that members of the society always capture the effects on others of their actions. Governments lack the ability of economic markets to achieve this in many circumstances. The best way in which a government or other ruler can manage a society in these situations is to establish a system of controls that will enable economic market to emerge.

But markets have their own serious limitations. We will see in detail in the next Chapter that markets are not able to exploit the benefits of cooperation fully in all circumstances. In fact, in some situations they undermine and prevent effective cooperation. We will see that if a government or other ruler restricts its management to establishing the controls that enable markets to operate, the full evolutionary potential of the society and of most of its members will not be realised.

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[1].       See, for example, Johnson, A. W. (1987) The evolution of human societies: from foraging group to agrarian state. Stanford, California: Stanford University Press.

[2].       Stewart, J. E. (1995) Metaevolution. Journal of Social and Evolutionary Systems 18: 113-147.

[3].       Stewart, J. E. (1997) Evolutionary Progress. Journal of Social and Evolutionary Systems 20: 335-362.

[4].       The ability of cultural norms and religious beliefs to facilitate cooperative economic organisation is discussed in detail by North, D. C. (1990) Institutions, institutional change and economic performance. New York: Cambridge University Press.

[5].       It is worth noting here that what I refer to as the management of a society includes most of what economists refer to as ‘institutions’. They are the controls that constrain how members of the society can pursue their interests.

[6].       The evolution and emergence of market systems is dealt with by North, D. C. (1991) Institutions. Journal of Economic Perspectives 5: 97-112.

[7].       See, for example, Eidem, R. and S. Viotti (1978) Economic Systems. Oxford: Martin Robertson and Co.

[8].       See Hayek, F. A. (1948) Individualism and Economic Order. Chicago: University of Chicago Press.

[9].       The way in which consumers provide the selective environment for the activities of producers is set out particularly clearly in the work of evolutionary economists. See, for example, Nelson, R. and S. Winter (1982) An evolutionary theory of economic change. Cambridge: Cambridge University Press.

[10].     For a fuller discussion of the limitations of bureaucratic organisation see March, J. G. and H. A. Simon. (1971) The dysfunctions of bureaucracy. In Organisation theory, (Pugh, D. S. ed.) pp 30-42. Harmondsworth: Penguin Education.

[11].     See, for example, Ritschel, D. (1997) The Politics of Planning: The Debate on Economic Planning in Britain in the 1930s. (Oxford Historical Monographs) Oxford: Clarendon Press.

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