Evolutionary economics: Our stone age brain in Adam Smith's great society

Erik Lidström

No 151, IEA Discussion Papers from Institute of Economic Affairs (IEA)

Abstract: In a new paper, academic Dr Erik Lidström argues that there is a fundamental mismatch between the world our brains evolved in to, and the society we operate in today. Human beings evolved over roughly two million years to live in small hunter-gatherer tribes of around 500 people. In that world, instincts around face-to-face exchange, equal sharing of collectively hunted resources, and wariness of outsiders were rational and adaptive. The extended order of modern capitalism - anonymous, spontaneous, governed by price signals involving millions of strangers - is, in evolutionary terms, a very recent and alien environment. No one has had time to adapt to it. Drawing on Hayek's concept of the "extended order", Lidström argues that large societies self-organise through voluntary exchange, property rights and contract - without anyone designing the outcome. Hunter-gatherer psychology struggles to process this: our minds handle direct, face-to-face interactions well, but not the second and third-order effects of interventions in complex, interconnected systems. Price controls, from Diocletian's in 301 AD to modern rent regulations, illustrate the pattern: each is an instinctively appealing direct intervention that produces the opposite of its intended effect. Government expenditure in major industrialised economies rose from around 10.7% of GDP in 1870 to 45.6% by 1996 - a trajectory the paper connects to the repeated human impulse to "do something", where each intervention tends to generate new problems requiring further intervention in turn. The paper concludes that allowing economies to flourish requires accepting what will always feel counterintuitive: that prosperity emerges from the self-organisation of markets, not from conscious direction.

Date: 2026
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