“Human Capitalism is a compelling and important account of how and why people are being left behind in an increasingly complex economy. This is a ‘big think’ book that is both deeper and broader than the usual polemical arguments about inequality. Regardless of which side of the political divide you sit on, Lindsey will likely stimulate and infuriate you in equal measure.”–Tyler Cowen, author of The Great Stagnation

“Rising income inequality is an issue society can no longer afford to ignore. This book deepens our understanding of the forces behind the problem and is bound to stimulate useful discussion of it.”–Robert H. Frank, author of The Darwin Economy

“Providing an evenhanded approach to the heated issues surrounding human capital, this is a very strong and unusually well-written book that is also remarkable for squeezing so much into so few pages and making a wide range of scholarship accessible to general readers.”–Steven Teles, Johns Hopkins University

“America’s economic future isn’t really about the top tax rate or entitlement spending. Rather, it is about our skills, our character, and our ability to form relationships that can help us navigate a more complex and chaotic world. That is the central insight of Brink Lindsey’s Human Capitalism, which in a few short pages upends conventional understandings of how culture and economics intertwine–and what we should do about it.”–Reihan Salam, co-author of Grand New Party

Brink Lindsey is a senior fellow at the Cato Institute and a consultant for the Ewing Marion Kauffman Foundation. He is the author of The Age of Abundance: How Prosperity Transformed America’s Politics and Culture (Collins) and Against the Dead Hand: The Uncertain Struggle for Global Capitalism (Wiley).

Human Capitalism

How Economic Growth Has Made Us Smarterand More Unequal

By Brink Lindsey

PRINCETON UNIVERSITY PRESS

Copyright © 2013 Princeton University Press
All rights reserved.
ISBN: 978-0-691-15732-0

Contents

Acknowledgments……………………………………………………viiIntroduction………………………………………………………1One The Rise of Complexity…………………………………………6Two The Abstract Art of Modern Living……………………………….12Three Capitalism with a Human Face………………………………….23Four Class and Consciousness……………………………………….31Five Inequality as a Culture Gap……………………………………41Six From Convergence to Polarization………………………………..55Seven Reforming Human Capitalism……………………………………71Eight What Lies Ahead……………………………………………..98Notes…………………………………………………………….117Index…………………………………………………………….131

Excerpt

CHAPTER 1

The Rise of Complexity

Twenty-first-century America is a mind-boggling place.We’ve got more than 310 million people, 80 percent of whomare congregated in densely populated urban areas. In thebusiness sector, more than twenty-seven million differentfirms compete and cooperate to supply a bewildering varietyof goods and services—the typical supermarket alone stockssome thirty thousand different items. Another 1.5 millionregistered nonprofits, along with countless informal groups,collaborate to serve an immense range of perceived communityneeds. And providing the nation’s legal and regulatoryframework, as well as a host of other public services, are thevast bureaucracies of the federal government, fifty state governments,and more than eighty-seven thousand local governmentalunits. This incredibly intricate division of labor,meanwhile, is deeply integrated into a larger global economythat encompasses billions of people.

All of this highly organized, highly specialized activityrequires the accumulation and communication of vastamounts of knowledge and know-how. In just the past year,nearly 248,000 new patents were granted in this countryand almost 290,000 new book titles and editions were published.According to a 2003 estimate (which doubtless isalready completely obsolete), the total amount of new informationstored on paper, film, and magnetic and opticalmedia in the United States comes to two trillion megabytesannually—or the equivalent of nearly fifteen thousand newbook collections as big as the Library of Congress. Whatabout flows of information? Every day, Americans sendsix hundred million pieces of mail, make billions of phonecalls, send billions more text messages, and transmit untoldtens of billions of e-mails. And they spend an incredibleeight hours of every day watching television, listening tothe radio, reading, and surfing the Internet.

Living this way doesn’t come naturally. From the first appearanceof anatomically modern Homo sapiens more thanone hundred thousand years ago until the advent of agriculturesome ten thousand years ago, human beings livedas hunter-gatherers in roving bands that averaged about150 members. The division of labor within these groups wasextremely rudimentary, as virtually all able-bodied peopleworked in food production. Exchanges between groups wereinfrequent and often violent. The extent of human knowledgewas limited to what could be retained in memory. Technologyevolved glacially, changing noticeably only over thecourse of thousands of years.

The static world of the small, face-to-face group—that isour native home. That is the social environment in whichwe evolved and to which our brains are adapted. That is thesetting for more than 90 percent of the human story so far.

So how on earth did we end up where we are now? Let’sgo back to the two dimensions of social complexity I highlightedabove: the extent of the division of labor, and theamount of knowledge distributed throughout the system.It turns out that these two characteristics are interrelated.More to the point, they are mutually reinforcing. Strippeddown to its bare essentials, the story of the rise of complexityis the story of a positive feedback loop in which thegrowth of the division of labor feeds the growth of knowledge,which in turn feeds the further growth of the divisionof labor—and off we go.

Here’s the basic logic. The more we know collectively, themore we have to specialize in order to make effective use ofthat knowledge. The growth of knowledge thus creates anincentive for specialization. Specialization, meanwhile, expandsour overall knowledge base. First, we learn by doing,so a wider variety of occupations leads to wider varietiesof expertise. In addition, more specialists overall mean,among other things, more people who specialize in discoveryand innovation.

But for most of human existence, the conditions thatallow this logic to operate were absent. Namely, we justdidn’t know enough. Only with the advent of agricultureten millennia ago was the critical threshold crossed. Becauseof the superior productivity of cultivation and animalhusbandry, a food surplus emerged for the first time—whichmeant that some people could be liberated from foodproduction and devote their full attention to other tasks.Specialization on a significant scale was now possible, andwith it came the first cities—agglomerations of people whodepend on others for food—and huge additional breakthroughs in knowledge. The most important of those wasthe invention of writing, which freed the accumulation ofknowledge from the limits of memory and the transmissionof knowledge from the need for personal contact. Humankindentered the realm of history.

Until quite recently, however, the social institutions fordeveloping and applying useful knowledge remained extremelyinefficient. Consequently, the positive feedbackloop between knowledge and specialization ran slowly andsuffered frequent and lengthy breakdowns. And the divisionof labor stayed quite limited. Outside a few relatively smallcities (only rarely did the largest exceed one hundred thousandpeople), more than 90 percent of humanity continuedto eke out a bare subsistence in small, isolated groups. Nowthe groups were villages of sedentary peasants rather thantribes of mobile hunter-gatherers, but the distinction madelittle difference. Indeed, according to the economic historianGregory Clark, the typical peasant worked harder andexperienced an even lower standard of living than did hishunter-gatherer ancestors.

The critical turning point came in the past few centurieswith the emergence of two new and immensely potentsystems of social institutions: the modern market economyand modern science. Both relied on decentralized processesof experimentation and feedback—what came to beknown as the scientific method for the one; entrepreneurialinvestment, competitive enterprise, and the profit-and-losssystem for the other. Both utilized new methods of quantitativereasoning (calculus, for example, and double-entrybookkeeping) that enabled unprecedented degrees of analyticalsophistication and rigor. Both broke free of traditionalcultural constraints to pursue innovation and discoverywherever they might lead.

For some time, these two sets of institutions developedmore or less independently. Indeed, many of the early advancesin industrial technology were the handiwork of inspiredtinkerers and entrepreneurs, not men of science. Butby the middle of the nineteenth century, the two paths converged.The increasing dependence of economic productionin western Europe and North America on technologicalinnovation eventually led to the systematic application ofscientific methods to technological problems—and thus tothe integration of science and commerce. The result was asecond quantum leap in human productivity—an advancethat the Nobel Prize– winning economic historian DouglassNorth calls the “second economic revolution.”

It is this revolution, more commonly known as industrialization,that has carried us to the dizzying heights of economicabundance and social complexity we now occupy. Inthe industrial era, the growth of knowledge has exploded.Over the past century or so, annual technological progress,or productivity growth, has averaged 1 percent or higherin healthy advanced economies. By contrast, throughoutthe agrarian age, technological progress never surpassed0.05 percent a year for any sustained period. The divisionof labor, likewise, has undergone a radical transformation.Today, because of the rise in productivity, fewer than 2 percentof Americans work as farmers—down from nearlytwo-thirds in 1850. The positive feedback loop betweenknowledge and specialization now spins so fast that conditionschange dramatically from decade to decade.

Born and raised in this vertiginous world, we take itfor granted and assume it is normal. It is emphatically notnormal. We are a scant few generations removed from thebiggest discontinuity in human existence in ten thousandyears. More changes in the human condition have occurredin this brief period than in all the more than three hundredgenerations of the agrarian area—which, in turn, was a periodof convulsive dynamism in comparison to the morethan three thousand generations of hunting and gatheringthat proceeded it. We are all unwitting participants in thebiggest revolution of them all.

CHAPTER 2

The Abstract Art of Modern Living

The rise of complexity has thrust us into a social environmentof vastly superhuman scale. According to the anthropologistRobin Dunbar, our brains are constructed so thatwe can maintain personal relationships with only about150 people at a time—which just happens to have been thesize of the typical Stone Age tribe. And today, this “Dunbarnumber” equals the number of names in the average addressbook. Yet now, in addition to the “tribe” of our personalrelationships, we are enmeshed in interdependencewith untold millions of other people, the vast majority ofwhom we will never meet.

Because of its superhuman scale, the contemporary socialenvironment is imbued with equally superhuman intelligence.According to the psychologist Thomas Landauer,human beings end up storing about 125 megabytes of visual,verbal, tactile, and musical memory by adulthood.In the Stone Age tribe, in which everybody had similar experiencesand knowledge, the total amount of informationstored in the social environment wasn’t much greater thanthat individual figure. By contrast, today we are able to tapinto and make use of the highly differentiated contents ofmillions upon millions of other minds. And because of ourability to store data outside of our heads, that only scratchesthe surface of the knowledge we have accumulated. Recallthat, according to the estimate I cited in chapter 1, Americansproduce and store two trillion megabytes of new informationevery year. At that rate, it would take less than sevenyears to exceed the total contents of all the memories of allthe people who have ever lived!

How do we cope with such incomprehensible complexity?How do we function in the twenty-first century withminds built for the Stone Age? Given the hardwired cognitivelimits on how many people we can know and howmuch knowledge we can retain, we are swimming in waterway over our heads. How do we stay afloat?

The key lies in our capacity for abstract thought. Abstractionis our master strategy for dealing with complexity. Broadconceptual categories and general rules provide the mentalshortcuts we need to handle a more complex environment. Toextend our knowledge beyond the range of our perception. Tointeract successfully with more people than we can possiblyknow personally. To formulate and execute plans that reachfar beyond the immediate satisfaction of basic appetites.

Of course, a capacity for conceptual thinking and rule-followinghas been with humanity from the beginning. Butuntil quite recently, most people did little to develop thatcapacity—for the simple reason that nothing in the waythey lived called on them to do so. In the formative settingof the Stone Age tribe, what mattered was the concrete, thetangible, and the here and now. You survived on the basisof specific, detailed knowledge of the resources and dangerspresent in your local environment. Virtually the onlypeople you ever dealt with were those you knew personally,many of whom were related to you. Time horizons did notextend beyond daily routines and the cycle of the seasons.And just about everything you did was scripted in advanceby specific rituals and traditions.

The rise of social complexity has triggered an associatedrise of abstract thinking. The only way to make senseof our increasingly complicated surroundings has been tobroaden the conceptual categories we use. Consequently,the focus of our thoughts and decisions has shifted awayfrom specific, tangible things and toward larger, more generalclasses of objects or phenomena. This turn toward theabstract has affected not only the way we understand thephysical world around us but also how we conceive of ourrelationships with other people and our own internal desiresand motivations.

Let’s start with what is arguably the most fundamentalof abstract reasoning skills: literacy. While human beingsmay possess an inborn “language instinct,” they possessno equivalent instinct for reading and writing. Literacyrequires sustained, conscious effort to master an abstractcode of phonetic and punctuation symbols. And with literacycomes access to a much larger vocabulary and morecomplex grammar than exist in languages that are only spoken.Learning to read and write thus requires the developmentof highly refined abstract analytical skills; in turn, theability to read and write creates a platform for the furtherdevelopment of those skills.

Throughout the agrarian era, literacy was the exclusivepossession of a tiny elite of clerics and aristocrats. Theworld of the peasantry—the world of the small group, ofconcreteness and simplicity—had no need for the rarefiedtalents of reading and writing. But with industrializationcame a growing demand for workers who could handlemore complex tasks and a more highly structured lifestyle.A growing demand, in other words, for people who couldread and write. As of 1800, only about 15 percent of peopleworldwide had achieved basic literacy; today the figure ismore than 80 percent. In the more advanced United States,the literacy rate in 1800 was already 60 percent; by 1890, ithad surpassed 90 percent.

A similar story can be told with numeracy. For a glimpseinto the possible workings of the primeval mind, considerthe modern-day hunter-gatherers of the Amazonian Pirahãtribe. They don’t know how to count, as the only threequantitative words in their language translate roughly into”one,” “two,” and “many.” Even in historical time, a generalhaziness about numbers was pervasive until comparativelyrecently. Thus, studies of Roman tombstones show that incorrectages were given about half the time; a similar absenceof age awareness shows up in medieval records.

Logical reasoning and abstract problem-solving skillshave also improved dramatically. People have always beenable to make deductions and classify things into categories,but in the past those abilities were rooted in the specificfacts of everyday life. The idea of using abstractions andlogic in a purely formal way—that is, regardless of the underlyingsubject matter—was utterly foreign. For example,in a series of interviews with Soviet peasants during the1930s, the psychologist Alexander Luria documented a startlingresistance to thinking logically about unfamiliar situations.In one instance, an illiterate peasant named Nazir-Saidwas presented with the following syllogism: “Thereare no camels in Germany. The city of B. is in Germany.Are there camels there or not?” Nazir-Said replied, “I don’tknow; I’ve never seen German villages.” When the syllogismwas repeated, the peasant offered, “Probably there arecamels there.” Pressed further, he said, “If it’s a large city,there should be camels there.” Luria kept trying, but to noavail.

The trend in IQ scores over the course of the past centuryshows a striking change in mental abilities. I’m talkinghere about the remarkable and puzzling “Flynn effect”—thewhopping rise in raw IQ scores that has now been documentedin dozens of countries. According to the psychologistUlric Neisser, if American children in 1932 could somehowhave taken an IQ test normed in 1997, their average IQscore would have been around 80. In other words, half thechildren in 1932 would have been classified as borderlineretarded or worse according to 1997 standards!

Nobody believes that conclusion is correct, so what’sgoing on? If you look at the various subtests that factor intoan overall IQ score, you’ll see that the raw scores in manyof them have increased only modestly or not at all. It turnsout that the Flynn effect is heavily concentrated in certainkinds of cognitive skills—in particular, the most abstractkinds of reasoning and problem-solving abilities. That cluesuggests that the Flynn effect is being driven by social complexity.Just as the changing social environment has triggereddramatic improvements in literacy and numeracy, ithas done the same with abstract analytical skills. As our externalsurroundings grow more complex, so do the internalstructures of our thoughts.
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