The General Theory of Capital: Self-Reproduction of Humans Through Increasing Meanings

Debt and interest commercialized traditional society. As more mercenaries were hired, the concept of wage activity spread. As products became commodities, consumers depended more on the market and monetary income than on subsistence production. As private property took hold, there was less room for communities or communal forms of possession. Robert Lane distinguished between warm and cold societies. He called societies based on emotional support, empathy and reciprocity “warm”, and societies based on impersonal relationships and money “cold”:

“From Marx and Engels’s statement that ‘no other nexus between man and man than naked self-interest, then callous cash-payment,’ to Tönnies’ ‘in Gesellschaft every person strives for that which is to his own advantage and affirms the action of others only in so far as and as long as they can further his interest,’ to Weber’s alleged movement from the communal relationship ‘based on the subjective feelings of parties… that they belong together,’ to the more impersonal interest-based associative relationship, to Sebastian de Grazia’s view that the contemporary commercial ‘competitive directive’ requires us to reduce all affective relationships, to Fromm who argues that capitalism at least, and perhaps all modernity, leads us to treat each other as machines—we find in all these sources and their many epigones expressed the idea of the modern cold society” (Lane 1978, p. 453).

A warm society is based on a material community: unity of place and time of life, joint action and joint possession of the basic conditions of life—a forest, a river, a field. Warm societies are those of personal communication, passion, repute and rumors. A cold society is based on an abstract community: the unity of socio-cultural order and ideas, that is, on impersonal communication, money and private property.

Historically, the more specialized the activity and the active power, the more fragmented the socio-cultural order is. This can be seen in the division of property rights. Internal effects are those results of an activity that are appropriated by the subject of the activity, and external effects (that is, externalities) are results that are appropriated by someone else. James Meade described externalities using the example of farmers who grow more apple trees and neighboring beekeepers who benefit from increased nectar sources. Increased sources are the external effects of the farmers’ activity on the beekeepers. This example shows that externalities occur when one economic unit benefits from the actions of another at no cost to itself. Meade called these the “unpaid factors of production” (Meade 1952, pp. 56-57). Externalities can be either positive (goods) or negative (evils).

In a traditional economy that was based on common possession, the growing of apple trees and the keeping of bees were combined within one unit. In this case, externalities did not arise or they were appropriated by the unit itself. An external effect occurs only when the farmer and the beekeeper run private enterprises, that is, when the rights to apple trees and the rights to bees are divided between them.

The beekeepers’ benefits can also be transformed into property rights if they have to pay for the use of the increased nectar sources. The increase in meanings requires as its condition the division of effects and property, but such a division in turn requires more complex cooperation and more complex administration: the evolution of private property shows that rights cannot be completely divided. There always remains an indivisible residual, resulting from the uncertainty of the environment, from the fact that such a division itself requires expenditure.

3. Limits of simple self-reproduction

Adaptive efficiency and the race against uncertainty

Man lives under uncertainty, unpredictability of events; his activities are aimed at overcoming uncertainty, at ensuring that reality serves human needs and that needs correspond to reality. Unpredictability arises from the action of natural forces and other people, as well as man himself: sometimes man surprises himself. Armen Alchian suggested starting with the uncertainty of the environment and human motives when building an economic model:

“It is straightforward, if not heuristic, to start with complete uncertainty and nonmotivation and then to add elements of foresight and motivation in the process of building an analytical model. The opposite approach, which starts with certainty and unique motivation, must abandon its basic principles as soon as uncertainty and mixed motivations are recognized” (Alchian 1950, p. 221).

However, the approach that starts with uncertainty does not consider that the entire coevolution of humans and meanings is directed towards overcoming it. “…Humans have a ubiquitous drive to make their environment more predictable” (North 2005, p. 14). Culture-society never acts in a state of complete uncertainty, as it always has a certain stock of meanings. Humans resolve uncertainty through meanings and bear the associated costs. In other words, the amount of uncertainty that must be eliminated from an event in order to obtain a fact can be measured by the cost of action. To understand what costs must be expended, we can refer to the five types of uncertainty identified by Douglas North:

“1. Uncertainty that can be reduced by increasing information given the existing stock of knowledge. 2. Uncertainty that can be reduced by increasing the stock of knowledge within the existing institutional framework. 3. Uncertainty that can be reduced only by altering the institutional framework. 4. Uncertainty in the face of novel situations that entails restructuring beliefs. 5. Residual uncertainty that provides the foundation for ‘non-rational’ beliefs” (North 2005, p. 17).

Accordingly, several types of costs can be distinguished. First, there are technological / transformation costs. As we have seen, people discover patterns in the natural and cultural environment (habitat and domus) through causal models, that is, knowledge. Current technological expenses reduce the uncertainty within the existing knowledge stock. But sometimes, to reduce uncertainty, it is necessary to increase the stock of knowledge, that is, to invest in technology.

In addition to technological costs, there are inevitably costs for coordinating activities and making decisions. We call them organizational and psychological costs, respectively. Organizational expenses and investments are losses caused by distrust and injustice, which require activities to create and maintain institutions and change the existing institutional framework. Psychological costs are losses caused by prejudice, false beliefs and indecision, which require actions to change the belief structure, motivate and stimulate.

Organizational and psychological costs thus differ from technological costs. In the new institutional economics, organizational and psychological costs are summarized under the term transaction costs. Although transaction costs are defined as the costs of running institutions, they also include the costs of decision-making (cf. Coase 1988, p. 6; Richter and Furubotn 2005, p. 12). In what follows, we will always keep this dual nature of transaction costs in mind.

“Residual uncertainty” that cannot be eliminated by spending and investing is the basis for irrational beliefs and profits. Uncertainty has a dual nature. On the one hand, it is a necessary condition for the existence of profit. If everyone knew everything, no one could make a profit. On the other hand, “in the presence of uncertainty—a necessary condition for the existence of profits—there is no meaningful criterion for selecting the decision that will ‘maximize profits’” (Alchian 1950, p. 212). Profits are always based on chance and their size is always random.

Profit is an uncertainty that is integrated as an inherent part in the process of self-reproduction of culture-society; therefore profit is also a meaning. Like any meaning, profit cannot always be “maximized” here and now: for its maximization, decisions by individuals are not enough, but socio-cultural evolution is required:

“There is an alternative method which treats the decisions and criteria dictated by the economic system as more important than those made by the individuals in it. By backing away from the trees—the optimization calculus by individual units—we can better discern the forest of impersonal market forces. This approach directs attention to the interrelationships of the environment and the prevailing types of economic behavior which appear through a process of economic natural selection. Yet it does not imply that individual foresight and action do not affect the nature of the existing state of affairs” (Alchian 1950, p. 213).

Hence, the self-reproduction of culture-society is built upon both certainty and uncertainty. The process of production, circulation and consumption of goods is a process of overcoming uncertainty. At the same time, as Robert Sapolsky shows, uncertainty is the very condition that makes cooperation between people possible. The prisoner’s dilemma can only be solved on the assumption that the players do not know how many rounds the game will have and therefore behave irrationally (Sapolsky 2017, p. 634).

In the space between certainty and uncertainty, there arises probability (risk). Probability should not be confused with either necessity or accident. According to Keynes’s famous definition, which borrowed from Knight, an event is uncertain if there is no basis for calculating the chances of its occurrence or non-occurrence; in contrast, a probable event is an event whose chances can be calculated (Keynes 2013, vol. 14, pp. 113-114).

Probability lies between necessity and accident. Unlike strict necessity, it is variable. However, unlike accident, it is finitely variable. Profit is an accident, while cost is a necessity. In between lies probability, or interest. Property and interest have the same root, they are interrelated results of an increase in meanings, the gradual transformation of uncertainty into risk and the division of rights and risks. In the early stages of their evolution in a traditional culture-society, profit and interest are almost equally uncertain: the amount of interest roughly corresponds to the amount of expected profit. The evolution of interest led to its decline in relation to profit. This expresses the nature of interest and property—it is part of the uncertainty that can be transformed into risk.

The transformation of uncertainty into risk and then into certainty occurs in the process of activity—that is learning and imitation, trial and error. During socio-cultural evolution, a “double adaptation” occurs: men adapt to the environment by changing meanings, and meanings adapt to the environment by changing men. The quality of this mutual adaptation is determined by the effectiveness of feedback. People learn when they receive rapid and frequent feedback on their actions—be it making things, keeping promises, or discovering new laws of nature. Learning occurs through the repetition of events and actions, the formation of stable meanings—norms or routines. The efficiency of adaptation depends on the norms that regulate the activities of the culture-society, that is, on the socio-cultural order:

“Adaptive efficiency, on the other hand, is concerned with the kinds of rules that shape the way an economy evolves through time. It is also concerned with the willingness of a society to acquire knowledge and learning, to induce innovation, to undertake risk and creative activity of all sorts, as well as to resolve problems and bottlenecks of the society through time. We are far from knowing all the aspects of what makes for adaptive efficiency, but clearly the overall institutional structure plays the key role in the degree that the society and the economy will encourage the trials, experiments, and innovations that we can characterize as adaptively efficient” (North 1990, pp. 80-81).

Culture and meanings emerged as a means of overcoming the uncertainty of the natural environment, the mutual inadaptation of habitat and protohumans. As an adaptation process, cultural evolution reduced natural uncertainty, leading to the emergence of an agrarian culture-society with its traditional order, possession and political ownership. However, the same cultural evolution has led to an increase in the uncertainty of the domus, the culture itself. The more complex the culture, the more variable it is. The more information, the higher the uncertainty: the random grows faster than the probable:

“On the other hand, a string is random if there is no short way to describe it. Of course, you can always describe a binary string just by listing it: the program that says “Print s, then halt.” That program has about the same length as s itself. Therefore, s is random if there is no shorter way than that to describe it. K(s), in other words, is about equal to the length of s: K(s) ≈ L(s). This definition of randomness has nothing to do with probability. Indeed, Kolmogorov believed that the idea of information was more fundamental than the idea of probability” (Schumacher 2015, pp. 231-232).

By multiplying meanings, culture-society raises randomness and uncertainty. The increasing complexity of human activities is a race against uncertainty. By complicating their activities, humans eliminate the uncertainty that prevents them from satisfying their needs, but in doing so they create even greater uncertainty. To eliminate this new uncertainty, they must complicate their activities even more. This phenomenon is called the “Red Queen’s Race”:

“This concept, that all progress is relative, has come to be known in biology by the name of the Red Queen, after a chess piece that Alice meets in Through the Looking-Glass, who perpetually runs without getting very far because the landscape moves with her. It is an increasingly influential idea in evolutionary theory. The faster you run, the more the world moves with you and the less you make progress” (Ridley 2003, p. 18).

The race against uncertainty meant that traditional culture-society gradually reached the technological, organizational and psychological limits of simple self-reproduction. When it went beyond these limits, it either collapsed, disintegrated and lost complexity (which often happened) or had to change its foundations.

Evolutionary rationality and the limits of traditional thinking

Herbert Simon once pointed out that theorists of human behavior tend to go to extremes in their interpretations of rationality: economists tend to exaggerate the capabilities of the human mind, and psychologists, sociologists and anthropologists tend to downplay them, emphasizing the role of motivations, emotions and culture (Simon 1957, pp. 1-2):

“Traditional economic theory postulates an ‘economic man,’ who, in the course of being ‘economic’ is also ‘rational.’ This man is assumed to have knowledge of the relevant aspects of his environment which, if not absolutely complete, is at least impressively clear and voluminous. He is assumed also to have a well-organized and stable system of preferences, and a skill in computation that enables him to calculate, for the alternative courses of action that are available to him, which of these will permit him to reach the highest attainable point on his preference scale” (Simon 1957, p. 241).

An example of extreme rationalism is the theory of Graham Snooks. Snooks believes that the basis of economic development is not to be found on the side of “supply” or culture, but exclusively on the side of “demand” or the subject. He argues against basing economic theory on the concept of “evolution” that the new institutionalists borrow from biology, noting that “economists seek assistance from other deductive disciplines rather than from history” (Snooks 1997, p. 5). Instead, according to Snooks, economic theory should be based on the concept of “dynamic strategy”:

“At its center is materialist man who, in a competitive world characterized by scarce resources, attempts to maximize the probability of survival and prosperity. To do so, the strategist pursues one of the four timeless dynamic strategies: family multiplication (involving procreation and migration to new lands), conquest, commerce, and technological change” (Snooks 1997, p. 6).

Choosing a strategy is a rational action that involves imitating successful people and their practices. Snooks considers the “intellectual ability” of strategists to be the most limited resource (Snooks 1997, pp. 52-53). Unlike cultural evolution theorists, he believes that individuals are capable of “inventing” the necessary solutions. Accordingly, he considers cultural evolution to be the result, not the driving force, of social development (Snooks 1997, p. 68). He derives changes in institutions and economic growth from the demand of strategists and competition among their groups, and considers cultural change to be the sum of institutional change and economic growth. He distinguishes between “strategists” or innovators (profit seekers), “non-strategists” or followers, and “anti-strategists” or rent seekers (Snooks 1997, p. 63). Snooks reduces human motives to material consumption and culture to a vague collection of “everything that contributes to the complex structure of human civilization” (Snooks 1997, p. 68). He does not seem to understand that “strategies” are elements of culture, that strategists develop culture and thus develop themselves in the process of mutual imitation. The third thesis about Feuerbach fully applies to Snooks’ point of view:

“The materialist doctrine concerning the changing of circumstances and upbringing forgets that circumstances are changed by men and that the educator must himself be educated. This doctrine must, therefore, divide society into two parts, one of which is superior to society” (Marx and Engels 1975-2004, vol. 5, p. 4).

Herbert Simon noted that people are not omniscient and cannot solve all problems with reason alone, and introduced the principle of bounded rationality:

“The capacity of the human mind for formulating and solving complex problems is very small compared with the size of the problems whose solution is required for objectively rational behavior in the real world or even for a reasonable approximation to such objective rationality” (Simon 1957, p. 198).

What could be the cause of the limitations of the mind? Thinking combines instincts, practices and reason, which are developed to varying degrees by natural and cultural selection. Actions based on instincts and the consistent learning of many generations of people are performed faster and more easily than actions that have emerged relatively recently or require reasoning. Daniel Kahneman calls fast intuitive thinking System 1, and the slow conscious thinking System 2. System 1 is associative, metaphorical, deterministic thinking that comes easily and is automatic, and System 2 is probabilistic statistical thinking that requires a lot of reasoning and reflection. Humans strive to reduce problems to what they supposedly know, to automatic associative and causal correlations. The limitations of reason and our deviations from rationality are explained not by instincts or emotions interfering with reason, but by the mechanism of thinking itself, in which reason is only a later, albeit important, element. This prevents us from recognizing “a puzzling limitation of our mind: our excessive confidence in what we believe we know, and our apparent inability to acknowledge the full extent of our ignorance and the uncertainty of the world we live in” (Kahneman 2011, pp. 13-14).

According to Ken Binmore, rationality is not determined by the ability of humans to foresee the consequences of their actions, but by whether these actions enable humans to reproduce themselves:

“Even when people haven’t thought everything out in advance, it doesn’t follow that they are necessarily behaving irrationally. Game theory has had some notable successes in explaining the behavior of spiders and fish, neither of which can be said to think at all. Such mindless animals end up behaving as though they were rational, because rivals whose genes programmed them to behave irrationally are now extinct. Similarly, companies aren’t always run by great intellects, but the market is often just as ruthless as Nature in eliminating the unfit from the scene” (Binmore 2007, p. 2).

In this case, we are dealing with the other extreme, the opposite of Snooks’ views: an individual need not be rational, a population is rational. Populations can make mistakes and still evolve, but individuals do not evolve: unlike populations, individuals are mortal. One extreme exalts reason, reduces all of history to the results of free choices, and does not recognize the evolution of strategies. The other extreme reduces reason to consistent activity: individuals simply follow programs to maximize utility, and evolution selects the most successful programs.

The limitations of thinking are no cause to deny people their ability to make choices, although instincts and practices that have fused together over hundreds of thousands and millions of years are a set of powerful programs that people follow. Human thinking is a combination of selection and choice, of strategy and reason. “The mixing of custom and choice at any one time produces, almost tautologically, the existing culture” (Jones 2006, p. 261).

Like biological evolution, the evolution of meaning does not seek the “best” or “maximum” solution; it only seeks the “sufficient,” “minimum” solution. This applies equally to making, communicating, and thinking. Evolutionary rationality is not based on utility and its maximization, but on preferences and propensities that allow us to choose a necessary and sufficient option. Moreover, utility is only one of the types of meanings between which a person chooses—along with morals, dreams, ideals and other meanings that are not always ordered among themselves. People’s needs and thinking are shaped by culture-society, and people behave rationally not only when they maximize utility, but also when they strive to comply with norms—that is, with the socio-cultural programs they have internalized:

“Rational conduct means that man, in face of the fact that he cannot satisfy all his impulses, desires, and appetites, foregoes the satisfaction of those which he considers less urgent. In order not to endanger the working of social cooperation man is forced to abstain from satisfying those desires whose satisfaction would hinder the establishment of societal institutions” (Mises 2005, p. 163).

Evolutionary rationality does not assume that reason is limited, but rather that reason and choice play different roles at different stages of socio-cultural and personal development. A child’s mind begins with an uncritical perception of another person’s actions, but as it matures, critical ability develops. The human brain and intelligence did not evolve to choose, but to persuade others, but now we try to use reason to make decisions:

“In what is already recognized as a major advance, in The Enigma of Reason Hugo Mercier and Dan Sperber show that reason itself has evolved for the strategic purpose of persuading others, not to improve our own decision-taking. Motivated reasoning is why we developed the capacity to reason, and how we normally use it. Yet more fundamentally, the massive brain expansion of the past two million years has been driven by the need for sociality” (Collier 2018, p. 35).

Traditional choice accelerated the progress of meanings compared to cultural selection. Nevertheless, it still was constrained by customs, traditions, and other practices transmitted through cultural learning. Cultural evolution increased the sophistication of reason and enabled people to solve complex problems. However, in the race against uncertainty, the complexity of problems also grew. At the limits of traditional thinking, customs and other practices became an obstacle to cultural evolution. Simple self-reproduction ended when meanings proved to be an obstacle to their own growth and culture-society found ways to overcome this obstacle.

The rise of traditional complexity and its limits