In The Wealth of Nations, Adam Smith (Reference Smith1776/1999) overturned a dogma that had long dominated economic thinking – the mercantilist theory of trade. Mercantilism held that exporting nations “won” because they gained gold (while giving up goods) and importing nations “lost” because they gave up gold (while gaining goods). The notion that a trade can have winners and losers is nonsensical, according to Smith: Two people would not agree to a trade unless they both felt it was in their interest. Why else would a buyer and seller voluntarily execute the transaction? This basic insight is borne out by common sense, everyday experience, volumes of empirical and theoretical research, and the essentially universal consensus of economists.
Yet, zero-sum talk of “winners” and “losers” at trade pervade our society. Zero-sum thinking occupies the thoughts of powerful political leaders, and appears across a multiplicity of countries and political persuasions. What can explain the ubiquity of this idea – across both space and time – that flies in the face of so much evidence?
An evolutionary model of folk-economic beliefs provides an appealing solution to this puzzle and many others. Our inborn intuitions about physics and psychology (e.g., Carey Reference Carey2009) evolved in an environment with objects and minds similar to their modern counterparts. But any inborn intuitions we have about economics evolved in a world of exchange that could hardly be more different from the modern economy, global in scale and mediated by money (Fiske Reference Fiske1992; Pinker Reference Pinker2002). Given the mismatch in environments, it makes sense that folk-economic beliefs built atop evolved intuitions should not, in general, track modern economic realities.
To explain aversion to trade as a specific folk-economic belief, Boyer & Petersen (B&P) invoke coalitional psychology – an aversion to transferring resources to rival groups. Despite my general enthusiasm for B&P's theory, I find other mechanisms more plausible in the case of zero-sum thinking, based on recent results from my own research program.
First, B&P make the specific prediction that aversion to trade, being rooted in coalitional psychology, should “invariably occur in the context of, precisely, debates about trade between countries” (sect. 5.1, para. 3; emphasis theirs). As it happens, I have tested the idea that trade imbalances would be viewed as problematic even in the context of trade among U.S. states. Indeed, Arizona is seen as “losing” to Iowa when Arizonans import shoes from Iowa, albeit not to the same extent as when they import shoes from Thailand (Johnson et al. Reference Johnson, Zhang and Keil2018a). At the very least, some other factors must explain some of the aversion to trade.
Second, an explanation based on coalitional psychology predicts that zero-sum thinking should exist at the level of international trade, but not of exchanges among individuals, particularly within the same country. Yet, in my own work, people evaluating simple monetary exchanges (e.g., Sally buying a shirt from Tony's store for $30) frequently believed that sellers were made better off at the expense of buyers (Johnson et al. Reference Johnson, Zhang and Keil2018b), espousing a zero-sum belief. These beliefs are no stronger when the seller comes from a different country than the buyer, and only modestly stronger when describing trade in aggregate across countries (Johnson et al. Reference Johnson, Zhang and Keil2018a). These results are all difficult to square with the idea that coalitional psychology is an important driver of zero-sum thinking.
Third, let us consider the fact that our evolutionary ancestors exchanged goods in a world without currency. The most straightforward prediction would be that we should have difficulty intuitively assigning value to useless bits of paper. This predicts an aversion to trade imbalances – in the opposite direction. Trade imbalances should be seen as favoring the country that is importing (intrinsically valuable) goods in exchange for (intrinsically worthless) currency. Yet, our intuitions are the opposite: Because it imports more than it exports, the United States “loses” to China. If coalitional psychology accounted for these intuitions, it would presuppose the intuition that money is worth more, not less, than the goods and services it can purchase – that is, mercantilist thinking of the type Smith debunked.
Fourth, if people have special difficulty thinking about money, then one would expect currency-mediated exchanges (e.g., Sally purchasing a shirt from Tony's store) to be seen as zero-sum but barters (e.g., neighbors swapping soy sauce for vinegar) as positive-sum. In fact, people often see both types of exchanges as zero-sum, but for different reasons (Johnson et al. Reference Johnson, Zhang and Keil2018b). For currency-mediated exchanges, buyers are seen as worse-off while sellers are seen as better-off, consistent with the mercantilist intuition that money is worth more than the goods it can purchase. But for like-kind barters, both parties are seen as neither gaining nor losing from the exchange. Once again, this is consistent with mercantilist thinking that equates wealth with money, since no money changes hands. But it is precisely the opposite of what an evolutionary account would seem to predict, since goods (but not currency) have intrinsic value and existed in our evolutionary environment.
I am therefore forced to conclude that coalitional psychology has a limited role in explaining our basic aversion to trade. (That said, it may well aggravate this basic anti-trade bias, causing a special aversion to trade with rival countries). Instead, I propose two alternative mechanisms. First, as suggested above, people are intuitive mercantilists, imputing to money value over-and-above the goods it can purchase. Intuitive mercantilism is encouraged by several features of money (e.g., fungibility, permanence, and communicative role for conveying relative prices). If mercantilist thinking emerges late in development, this would undercut claims of its innateness. Second, when contemplating exchanges in the abstract, people often fail to take the perspective of the parties. When encouraged to do so, they recognize that people have self-interested reasons for exchange and that both parties are thus made better off (Johnson et al. Reference Johnson, Zhang and Keil2018b).
Adam Smith wrote: “Give me that which I want, and you shall have this which you want, is the meaning of every [exchange]” (Smith Reference Smith1776/1999, pp. 118–19). Few truths in modern life appear to be so obvious, yet so elusive.
In The Wealth of Nations, Adam Smith (Reference Smith1776/1999) overturned a dogma that had long dominated economic thinking – the mercantilist theory of trade. Mercantilism held that exporting nations “won” because they gained gold (while giving up goods) and importing nations “lost” because they gave up gold (while gaining goods). The notion that a trade can have winners and losers is nonsensical, according to Smith: Two people would not agree to a trade unless they both felt it was in their interest. Why else would a buyer and seller voluntarily execute the transaction? This basic insight is borne out by common sense, everyday experience, volumes of empirical and theoretical research, and the essentially universal consensus of economists.
Yet, zero-sum talk of “winners” and “losers” at trade pervade our society. Zero-sum thinking occupies the thoughts of powerful political leaders, and appears across a multiplicity of countries and political persuasions. What can explain the ubiquity of this idea – across both space and time – that flies in the face of so much evidence?
An evolutionary model of folk-economic beliefs provides an appealing solution to this puzzle and many others. Our inborn intuitions about physics and psychology (e.g., Carey Reference Carey2009) evolved in an environment with objects and minds similar to their modern counterparts. But any inborn intuitions we have about economics evolved in a world of exchange that could hardly be more different from the modern economy, global in scale and mediated by money (Fiske Reference Fiske1992; Pinker Reference Pinker2002). Given the mismatch in environments, it makes sense that folk-economic beliefs built atop evolved intuitions should not, in general, track modern economic realities.
To explain aversion to trade as a specific folk-economic belief, Boyer & Petersen (B&P) invoke coalitional psychology – an aversion to transferring resources to rival groups. Despite my general enthusiasm for B&P's theory, I find other mechanisms more plausible in the case of zero-sum thinking, based on recent results from my own research program.
First, B&P make the specific prediction that aversion to trade, being rooted in coalitional psychology, should “invariably occur in the context of, precisely, debates about trade between countries” (sect. 5.1, para. 3; emphasis theirs). As it happens, I have tested the idea that trade imbalances would be viewed as problematic even in the context of trade among U.S. states. Indeed, Arizona is seen as “losing” to Iowa when Arizonans import shoes from Iowa, albeit not to the same extent as when they import shoes from Thailand (Johnson et al. Reference Johnson, Zhang and Keil2018a). At the very least, some other factors must explain some of the aversion to trade.
Second, an explanation based on coalitional psychology predicts that zero-sum thinking should exist at the level of international trade, but not of exchanges among individuals, particularly within the same country. Yet, in my own work, people evaluating simple monetary exchanges (e.g., Sally buying a shirt from Tony's store for $30) frequently believed that sellers were made better off at the expense of buyers (Johnson et al. Reference Johnson, Zhang and Keil2018b), espousing a zero-sum belief. These beliefs are no stronger when the seller comes from a different country than the buyer, and only modestly stronger when describing trade in aggregate across countries (Johnson et al. Reference Johnson, Zhang and Keil2018a). These results are all difficult to square with the idea that coalitional psychology is an important driver of zero-sum thinking.
Third, let us consider the fact that our evolutionary ancestors exchanged goods in a world without currency. The most straightforward prediction would be that we should have difficulty intuitively assigning value to useless bits of paper. This predicts an aversion to trade imbalances – in the opposite direction. Trade imbalances should be seen as favoring the country that is importing (intrinsically valuable) goods in exchange for (intrinsically worthless) currency. Yet, our intuitions are the opposite: Because it imports more than it exports, the United States “loses” to China. If coalitional psychology accounted for these intuitions, it would presuppose the intuition that money is worth more, not less, than the goods and services it can purchase – that is, mercantilist thinking of the type Smith debunked.
Fourth, if people have special difficulty thinking about money, then one would expect currency-mediated exchanges (e.g., Sally purchasing a shirt from Tony's store) to be seen as zero-sum but barters (e.g., neighbors swapping soy sauce for vinegar) as positive-sum. In fact, people often see both types of exchanges as zero-sum, but for different reasons (Johnson et al. Reference Johnson, Zhang and Keil2018b). For currency-mediated exchanges, buyers are seen as worse-off while sellers are seen as better-off, consistent with the mercantilist intuition that money is worth more than the goods it can purchase. But for like-kind barters, both parties are seen as neither gaining nor losing from the exchange. Once again, this is consistent with mercantilist thinking that equates wealth with money, since no money changes hands. But it is precisely the opposite of what an evolutionary account would seem to predict, since goods (but not currency) have intrinsic value and existed in our evolutionary environment.
I am therefore forced to conclude that coalitional psychology has a limited role in explaining our basic aversion to trade. (That said, it may well aggravate this basic anti-trade bias, causing a special aversion to trade with rival countries). Instead, I propose two alternative mechanisms. First, as suggested above, people are intuitive mercantilists, imputing to money value over-and-above the goods it can purchase. Intuitive mercantilism is encouraged by several features of money (e.g., fungibility, permanence, and communicative role for conveying relative prices). If mercantilist thinking emerges late in development, this would undercut claims of its innateness. Second, when contemplating exchanges in the abstract, people often fail to take the perspective of the parties. When encouraged to do so, they recognize that people have self-interested reasons for exchange and that both parties are thus made better off (Johnson et al. Reference Johnson, Zhang and Keil2018b).
Adam Smith wrote: “Give me that which I want, and you shall have this which you want, is the meaning of every [exchange]” (Smith Reference Smith1776/1999, pp. 118–19). Few truths in modern life appear to be so obvious, yet so elusive.