Our Tribal Minds

on Saturday, May 14, 2011

"Economic growth" is synonymous with "increasing standard of living." To understand why, we have to understand what GDP is, and what wealth really is.

Wealth, for human beings, is anything that makes our lives better. If we are alone on an island we can still improve our life by making a shelter, storing food, farming, collecting salt and spices, making tools, finding herbal medicines and storing them, hunting and preserving meat, making and storing wine, writing songs and making musical instruments, writing poems and making books and so on and so forth. All of our actions are designed to improve our life, alone, on the island, and as we do so we are creating new wealth.

Wealth isn't fixed. It is created by people when they manipulate their environment to make their life easier and more enjoyable, and we call this manipulation "wealth." Trees are valuable to human beings because they are pretty, block out the sun, harbor animals, etc, but a house built from a few of those trees holds more value to us than the original trees, because it can keep us warm and protect us from wild animals, and protect our food stores as well. So we make a personal decision to transform the tree into something we value more -- a house.

And every person on earth is making the same personal decisions with what they own. Each person owns a little bit of something, and he decides what is the best way to improve what he owns. He may decide that a piece of paper is valuable, but that a book or poem written on the page is a beneficial transformation of a blank white page into something more valued, something worth more, something we call "wealth."

Another person who owns grapes may decide that they are tasty, but that wine is more valuable to him, and so he allows them to rot and stores them as wine. To him, that is a more valued resource than the grapes. It lasts longer, it makes him feel good, he decides it is best to make wine.

Another man may decide that his cow is best for making milk and cheese. Another may decide to breed a few cows and kill them, because he has decided that meat is better than cheese.

As we go along, it should become obvious that all of these people are making personal decisions about "wealth" that is personal, and may conflict with what their neighbors consider to be the best use for each natural resource. This conflict is solved in two ways. We can either find a god-like person or god-like council to decide what is the best use of each raw material, and analyze each person's desires and needs over the long run, and then tell everyone how to use their trees and paper and grapes and cows... or we can allow each person to make their own choices.

Allowing everyone to make their own choices is scary, because no one else is making choices that we think are correct. We think it would be more efficient if those grapes were used as food, and we think destroying a forest is a sad waste of trees, and that the man should have built a smaller house, or a house from clay or straw or stone.

I think we have an innate desire to plan and organize as a group, to meet and decide what is best for the tribe, and how everyone should operate to insure our collective survival. Unfortunately, this only works in small groups of people who all know and respect each other, and share the same beliefs about what is right and wrong. Today we have billions of people who don't know each other and share wildly different ideas about what is right and wrong. There is no way to have a group meeting and have us all agree on what is best for our group, or the forest in which we live (the earth). We must find another solution.
$1,564 for 40kg.
We must find a way to allow all of these people, some who want to make a house and others who want to live in a tent to live together in harmony with the forest. The answer that modern man has developed is private property. Because we cannot organize billions of people into a cohesive group (without force or perhaps thousands of years of homogenization), we have decided to allow each person to be their own group, and make their own decisions about the best way to manipulate their possessions, land, trees, grapes and animals. This allows everyone to do what they think is best. The trouble is that some people might feel it is best to destroy their land and their things, but there is not much we can do about that if we want to live peacefully with billions of others. Almost everyone on earth will be doing something with their life and their little piece of the world (their possessions) that we think is inefficient, wrong, useless, or wasteful. We still have a strong tendency to pull people together to operate as a cohesive whole, show them why killing animals is wrong, or show them why trees are so beautiful, and to make them stop doing what we personally think is wrong. We tend to forget that all of the ideas and opinions floating around in our own heads are only our own opinions, which are not always the "right" for everyone else.

Many of us want to pull others together so strongly that we are willing to force other people to do what we think is right. Many of us feel so strongly that others are being inefficient or immoral with their actions, that we think it is moral to point a gun at them (pass laws) telling them how they can use their trees, or if they can make wine from grapes, or if they can kill their cows or must only make cheese.
The trouble is that we have forgotten how we got here; we have forgotten why we have private property. We have forgotten that in order for a group to act as one, it must share goals and a world view, and there are now too many people with too many different ideas, even in one small town, to have them all act in unison, and have them all share ideologies.

Wealth is simply what makes life better for us. Each of us tries to create wealth by making our own lives better, but we don’t all agree on exactly what “better” really is. To solve this problem, we allow each person enough personal space to make their own decisions, as long as they don’t hurt other people (including pollution). When many people are allowed to make their own decisions about the best way to make their lives better, we get a bunch of people who are really happy about their own decisions, but we also get a lot of people who forget how we got here and want to tell other people to be just like them, and most of us feel this way because our brains evolved living in small groups of friends and family that shared common goals and a common religion and a common morality and common ideas about the best use of the resources available to the group. Our minds did not evolve with private property rights, and it seems intuitively unnatural, selfish, and unfair.

And this is where the huge push to collective governments comes from.  Our intuitive sense, that we should act as if we are a small tribe living in huts, sharing everything, and working for the common good of the group. It is unfortunate that history lessons are so superficial and irrelevant today. Perhaps if people understood that what they intuit is not always “correct,” they would be more willing to respect the desires of other human beings, and allow them to be productive and create wealth in their own way (as long as they don’t hurt others or destroy/pollute their land).

A great side-effect of allowing everyone to make their own decisions about how to make stuff that improves their life is that many of us become very good at some aspect of improving human life on earth. Some may be very good at making cheese, and another becomes very good at making wine, and when they get together and trade with each other, they both enjoy the perfection of the other man’s labor -- they both have better quality food and drink than they would if they lived alone on their land. It is for this reason that “free-trade” improves life for humans on earth. It allows billions of people to perfect something and trade it for other very high quality things that they might not otherwise have.

And this is the best of both worlds. We allow each person to make personal decisions about their things, improve his own world as he thinks is best, and trade with other people for the things that they think are really good for making life better. In this way we all have an ability to live many times better than we would if we lived alone, and in this way, through private property rules and the ability to exchange with other people that we “accidentally” act as if we are one large group, with common goals and a common view about what is a good use of resources or a poor use. Because wealth is simply what we call anything with value and we value things that we think make our life better, we can say that improving life on earth is synonymous with increasing the amount of wealth on earth. Wealth is simply an improved life! 

If you and I live on separate islands near each other, and I become very good at making butter and cheese, and you become very good at making strong houses and great wine, but you suck at making dairy products and I can’t figure out how to make a strong house, we have two ways to help each other live better lives (have more wealth). We can become friends and help each other out. I can make butter and cheese for you, and you can build me a house and make wine for me. This is what feels intuitively moral to most of us. Being friendly and offering to help others seems like the right thing to do. 

Negotiating in crude terms, demanding payment for the wine and housing, seems wrong; greedy. A friendly exchange would work if the men are close to each other and are able to become friends. But what if the men live far apart, and what if they have such wildly different world-views and moral values that they would hate each other were they to ever meet? How can these two ever be expected to cooperate without forcing one of them to change... without forcing one to suffer or hide his beliefs and values?

We must find some way to formalize the exchange between friends in order to allow non-friends to cooperate as if they were friends. To formalize the exchange, we use prices to decide what we think the value of what we have created (wine and cheese) might be. If we think that a bottle of our wine is worth one pound of cheese, we put a price on the bottle, but we don’t use money. We don’t need it and we don’t have it yet. We put prices in barter on our wine:

Wine / 1 lb cheese, 2 lbs salt.
House / 1,000 lbs cheese, 100 cows, or 1,000 bottles of wine.

Both of them would create a similar “price list.” They would specify what they think the trade value of each piece of wealth they have created might be, in their opinion. If another person creates a new medicine or finds a new spice or wants to trade a horse for any of these things, they would both decide what they think a horse is worth in terms of what the other man holds. If one has a lot of wine and the other has a horse, one might decide he is willing to give up 100 bottles, and the other may decide his horse is worth 200 bottles, and if they both compromise, they might trade it for 150 bottles. If either of them decides that they don’t want to compromise, the sale does not happen. The man with the wine keeps his wealth and the man with the horse keeps his. Buying and selling (trading) does not ever happen unless both of them think that it’s a good idea. Trades won’t occur unless I think that your wine is better than mine, and you think my cheese is better than yours, and we both agree that trading them is a great idea. There can be no losers when both of them are free to make decisions about what they will or will not trade.

Today we use money, but the process is the same. Money is simply a uniform and easy-to-use form of wealth, that makes it easier to trade horses and wine.  If a man has a horse that trades for 150 bottles of wine, and wants to trade some of his horse for ten bottles of wine, that is impossible without destroying the horse. In order to solve this problem, money is invented as a method for spending part of the horse’s trade value. (more on this later). 

So, in order to have a modern world cooperating and making life better for themselves, and trading good wine for good cheese, and figuring out how to make better and better things that make our lives easier and more fun, we must have the ability to place trade-values (prices) on everything we make. This allows strangers, who may not ever meet, to exchange the stuff they have created, which makes both strangers live better lives, because they now both enjoy great wine and great cheese, even though they are not friends. Even strangers can improve each other’s lives with a pricing system. When we place a value on our own things, and make personal decisions about how much of our wine we are willing to giver up, and match our opinions of the value of our wine with the opinions of others, sometimes we find a common ground, and when that happens a trade occurs, and each trade makes both people better off.

So prices and trading seems crude and greedy because it doesn’t fit with our tribal brain, that wants to help everyone around us and in turn have everyone help us. It wants us to be a family and protect and love each other and each other’s possessions as if they were our own. It’s a beautiful desire, and perhaps it is sad that we cannot live that way with a billion other people, but such is the world today.

A side-effect of implementing a pricing and trading and private property system is that all of us end up accidentally working for the good of other people. All of us, by making really good wine or cheese and trading it with others are improving everyone else’s life. Imagine a man alone on an island. He makes mediocre everything but figures out how to make really tasty beer. His life might improve slowly as he creates more and more stuff that he thinks is valuable, but it won’t improve as fast as if another man arrives and does the same thing. If the second man is able to make anything  better than the first man, and they trade, both of them are better off. The first man has only good beer. If the second man makes very good cheese, and they trade beer for cheese, now both of them have really good beer and cheese (but mediocre everything else).

When a third person arrives life gets even better. Perhaps he is lucky to be very good at making knives, and trades them for beer and cheese. Now all of the men have really good knives, cheese, and beer, and none of them has to work any harder than if they were alone. The ability to trade with each other makes them all better off! Now imagine that we continue this exercise until there are seven billion people on the island, and all of them are getting better and better at making wine and music and tools and tomatoes. And all of them are setting prices on their things and offering them for sale (for trade) with everyone else on earth. The growth of the population, the addition of each new person improves the lives of every other person already on the planet. Even if each person cannot do anything better than the people already there, there is some probability that each new person will become the best, or figure out some way to improve something, and if that is not the case, each new person can help others to make what is already very good, and with his help more and more excellent cheese is created, more and more wealth is brought into the world and offered in trade for all the other new wealth being manifested from nothing all over the planet.