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The Company of Strangers: A Natural History of Economic Life

Author(s):Seabright, Paul
Reviewer(s):Ofek, Haim

Published by EH.NET (January 2007)

Paul Seabright, The Company of Strangers: A Natural History of Economic Life. Princeton, NJ: Princeton University Press, 2004. x + 304 pp. $30 (cloth), ISBN: 0-691-11821-3.

Reviewed for EH.NET by Haim Ofek, Department of Economics, Binghampton University.

Organized along several central themes, this book is essentially a collection of self-contained short essays ranging from core economic ideas to the hazy borderlines with other fields of science, and the social sciences. The book seems to be intended (and is certainly highly accessible) to the general reader. It includes, however, a number of innovations of interest to students of economics, chief among them, the notion of “tunnel vision” (a concept closely associated, but not entirely interchangeable, with the “invisible hand”). At the core of the discussion are repeated attempts throughout this book of meeting head-on three of the most important (and perhaps most elusive) concepts in economics: division of labor, cooperation and trust. Of special interest to readers of the present outlet is the attempt by Paul Seabright (Professor of Economics at the University of Toulouse, France) to put current economic issues not only into their historical and pre-historical context but also to add an evolutionary perspective going back, it seems, to our last common ancestor with the chimpanzee. I greatly enjoyed reading sections of the book and agonized over others. On both counts, this uneven experience is reflected in the following review.

1. What’s in a Title?

The study of economic history, as I understand, deals only with agents that are in all respects people like us. Chronology changes but anatomy stays fixed and, other things being equal, so does behavior. The subject matter, understandably, must stay clear of evolution. No speciation events are permitted in history or, for that matter, in the historically conceived notion of prehistory. Confined to anatomically modern humans, the beginning of prehistory itself can thus go back only as far as the appearance of Homo sapiens (some 120,000 years ago). Some paleoanthropologists and prehistorians (e.g., Klein 1999, Mithen 2003) would probably prefer not to push the prehistoric envelope anywhere before the first appearance of undisputed evidence consistent not only with a modern human anatomy but also with a modern human mindset (50,000 or so years ago). The most skeptical may even postpone the beginning of prehistory, as they see it, to the rise of agriculture (10,000 years ago). These benchmark dates facilitate a coherent extension of history into prehistory (by separating both from evolution). On the downside, however, these dates come far too late in the record to allow prehistory any chance of accounting for some of the major developments in the human system of subsistence: the transitions from woodland to grassland and from the feed-as-you-go routine to hunting-gathering, tool making, transport and redistribution of food items, and domestication of fire — to mention but a few (and not necessarily the most important) early developments that set humans economically apart from the chimpanzees. The task of filling the gap is left to paleoeconomics: a new field of economic study best defined (perhaps) as the study of natural history in its application to economic life — to slightly paraphrase the subtitle of this book. Indeed, the subtitle helps to build expectations of a long journey into the remote past of the human experience. The author fully meets these expectations at least in one sense: the separation between history and human evolution is a requirement that does not inhibit the discussion in this book. On the contrary, it smoothly moves from history into evolution and, if there is a need for it, back to current affairs.

Inasmuch as the subtitle makes the connection to natural history, the title itself holds the key to the fundamental economic question associated with it. If you ask the fundamental question (what set humans economically apart from all other forms of life?), then the main title to this book (The Company of Strangers) provides nearly enough of an answer. Indeed, it has been recognized for some time in the literature that the single most striking feature that distinguishes humans from all other animals is the (properly defined) practice of cooperation and the division of labor among members of the species that are genetically unrelated to each other — sure enough — among strangers (Ridley 1996, Ofek 2001, now Seabright in this book, and perhaps others that I am unaware of). In its role as a uniquely human distinguishing feature the division of labor among strangers should be an argument quite compelling to any economist familiar with the unprecedented extent and intensity of division of labor in human society. I would dare to speculate, however, that the argument would be even more compelling to any biologist familiar with animal affairs and with the intricacies of kin-selection. To those familiar with both human affairs and animal affairs it should probably come as an empirically true, or nearly true, argument.

The point of an argument, however, is not to be compelling or to be true but to be testable. Arguments that use poorly defined concepts typically do not easily lend themselves to rigorous tests. Division of labor is a primary example. For all its importance in economics and in biology, division of labor remains to this very day a poorly defined analytical concept in both. As such, it is vulnerable to counterexamples for no other reason than semantically or otherwise contrived ambiguities. To devise a test free of such ambiguities requires further refinements that can be provided, in my opinion, only by economics. I will be more explicit about this issue toward the end of this review. With this understanding, we can now move beyond the extraordinarily informative title to the body of the text itself.

Like natural history itself, Seabright’s book does not exclude history in its conventional sense, nor does it exclude current economic affairs. On the contrary, it is an excellent book on both counts, and it will remain equally excellent on both even if all references to evolution are removed.

The material in this book is organized under four parts. Each part comes with its own prologue or epilogue (or both) which can be added as stand-alone chapters in their own right. Within each part, the chapters seem to wander form topic to topic with such vitality that the original outline of this book comes to serve it more as a straitjacket than as an organizing procedure. For that, if not for other reasons, the subject matter is perhaps better conceived, or at least better evaluated, not under the narrative of its original scope but under the narrative of time; that is, under each of the three separate time scales — current, historical, and evolutionary.

2. Current Affairs

In its capacity as a survey of current economic affairs this book makes an excellent job of bringing to the attention of the reader, especially the lay reader, a wide economic spectrum of public issues. Ranging from water and pollution, to auctions and unemployment, and from air travel and globalization, to suicide and laughter, it seems to include the widest possible set of applications that an economically-trained mind can be brought to bear upon in one place. The author deserves high marks for making many of these applications amiable and highly accessible by replacing otherwise tedious technical explanations, with jargon-free highly intuitive illustrations (e.g., the story of shirts (chapter 1) which is reminiscent of Rose and Milton Friedman’s (1990) discussion of pencils, the example of a better mousetrap (p. 181), the fable of a sailor in charge of a small boat in a storm (p. 25), and a community making a living by extracting strawberries from strawberry ice cream (p. 233) — to mention but a few).

The most impressive applications and most compelling arguments are those deduced from first principles (economic, evolutionary, or otherwise). These include, for instance, the treatment and elaboration of many ideas associated with the invisible hand of the market, in the first part of the book, or the treatment of information (viewed essentially as a public good) toward its end. On many occasions interesting applications are deduced from sets of first principles borrowed from other fields; e.g., repeated applications based on the law of large numbers (borrowed from statistics). Unfortunately, not all the applications follow from first principles. All too many seem actually to rely at least in part on ad hoc explanations. Consequently, the overall quality of the argument shifts occasionally without prior notice from the discourse level of ideas to the discourse level of mere opinions — albeit, for the most part, very interesting ones.

The approach to many issues discussed in this book is not only descriptive but, notably, also prescriptive. Policy recommendations typically invoke the government as part of the solution to problems resulting from market failure. The role of government is a subject of economic interest for two partly unrelated reasons. First, there is the general interest in the role of government as a political institution per se. As such, the role of the government is fairly well covered in this book (toward the end of Chapter 13 and elsewhere). In addition, however, there is also an economic interest in the role of government purely as an instrument, or as a set of instruments, in the service of specific economic policies. Any given economic policy can probably be implemented under one branch of government at lesser cost and with better results than under another. It is incumbent, therefore, on any policy recommendation to make clear to what branch of government (administrative or legislative) and to what level (central or local) it is best addressed. Broadly defined, the Coase theorem helps, for instance, to draw attention to a typical situation in which the legislative branch outperforms the administrative branch simply because unlike the intrusive style of the latter, the former keeps much of the action in the private sphere. Seabright considers the Coase theorem to be too optimistic (apparently because negotiations are not always costless and bargains may not be credible, pp. 132-33). Readers of his book are often left to wonder, however, to what level of government and to what branch he would relegate the responsibility for many of his own recommendations.

3. Historical Affairs

The historical dimension of the discussion in this book cuts across four or five major topics: the rise and spread of agriculture, warfare, city-states and ancient civilizations, and the urban environment (especially in medieval Europe). For lack of space I will review here only the last: the urban environment in relation to the medieval city. The discussion on the urban environment in Chapter 7 deals with the devastating effects of urban externalities on city dwellers, their quality of life, their health, and their property. The general approach that Seabright takes is focused more on cultural and environmental implications than on economic explanations. Largely overlooked, for instance, is the role of the urban real estate market, to say nothing about optimal location decisions in response to it. The primary example is the medieval European city.

A brief passage (pp. 114-18) under the title “Stench and Waste” depicts the plight of a typical city in medieval Europe. As the title suggests, the depiction is graphic and its effect on a reader may be staggering. However, if true, it certainly sounds like a golden opportunity for the real estate market (as shown shortly). I have little doubt that the situation as described could have come to pass at one time or another in almost any city (especially during periods of great economic or demographic transitions, in time of plague, or in the aftermath of natural disasters). I also have little doubt that the situation could have persisted in particular quarters of a city for decades, if not for generations at a time. I do have some doubts, however, about the possibility that such a situation could have come to be endemic; namely, that it could have endured for long throughout the entire space of any city. First, the evidence in support of this description is not beyond dispute. Alternative largely contradicting evidence on almost all counts can be found in the literature dealing with urban history (see for instance, Mumford, pp. 288-93).

Another source of doubt, as already indicated, is the existence of an active urban real estate market. As waste (presumably) piles up and the stench is no longer bearable, property prices are bound to reach rock bottom. It is then high time for professional land owners, developers, and speculators of all kinds to get into action and do what they do best; buy the affected properties by the block, remove the neighborhood disamenities, renovate or rebuild and then, of course, resell at great profit (perhaps even to the original owners). Indeed, starting with Crassus and his likes in ancient Rome, and perhaps long before, the real estate market served always as a great mechanism for the internalization of (certain) urban externalities. The end result is a balance between amenities and disamenities that produces, at equilibrium, certain predictable patterns – not necessarily pretty ones, to be sure, but if they are ugly, they must be ugly in ways quite different from the depiction relayed in this book..

4. Evolutionary Affairs

As already indicated, the phrase “the company of strangers” serves both as the main title to this book and as the answer to the fundamental paleoeconomic or, for that matter, bioeconomic problem: what set humans economically apart from all other forms of life? The author undoubtedly puts great effort both in the attempt of establishing this answer and in the attempt of extracting from it the maximum possible implications. The approach Seabright takes, if I understand correctly, is to break down the phenomenon under investigation (essentially, the interaction between unrelated members of the same species) into its three conceptual components — division of labor, cooperation, and trust — and then he tries to gain the most insights from each. This approach is undoubtedly a natural and perfectly logical course of action to take, though, I am not sure it is the easiest to follow.

Any attempt to meet head-on concepts such as division of labor, cooperation, and trust may take us back to Adam Smith who dealt with many of the same concepts in his own time and by his own devices. One of the first things that Adam Smith does in the opening pages of the Wealth of Nations, however, is to represent, if not replace, the concept of division of labor with the concept of exchange. Exchange, he tells us, facilitates division of labor. Exchange, in other words, is a necessary (if not sufficient) condition for division of labor and thus can serve as a proxy for it (and by extension, for cooperation and for trust, as well). Unlike division of labor, exchange is a semantically, and analytically, well defined concept. It can be measured and can serve both as a quantitative or qualitative variable, it can be aggregated or disaggregated, it can be estimated and can be used as an estimator and, above all, it can be used as a null hypothesis. Specified in terms of exchange (the existence or volume of transactions), the null against the company-of-strangers’ hypothesis is unequivocally as clear as your last paycheck (your personal share in the division of labor among strangers in society). Now, try to specify the same hypothesis directly in terms of division of labor.

The extent of division of labor, further argued Adam Smith, is limited by the size of the market. This is particularly true of division of labor among strangers because the market is where strangers make exchanges. The entire argument from division of labor among strangers boils down, I argue (here and elsewhere), to the existence or nonexistence of market exchange (Ofek 2001). What I am trying to suggest, in conclusion, is that the judicious use of exchange as a measure or as a proxy for division of labor could have improved the overall discourse in many parts of this book, and could still do so (assuming a second edition).

Moving from methodology to substance, it should be noted that despite its title, this book in not a comprehensive discussion of human evolution or a complete picture of the human place in natural history, nor is it intended as such. Aside from the considerable amount of attention paid to the evolutionarily pivotal issue of interaction among strangers, the total amount of space allocated to the course of human evolution hardly exceeds a dozen of pages and comes for the most part in the form of brief unrelated comments scattered throughout the entire book in no particular order. Overall, it may leave in the mind of the general reader an image of human evolution that is, in my opinion, somewhat distorted at the very least in two or three ways.

First, the transition to agriculture is overly emphasized. The reader may be left with the impression that the major features that makes us economically most distinctly human evolved in the span of the most recent 10,000 years — the age of agriculture — a blink of the eye in the evolutionary time scale. The appearance of agriculture is undoubtedly an exceedingly important transition in the course of human evolution. However, it is only one of five or so major transitions and, in that, it is hardly equivalent to some, let alone the most important of all (see Ofek, 2006). Second, the role of hunting-gathering as a pivotal economic innovation in human evolution is largely overlooked. Hunting-gathering is much more than a pair of outdoor activities. It is a complete and self-contained system of subsistence that introduced, for the first time, into the human (and primate) repertoire such activities as food redistribution, food transport and, by all indications, division of labor among strangers in the acquisition of food. In fact, it already included almost all the fundamental economic elements of modern industrial society, albeit in embryonic form, going back nearly two million years before agriculture. Finally, I should add a correction in relation to timing in the process of encephalization: the process of brain expansion. The discussion at the bottom of page 58 leaves the impression that this process was at work starting six or seven million years ago. That is far too early. For the first four or five million years of that time our remote ancestors apparently managed to survive with a brain no larger than a chimpanzee’s. Almost all anthropologists would agree that the expansion in the human brain commenced only as late as two million years ago, or even slightly later.

References

Klein, R. G. (1999). The Human Career: Human Biological and Cultural Origins. Second edition. Chicago: University of Chicago Press.

Mithen, S. (2003). After the Ice: A Global Human History, 20,000-5000 BC. London: Phoenix.

Mumford, Lewis (1961). The City in History, its Origins, its Transformations, and its Prospects. New York: MJF Books.

Ofek, H. (2001). Second Nature: Economic Origins of Human Evolution. Cambridge: Cambridge University Press.

Ofek, H. (2006). “Ape to Farmer in Five Uneasy Steps: An Economic Synopsis of Prehistory.” A paper presented at the First Conference on Early Economic Developments, The University of Copenhagen. Copenhagen, Denmark. Downloadable from http://www.econ.ku.dk/eed/programme_friday.htm

Ridley, M. (1996). The Origins of Virtue. Harmondsworth, U.K.: Viking Penguin.

Haik Ofek is author of Second Nature: Economic Origins of Human Evolution (2001).

Subject(s):Markets and Institutions
Time Period(s):Prehistoric