Rationality, evolution, and acquisitiveness.

Demsetz, Harold

A classic article has "staying power" and impact. Alchian's 1950 article "Uncertainty, Evolution, and Economic Theory" has plenty of both, and there is no need to extol its obvious virtues. Yet, I am sure that Alchian would find things to modify in this article were he to rewrite it today, some forty-five years after its publication. One task I set for myself here is to supply some food for thought should Alchian be tempted to engage in a rewrite. I also discuss arguments and concepts put forth by other economists whose writings have influenced perceptions about rationality and evolution, thus moving the discussion beyond the limits of Alchian's article. The meaning of rational economic behavior is discussed next. Finally, I explore how rational behavior might be a product of evolution.

The notion of evolution as the shaper of economic institutions has been a minor theme in economics for two centuries. It is present in the works of Malthus and Smith, whose writings later influenced Darwin, Marx, and Schumpeter. The evolution theme even played a role in the late nineteenth century policy debates about the Sherman Antitrust Act. Many of the leading economists of that time, particularly those who helped to create the American Economics Association, opposed the Sherman Act. One of the more important economists, John Bates Clark, who was not among those most enamored with evolutionary concepts, wrote:

Combinations have their roots in the nature of social industry and are normal in their origin, their development, and their practical working. They are neither to be depressed by scientists nor suppressed by legislators. They are the result of an evolution, and are the happy outcome of a competition so abnormal that the continuance of it would have meant widespread ruin. A successful attempt to suppress them by law would involve the reversion of industrial systems to a cast-off type, the renewal of abuses from which society has escaped by a step in development.(1)

Clark's negative view of the efficacy of an antitrust law, shared by many leading economists of the time, had little influence on legislative matters. The Sherman Act became law.

These earlier references by economists to evolution are mainly casual and superficial, and in this respect they do not anticipate and are no substitute for Alchian's discussion. Alchian's unique contributions were to use evolution analytically in a model of economic behavior and to offer it as a substitute for rationality. Alchian's critique of the presumption that economic behavior is to be explained by rational action, which means profit maximization in the case of the firm of neoclassical theory, constitutes a fundamental challenge to one of orthodoxy's cherished principles. Section I of the present paper discusses the difficulties in analyzing economic behavior without recourse to rationality, and it illustrates these by reference to Alchian's article.

I.

Four major themes run through "Uncertainty, Evolution and Economic Theory." The first is the difficulty that uncertainty creates for the neoclassical assumption that businessmen maximize profit, or, to put this more broadly, the difficulty that uncertainty creates for the rational behavior assumption. The second is that there is a process at work - natural selection - that determines which business decisions lead to viable outcomes and which do not. I take for granted and do not discuss the proposition that a natural selection process is at work. The third theme relates to the particular filter that is used by the evolutionary process when it comes to business decisions; the filter that Alchian puts in place is the test of whether decisions result in positive profit. The fourth theme is that decisions that survive this filter are disseminated through the economy by the imitative efforts of other firms.

The difficulty in behaving rationally (and irrationally also). Knight [1921] was the first prominent economist to attack the notion that all or that most economic decisions are guided by rational calculation. Simon [1947; 1957; 1959] launched his attack at about the same time as Alchian. Although all three take roughly the same position in regard to the limits of rationality, they differ somewhat as to the source of these limits.

Knight rejects rational behavior if decisions must be made under conditions of uncertainty, which he distinguishes from conditions of risk. To a large extent, he denies the ability to calculate rationally if experience relevant to the decision problem is absent. With sufficient experience, probability distributions can be inferred, and these can be, and are, used to cope with risk through rational calculation (as in the provision of insurance). Failure of rationality, then, is a reflection of the paucity of experience. Alchian rejects rational behavior on the basis of similar reasoning, but his rejection seems to extend even into conditions that Knight would describe as risk rather than as uncertainty. To Alchian, a major obstacle to rational maximizing is the lack of a one-to-one correspondence between decision and outcome; two different decisions can lead to the same outcome, although possibly with differing probabilities, so how can one decision, but not the other, be identified as rational maximizing? However, both Knight and Alchian stress inadequacies of available information. Simon's rejection is based on inadequacies of the human mind. The mind possesses only a limited capacity for understanding complex relationships and for handling large masses of data. Decisions cannot be made on the basis of rational calculation if they require mental capabilities beyond this limit. The differences between these views are fairly obvious, but the three are similar in that all cite the difficulty of making rational calculations in a world in which information is imperfect.

However, rejecting rational calculation leads to another problem. If we do not decide rationally, how do we decide? One might think the answer should be that we decide erratically or, perhaps, randomly, but this is not the answer given by these three economists. Simon substitutes "satisficing" - a decision criterion that accepts the desirability of settling for something less than the best and better than some lower bound - for maximizing. Since Simon is very much concerned about our mental limitations, he presumably believes, but does not demonstrate, that satisficing makes fewer mental demands than does maximizing. Knight does not comment much on substitute methods of making decisions, but he clearly sensed a problem here for he briefly describes his belief about the manner in which businessmen, facing uncertainty, decide on their investments. He asserts the presence of a psychological tendency for overly optimistic estimates of the likely outcomes of their investments. Optimism leads to more investment than is needed, leading, on average, to negative returns and lower product prices.

Neoclassical theory uses maximization to guide its deductions because this seems a sensible or desirable decision criterion, but this criterion seems to spring willy-nilly from within the mind. The same is true for satisficing, optimism, pessimism, etc. It seems that Simon's satisficing criterion is chosen voluntarily by persons whose decisions are being frustrated by the limited capabilities of their minds. Knight's optimism is a starkly ad hoc psychological quirk. All these criteria suffer from the absence of a more basic explanation for their existence and survival in the psyche, and the same is true for maximization. Alchian looks not to the inner workings of the mind but to evolution for the criterion that determines the viability of business decisions, or at least so it seems. This criterion is whether businesses realize a positive profit from their decisions. Neoclassical theory, like Alchian's criterion, while it holds to maximization of profit by businessmen also requires the realized maximum to be positive if business activities are to meet the market test. In this respect, Alchian's selection criterion seems a quite easy extension from economic theory. But this is not so.

The positive profit criterion. Positive profit is an appealing evolutionary filter. Firms experiencing positive profit on a continuing basis usually survive; firms experiencing continuing losses usually fail, or they are reorganized. But these facts are also consistent with rational behavior. In fact, it is rational behavior that lies behind neoclassical theory's reliance on a non-negative profit to define equilibrium. Alchian cannot rely on neoclassical theory to buttress his choice of the positive profit criterion, for he is arguing against the use of a rational behavior postulate. He proposes positive profit as a survival filter that natural selection, not rational behavior, applies to business decisions. To distinguish positive profit from maximum profit in this way requires that its source should be different from rational pursuit of ends. Positive-profit criterion, like ice ages, must be part of the environment in which business decisions are made. Alchian's objection to profit maximization, it must be remembered, is based on our inability to link business decisions to outcomes. Positive profit in Alchian's argument, therefore, cannot be predictively forward looking. If it were, he would be justified in presuming that business decisions can be linked to profit outcomes, or, at least, to the algebraic sign of these outcomes. To satisfy Alchian's needs, positive profit must be to business decisions as the ice age was to the survival of species. The positive-profit criterion must be external to our decisions; its application must not rely on human calculation if we are to avoid relying on rational behavior indirectly. From this perspective, positive profit is simply an ex post fact the occurrence of which leads to the survival of a firm, much as ice age temperature led to the survival of only some animals. Unfortunately, the demonstration of this independence is lacking, and, on consideration, it seems very difficult to supply.

Positive profit clearly is not independent of thought processes. Profit is itself a result of conscious calculation, and positive profit is a filtering criterion that we choose to impose on ourselves. If positive profit is to have meaning, there must be some reason to think our calculation methods are at least roughly accurate and that positive profit is not being confused with negative profit. That is, we must think that these methods taken in their entirety make sense, and if they do not make sense we no longer know what is accomplished by a natural selection filter that relies on calculations of positive profit.

That positive profit is not exogenous to the economic system, and that it is not a necessary criterion of success, is suggested by the soft budget constraints and subsidies that have characterized socialist economies and to a lesser extent our own also. Despite negative profit, socialist firms of all types continue to survive, and so does our own Continental Bank and Chrysler Corporation. Positive profit, therefore, is not necessary to survival, nor is its application independent of conscious thought, whether rational or irrational. Subsidies might be treated as just another source of revenue, one that converts loss and prospective failure into profit and survival, but this would make the positive profit filter much too tautological since any method of survival can be interpreted as a source of revenue. Alchian's discussion makes it clear that he means business profit to depend on voluntary exchange across markets. The firm receives revenue from customers or financial market creditors. If this revenue is less than the firm's cost, loss results.

But why does loss imply business failure? Is it because consumers are unwilling to pay more for the same quantity of purchases? Is it because the legal system bars the firm from using violent means to obtain resources? Is it because suppliers of inputs refuse to take less for their inputs? Is it because lenders refuse to make capital available to a firm whose prospects are not promising? Is it because creditors can shut down the firm or reorganize it? All these are reasons for the firm to fail if profit is negative, but all of them suggest a dependency on rational calculations made by consumers and suppliers of inputs.

The failure of a firm is brought about by the reaction of creditors to losses they bear. This reaction makes sense only if the firm's history of losses can be used to predict its future. If a firm that suffers a series of losses is thought to be just as likely to enjoy great profit in the future as a firm that has a record of rising profits, creditors have no more reason to refuse to lend to the first firm than to the second. A reliable system of forecasting future profit on the basis of past profit is implied, and this suggests, of all things, the possibility that rational behavior is at work. If there were no reliable forecasting system, lenders would be as likely to recapture their capital and realize a profit from funds provided to firms with a record of negative profit as from funds provided to firms with a record of positive profit. The positive-profit filter seems to require rejection of the very condition that made it appeal to Alchian, this condition being our asserted inability to map today's decisions into probabilistically reliable forecasts of tomorrow's outcomes.

If lenders pay no heed to the past profit of potential borrowers and if consumers are quite willing to purchase randomly from firms - one way to interpret irrational behavior - there is no compelling reason for firm survival to be associated with positive profit. Survival would be random. Suppose survival is not random but accords with the pattern that is described by Alchian's use of the positive profit filter. If we wish to use this fact to deny the relevance of rational behavior, we are obligated to explain the source of this filter in terms not easily tied to rational calculation. This, we have just seen, is difficult to do.

Even if such an explanation could be given, the positive-profit criterion would not seem capable of explaining survival as well as another criterion that requires no more, or only a little more, information. A survey of business firm profits is necessary to determine which firms enjoy positive profit and which do not, but this reveals a profit ranking or, with slightly more information, a rate-of-return ranking. Why not assume that the filter natural selection applies to the economic system associates a higher probability of survival with a higher rate-of-return ranking? Just as thicker skin increased the probability of surviving the ice age, so a higher profit rate increases the probability of surviving the competitive age. This criterion brings the natural selection filter closer to that of profit maximization, but without requiring, as pure maximization would seem to require, that there is a comparison of all possible opportunities. Moreover, it would be consistent with the factually greater willingness of lenders to favor higher rate-of-return firms. Of course, a criterion based on relative profit (rates) smacks much more of rational calculation.

Irrationality and budget constraints. The appeal of the positive-profit criterion to Alchian undoubtedly is related to the notion of feasibility or of the need to satisfy budget constraints. A firm that has earned a positive profit finds its resources undiminished by its past activity and available for use in the next period. A firm that has suffered a loss has diminished the resources available to it during the next period. Carried to an extreme with a string of negative profits, and coupled to requirements that lenders of capital lend only to positive-profit firms, the negative-profit firm cannot continue at the same level of activity because to do so requires more resources than it possesses.

A later analysis by Becker [1962] of the relationship between price and quantity is similar to this view of the problem, but it is based quite explicitly on the role of budget constraints. Becker demonstrates that budget constraints imply a negative relationship between a good's price and the quantity of it that is sold even if buying behavior is not rational. In his analysis, the budget constraint divides the choice set into the possible and the impossible. He shows that if product prices are allowed to vary, consumer purchases change in accordance with the law of negatively sloped demand. This happens because at least some consumers of the good whose price has risen relatively will find it impossible to purchase as many units as they could have if the price had not risen, even if their purchase intents are determined randomly rather than rationally. It is a well-drawn demonstration of the power of budget constraints. Yet, for reasons similar to those brought to bear above on the positive-profit criterion, it is not fully convincing as a demonstration of the redundancy of rational behavior in our models. Whence the budget constraint? That there is a budget constraint seems to require rational decisions by others. Goods are not made available by others to those who cannot pay for them; funds to buy these goods are not made available by lenders. The people behind the budget constraint behave as if they husband their resources. Without this behavior, budget constraints lack meaning as long as wealth exists in the community.

These aspects of the budget constraint reflect social interactions. Becker's analysis would seem to be independent of rational behavior in an economy like that of Robinson Crusoe, in which the operability of the budget constraint derives not from the decisions of others but directly from the limits set by real resource availability. Alter the mix of resources and some previously exercisable opportunities are no longer possible. But this establishes only a pseudo law of negatively sloped demand. The statistical relationship between opportunities exercised and the relative supplies of inputs, although it conforms in appearance to what one would expect from the law of negatively sloped demand, is in fact only the appearance. It reflects only the impossibility of doing that which nature does not allow to be done. The law of negatively sloped demand is more than a demonstration of this. It is also a claim that all who purchase a good will purchase less of it if its price is raised, even though nothing bars them from purchasing more of the good by doing with less of other goods.(2) This proposition will be violated by Becker's example of random purchases, since some random (irrational) purchasers do buy more of the good whose price has risen. It is only the total of purchases that must fall because of operable budget constraints.(3)

Alchian's and Becker's arguments do suggest that patterns of observations that we explain in terms of rational behavior can also result from behavior that is not rational. However, as imaginative and informative as these arguments are, they cannot be sustained in full without appealing to rationality or without introducing a natural selection explanation that remedies the shortcomings of their present arguments. As they stand, rational behavior seems to be at work below the surface of their analyses. Consider, for example, Alchian's reliance on imitation to propagate success.

Propagation through imitation. The firm is not a biological organism. It does not mate with another firm and sexually breed biological offspring. A firm that experiences positive profit might grow; it might even spin off parts that follow the very practices that made the "parent" firm a positive-profit firm (Nelson and Winter [1982]). To some extent, through processes such as these, we might predict a slowly increasing sphere of influence for business practices that happen to have worked well. But there are limits to the rate at which a firm can grow efficiently (Penrose [1959]; Marris, [1974]). More important, we know factually that the sphere of influence for successful practices is extended more rapidly than it could be through internal growth only, and that this is accomplished primarily through imitation by rivals. The growth in fast food retailing was achieved not just by MacDonald's growth, as rapid as this was, but by the imitation of MacDonald's methods and organization by rival chains.

Alchian recognizes the importance of imitation and relies upon it to spread successful business practices. However, imitation, like positive profit, is difficult to disassociate from behavior that at least appears rational. Conscious and generally correct forecasting is involved. Past success must be separated from past failure, projections from these past histories must be made and must be correct on average, and successful histories must be imitated more often than unsuccessful histories. If imitation were guided by randomly exercised choice, both unsuccessful and successful business practices would be adopted. The rush of resources into profitable markets and out of unprofitable markets, which we know to happen, cannot be explained by random choice. If imitation is to lead to adoption of successful and rejection of unsuccessful variants, there must be some predictive value to the projections made from past records. Imitation, in extending the sphere of influence of successful variants, depends on rationality-supporting conditions.

II.

To this point, I have argued that it is difficult to give meaning to natural selection for economic actions without placing some reliance on rationality. Far from being an alternative to natural selection, rationality may be a product of natural selection, but let us begin this section simply by assuming as fact that we behave rationally. To understand the economic consequences of this fact, it is necessary to have some agreement as to what we mean by rational behavior and about the goals this behavior is expected to pursue. The meaning of rational behavior is discussed here. Goals are discussed in the last part of this paper.

Defining rational behavior. There is a clear difference between the rationality implicit in positive economic theory and that gleaned from the axioms of choice that are used to buttress utility theory (e.g., completeness of ordering, continuity of choice alternatives, independence from irrelevant alternatives, and transitivity). Positive economic theory links decisions to the service of our goals, and it uses rational behavior to instruct us about the nature of the linkage. The monopolist's output rate is set so that marginal revenue equals marginal cost because he seeks maximum profit. The axioms of choice, in contrast, do not depend at all on goal fulfillment. Consider that these axioms can be satisfied by a Roman general whose battle decisions are made on the basis of the pattern taken by a slaughtered chicken's entrails. Pattern one is judged to forecast a better chance of winning, pattern two a somewhat slimmer chance, and pattern three not much chance at all. His choice psychology is transitive if his preference of one over two and two over three leads him to prefer one over three, yet he may be defeated as many times as he wins by following signals he deciphers from these entrails. The problem here may be a belief in "superstition" or it may be in a failure to measure correctly the correlation between the shape of entrails and the winning of battles, but either deficiency is consistent with the notion that the rationality of decision rules cannot be determined only by their consistency with the axioms of choice. Let there be two rules of decision making. The first satisfactorily achieves results but sometimes violates transitivity. The second seldom achieves desired results but never violates transitivity. Which rule should, or does, a rational person prefer?

The ability of a rule to deliver results depends in part on its internal logic, but only in part. Good results depend also on whether a rule is well suited to the conditions under which it must be applied. A rule for making decisions that yield desired outcomes in a world populated by persons of good will may not work well in a world populated by persons deeply suspicious of each other. Moreover, if we are to rely on rationality to understand economic outcomes, we must have some notion about the goals that guide its application. Many more people would be living the life of a monk if perfection of the ascetic side of our lives was of utmost importance to us.

Precondition for behaving rationally. Goal-oriented decision rules rely on the existence of many stable correlations between events. If these correlations change through time, they should change slowly. Without steadiness over time in at least some of the relationships between natural events it becomes impossible to devise useful rules of decision making. Because rain tends repeatedly to come in the spring, and because dampness repeatedly results in the sprouting of seeds, patterns in the occurrence of these events can be observed and learned and useful rules of farming can be devised. What I mean by rationality is the ability to recognize patterns in worldly phenomena, to project the conditions that govern these patterns into the future, and to select patterns and extrapolations from these that help to achieve desired goals. Assertedly, business decisions conform with this notion of rationality.

To the extent that reasoning ability of this sort is influenced by genetic endowment, it is plausible to think of our current state of intelligence as a product of natural selection. Intelligence experts believe that the variability in intelligence that is explained by genetic differences is between 40 and 80 percent, with the remainder of variation being explained by such things as family and cultural environment. Thus, natural selection is indirectly at work in filtering business decisions, and the criterion it has evolved might depend very much on rationality as described above. Projections of expected profit and risk of profit are made on the basis of past experience with correlation patterns. From the limited choice sample these provide, the best profit-risk combination is chosen, and persons who supply additional resources to the firm will be influenced in making their supply decisions by their projections of the results they expect to realize. This is not simply profit maximization because risk matters and because not all possible profit-risk combinations are contained in our experiences. It is the best of what is available on the basis of a profit-risk tradeoff. Expectations seldom are confirmed exactly. Different decisions may yield the same results. These realities do not undermine a claim that businessmen rely heavily on rational thought processes. However, even if such behavior were both plausible and reflective of natural selection, it would not carry us very far in understanding economic outcomes. Two types of issues arise. First, why is reasoning power devoted to the extent that it is to improving our material well-being? Our rationality could be, and is to some extent, directed to serve purposes other than improvement in our material well-being. If we are to understand rational behavior, we must be able to draw conclusions about the directions in which our preferences will guide our choices and actions. Secondly, why do we not observe much, if any, improvement through time in the reasoning power of other species? Most other species have existed over an evolutionary time span much greater than humans, yet no other species seems to have developed reasoning power equal to that which is characteristic of humans. From the ameba to the chimpanzee, survival seems to depend largely on characteristics very different from reasoning power (as defined here). Progress in answering these questions requires that we delve into the nature of our preferences or goals.(4,5)

III.

Economic theory avoids the task of describing or explaining the goals we pursue, and, instead, to a large extent, it takes goals as unspecified givens. Theory allows us to discuss the tradeoff between apples and oranges or between income and leisure because it presumes these are utility conferring goods and activities, but it gives no justification for the presumption. Even so, economic theory allows us to understand economic behavior without explicit justification of the goals it assumes. This is because economists think rationally (as defined above). We implicitly use recurring patterns of behavior to infer plausible goals. Apples are a good because we take the fact of repeated past purchases of apples as evidence of this. In its practical application to the details of economic behavior this implicitly empirical procedure works quite well, so that an explicit analysis of human wants is not needed. There is good reason to avoid saying more about our wants than can be inferred from our past behavior, for theory offers no economics-based explanation for why we want some things and not others.(6) The explanation is to be found in a combination of medical facts (apple consumption provides needed nutrients) and natural selection theory (taste patterns influence survival probabilities and reflect natural selection).

The acquisitive species. The same technique for inferring our preferences can be applied to a more general description of our proclivities. What it reveals is that we are an acquisitive species. We prefer more (generalized) wealth to less. This is similar to the notion of insatiability of wants that we employ in theory, but it is not exactly the same. Not much, if any, evidence is given, or even could be given, to support the notion that our wants are insatiable. In fact, people often behave as if their wants are, or have been, satiated (e.g., "I cannot eat even one more slice of pizza"). This fact is obscured by our tendency to use insatiability tautologically. Thus, altruistic behavior is not interpreted as a violation of insatiability but, rather, as evidence that helping others confers positive utility on us. People retire early and earn less than they could, but this is not a problem for insatiability because we allow leisure to enter positively into our utility functions. But if we are to interpret behavior in this way, honesty would seem to require us to substitute the notion that we behave with "purpose" for the notion that our wants are "insatiable." Rather than being a description of our wants, our use of insatiability makes it a description of the choice situations we seek to analyze. These are situations in which resources are too meager to meet the demands for them that would be brought forth with a zero price. The fact that some goods or resources are superabundant (i.e., free) is not used to refute the insatiability of our wants. It is used to delineate the situations we wish to study, those for which the price system is the allocator of resources.

Here, I wish to use acquisitiveness in a less tautological way than we use insatiability. Acquisitiveness means not only a preference for more wealth (for self, family, and friends) over less. It also means the realization that more wealth can be had. Generalized wealth, of course, means command over goods. Which items enter our utility functions positively (goods) and which negatively (bads) depends partly on available supplies and partly on exogenous considerations, including natural selection among the latter. Acquisitiveness can be cast into a specific proposition such as "the typical person in each generation seeks wealth greater than that enjoyed by the typical person in the prior generation" and even that he seeks this increment to wealth "if securing it requires him to work somewhat harder than did the typical person in the prior generation." Acquisitiveness is thus described by wealth comparisons through time as "wanting more and realizing that more can be had." My claim is that the typical person believes that an increase in wealth is desirable (our preference) and possible (our understanding of "nature"). Not everyone's wants, at all times, are acquisitive in this sense, or, if they are, not everyone is capable, at all times, of acquiring more wealth, but acquisitiveness in this sense is a valid description of our perceptions for a large fraction of the world's population. It is not tautological, however. There can be ascetics. More importantly, acquisitiveness may not be an equally strong characteristic of people who live in different cultures, and it is difficult to say if a society's culture reflects the particular perceptions of its people or if these preferences are shaped by the society's culture. As I shall argue below, acquisitiveness does not seem to be a characteristic that is as strong in other animals as it is in the human.

Although acquisitiveness is not tautological, analyzing economic activity in ways that reveal its presence is not always easy. As an example of this difficulty consider the behavior of parents and children in Becker's [1976] discussion of altruistic behavior toward parents by a "rotten kid." A selfish child finds it in his interest to behave "altruistically" toward his parents, taking some of his own wealth and giving it to his parents. The parents reciprocate by leaving their estate to the child. This transpires despite the essential selfishness of the child because of an empirical assumption that the parents are able to make much better use of funds than is the child. A sacrifice today by the child results in an increase in his parents' wealth that is larger than the sacrifice, so that when the child receives his inheritance he has made a very good return on his investment. His parents reciprocate his "altruistic" donation of wealth by designating the child as their heir, and it is in their interest to do so in order to secure the donation that they can convert into a sum much greater. The seemingly altruistic actions of child and parents simply reflect an implicit contract from which both parties gain, such gain coming from the investment skills of the parents. The egocentric ends of all parties are served, and the same "deal" could have been struck just as well between strangers. Yet, what is essentially acquisitive behavior is hidden behind a cloak of seeming altruism.(7)

No carefully devised empirical test of our acquisitive propensity is offered here, but there is evidence consistent with its existence as a prevailing force. This is found in the long-term trend in living standards experienced by Western industrialized nations over the last two or three centuries, and there has been an accompanying broadening of this phenomenon through much of the world's population.

Evidence of acquisitiveness is not equally strong for any other species, even though much of what individuals in these species do is purposeful. Taking in nourishment, mating, and protecting territory, for example, seem purposeful, and they serve the self-interests of individual members of these species insofar as we or natural selection have defined self interest. Nonetheless, this behavior is not acquisitiveness or, at best, it is very weak acquisitiveness. No persistent trend of improvement in wealth has been exhibited by other species. Natural conditions good enough to stave off starvation, to mate, and to defend against attack do not seem to whet appetites for still higher living standards but simply seem to satisfy each generation. Squirrels do not behave as if they want much more than a supply of nuts ample to attract and support a mate and to feed offspring. We do not observe wealth accumulation beyond these amounts even when external conditions are good enough to permit such accumulation. The absence of confirming behavior for other species may be due to a true lack of concern about accumulating more than very limited amounts of wealth (a question of goals), or it may be due to an inability to understand past correlations and to execute forward looking plans or devise solution institutions based on these correlations (questions of intelligence and rationality).(8)

One may argue that animals in other species do want more, but populations always rise to Malthusian limits and undermine growth in living standards. But this happens either because there is no willingness to accept fewer offspring or because there is insufficient reasoning power to develop rules of behavior suited to the goal of material improvement. Dogs simply refuse to inventory more than a few bones no matter how many you throw at them, and they see no value in staying behind their owners' fences when the season attracts them to the opposite sex. The human species, or a large percentage thereof, is unique in its penchant for birth control. Birth rates are deliberately held below biologically feasible limits even when resources are ample to support these limits biologically. No doubt there are many life-style motivations for this, but important among these is a desire to maintain or increase personal and family wealth.(9)

The very possession of wealth, as distinct from the act of acquiring wealth, has a net beneficial effect on the probability of surviving. Wealth, health, and longevity are positively correlated. Although good health and long life do facilitate the accumulation of wealth, the primary direction of causation surely is the reverse. Whether or not acquisitiveness is genetic, a significant part of reasoning power does seem to be inherited. This allows acquisitiveness to influence the outcome of natural selection. Assume two persons that possess different powers to reason. Both are acquisitive, but the person with superior reasoning power is more successful in acquiring wealth. This greater wealth confers a higher probability of surviving on the person possessed of genetically superior reasoning power, implying that acquisitiveness facilitates a more rapid breeding of intelligence into the human species. The strength of this effect is open to debate.

Other links between intelligence and probability of survival surely exist, but these must be preferential to humans if we are to use them to explain a seemingly rapid (by comparison to other species) increase in our reasoning power. A link between intelligence and survival like that which obviously exists when it comes to defending one's self and fending off dangers does not easily satisfy this requirement, since it is a link that should be present in all species. Acquisitiveness seems both to promote the selection of intelligence (through its health and defense implications) and to be especially strong in humans. I do not argue that acquisitiveness is itself inherited, although it may be, only that it is and has been a characteristic of the preference pattern of a large part of human populations. Under property-right conditions similar to those devised in Western civilizations, persons have been able to accumulate wealth through generations. The social or cultural ability to do so, when linked to positive correlations between intelligence and wealth accumulation, on the one hand, and between survivability and wealth accumulation on the other hand, should have encouraged a more rapid selection of reasoning power, and the force of this should have been at its strongest during periods when wealth was insufficient to pull large fractions of population through the child-bearing years. Societies that have not devised similar institutions for encouraging or tolerating wealth accumulation in large fractions of their populations will not have benefited from this source of accelerated evolution in intelligence. Other sources for such improvement may exist, but unless they correlate negatively with Western property-right institutions, the absence of these institutions places a special burden on rapid improvement in reasoning power.(10)

1. Quotation taken from "The Limits of Competition" by J. B. Clark as reprinted in The Modern Distributive Process (1888).

2. This of course assumes that preference systems remain unchanged and that we are not dealing with Giffen paradox goods. Becker's analysis is consistent with these assumptions.

3. For a different type of objection to Becker's analysis, see Kirzner [1963]. Also note Becker's rejoinder [1963].

4. The current vogue among students of animal behavior is to call attention to the cognitive abilities of "lower" animals. This provides evidence of continuity of development of these abilities from lower to higher life forms. However, the discovery of a chimpanzee's use of a tree branch as a tool by which to secure food, while demonstrating that humans are not unique in the use of tools, also demonstrates, by virtue of the length of time it has taken to make this discovery and the apparent absence of (many) other examples in the totality of chimpanzee behavior, that there is a considerable difference between the degree of reliance placed on rational thought processes by humans and by chimps.

5. If we were to probe the relationship between rational behavior and natural selection, it would be necessary to give a large role to imperfect information. That inheritable aspects of superior reasoning have a greater probability of surviving, other things equal, is due to imperfect information. Limited knowledge cannot be used effectively by those possessing poor reasoning power. So, over time, in a variety of interactions between persons possessed of different reasoning competence and, much more important, in a variety of interactions between persons and nature, those with superior reasoning ability will fare better. The natural selection of superior rationality is made possible because of, not in spite of, imperfect knowledge. Ironically, the very condition that Knight, Simon, and Alchian use in different ways to limit the role of rational behavior, imperfect knowledge, is one source of evolution-related improvements in reasoning power.

6. This is not quite true. Once apples are empirically determined to enter our utility function positively, we can show that some conditions, such as those that pertain to age and income, may increase or decrease the utility value we place on apples (Stigler and Becker [1977].

7. Other examples of seemingly altruistic behavior may be given. Tit-for-tat negotiating strategies overcome problems facing persons locked into a prisoner's dilemma, but they work because they yield a mutual net gain to the interacting parties, given the underlying assumptions of tit-for-tat models. The voluntary acceptance of an increased probability of death in order to reduce the probability of death of one's blood relatives is another example. Since 50 percent of a child's genes are identical to those carried by one of his parents, the probability that this strain of genes will be perpetuated by this seemingly altruistic behavior is increased if the probability of death of the parent who puts herself or himself in harm's way is increased by less than half the reduction in the probability of death that results for the child. From the perspective of this paper, the proper classification of these actions is egocentric, not altruistic.

8. The skeptic who is well informed in biological matters will point to examples of investments made by animals, such as the beaver's construction of a dam. The small number of such examples and their insignificance when compared to the accumulative urge in humans makes of these examples the exceptions that prove the rule.

9. Smaller family size results in an increase in the per capita wealth in the family unless, as is possibly true of farming with old technology, there are increasing returns to family size. Since per capita wealth correlates positively (and causally) with probability of survival, acquisitiveness confers a survival advantage to the typical family member through its negative impact on family size. But smaller family size, aside from this wealth effect and simply by virtue of there being fewer children, also reduces the probability that the family gene pool is passed to succeeding generations. Just what the optimal family size is from the perspective of propagating a family's gene pool is unclear, but the positive effect of per capital wealth on the survival of the individual implies a smaller family size is optimal than if there were no such wealth effect. If acquisitiveness leads to properly proportioned reductions in the sizes of families, it will raise the probability of survival of the human gene pool. To put the matter more briefly, in an affluent setting the biological maximum birth rate may be too large to maximize the probability that a family's gene pool survives. Something like acquisitiveness may be required if survival of the gene pool is to be maximized.

10. To such propositions, one would need to add caveats about different methods of accumulating wealth, since some of these (crime, rent-seeking of certain sorts, war, etc.) may have a deleterious effect on the aggregate wealth of a society. Having said this, thereby prompting readers to recognize that a society benefits more or less from acquisitiveness depending on the guidance it gives to acquisitiveness, it nonetheless remains an assertion of this paper that acquisitiveness has been a powerful agent for the more rapid progress in intelligence enhancement that seems to have taken place in the human species.

REFERENCES

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-----. Capitalism, Socialism, and Democracy. New York: Harper, 1950.

Simon, H. A. Administrative Behavior. New York: Macmillan, 1947.

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HAROLD DEMSETZ, Professor of Economics, University of California in Los Angeles.