I was in business as an employee for fifteen years before I began to be a student of it. It started when I went into business for myself. That was twenty three years ago. It’s amazing how interesting even the most mundane elements of business can become when you’re betting all of your own assets on the outcome. I realized at the time of my entrepreneurial launch that I needed to learn a lot more than I knew, so I read about small business management, subscribed to the Harvard Business Review, started reading books that would have never made it to the nightstand had I not taken the leap, went to seminars and conferences, etc.
At some point in my explorations, I came across the name of Adam Smith. I finally read the book he wrote which founded modern economic theory, The Wealth of Nations. It is from Smith that we have the phrase, “the invisible hand”, which is to infer the unseen and often mysterious dynamics of market-driven economic systems.
Smith was apparently a strong advocate of laissez-faire economic structures, allowing the consumer to determine the outcome of a market, rather than government or producer-led determinants. If Smith were to examine our current economic system, I think he would say that producers and government have acted in concert over the last few decades (at least) to transfer wealth to the producers rather than to the consumers. We see many indicators of this trend. For example, 80% of the U.S. population experienced reductions in real income, adjusted for inflation, over the last twenty years or so. The number of people making up the “middle class” has been shrinking since 1973, as a proportion of the population. While our home ownership rate has increased to about 65%, our net assets have shrunk, reflecting the volatility of home prices and the negative savings rate (until 2009). Many of us have our names on the title, but it’s really the bank who owns the property. During these same years, corporate productivity and profits have increased, with investments, mergers and acquisitions occurring at a higher rate, resulting in a good deal of the profits from the productivity gains going to a smaller fraction of the population.
These trends are problematic, in terms of the impact on longer-term social stability of our country, and some would argue, of the world. The transition period from a hydrocarbon-based energy structure to whatever will be next is going to further contribute to that instability. With these changes as backdrop to the story, how will our global “invisible hand” guide the plot?
Enter the mind of Michael Shermer, founder of the International Skeptics Society, publisher of Skeptic magazine, and a regular columnist for Scientific American. His most recent book, The Mind of the Market, is a fascinating treatise on the nature of our economic system, combining classic economic theory, anthropology and evolutionary biology. As a student of business, I immediately was drawn to his approach to the subject. He makes no apology for being a flaming free-market proponent. His brief history of taxation in the United States is enough by itself to convert even tax-and-spend “liberals”. But of most interest is his ability to take the lessons learned through study of the human species over the millennia since our arrival and apply them to the behaviors he sees as we sophisticated, advanced beings apply all of our prodigious technological ability to achieve objectives that are identical to those humans held 100,000 years ago when we lived in small bands of hunter-gather clans.
One of Shermer’s main points is that we (humans) developed our behavioral habits around competition and collaboration over many tens of thousands of years. These traits have been reinforced through their success in procreation, establishing the genetic legacy that has brought us to our current moment in time. Prior to the very recent advent of cheap energy creation, collaboration was more important than competition, to ensure the survival of the clans. Shermer also describes interesting parallel behaviors in the higher primates and even in Pandas. He then proceeds to show how these traits are exhibited in various forms of government, and various economic systems. He makes a strong case for allowing the buyer to decide, advocating much less government intervention and especially less government support of producer interests, termed “mercantilism”, in the parlance of economic theory.
I highly recommend The Mind of the Market to those of you who consider yourselves not only business professionals, but students of business. Because if we don’t understand the “invisible hand”, we won’t see the smack upside the head coming.