How does the economy function? On the surface, economics seems extremely complex and intricate, changing dynamically due to what appear to be insignificant factors. For example, one can predict a recession from the increasing attractiveness of waitresses. But economics relies largely on two simple laws: the law of demand and the law of supply.
The law of demand states that as the price of a good goes up, people demand less quantities of that good. This makes logical sense as (rational) consumers want to spend the least amount of money possible for something. When plotted on a graph with price (P) as the y-axis and quantity (Q) as the x-asis, we can show that demand (D) is a downward-sloping curve.
The law of supply states that as the price of a good goes up, people supply more quantities of that good. This makes logical sense as (rational) producers want to sell something for as much money as they can. When plotted on a graph with price (P) as the y-axis and quantity (Q) as the x-asis, we can show that demand (S) is a upward-sloping curve.
When we superimpose these two laws on the same graph, we get a nice X-shape as the two lines cross over. The point where they cross is called the market equilibrium and this is where the consumers demand exactly the right amount of goods that the producers are willing to supply at a given price. If a good is being sold at a price higher than the equilibrium price, consumers demand less of the good and producers are left with an excess. If the price is lower, then there is a shortage as demand exceeds supply. Over time, the price is pushed towards the market equilibrium. Thus, thanks to the laws of supply and demand, the market automatically adjusts to the price to accurately reflect the value of the good.
Adam Smith, the father of economics, called this the invisible hand – a force driven by the individual ambitions of consumers and producers to balance the market. This force is not found in centrally planned economies of communist states, as the price and quantity supplied is fixed by the government. A pure free market is only driven by the invisible hand. Most modern countries’ economies are mixed economies, usually in the form of free markets with some government intervention.
Although economics appears complicated, it essentially boils down to the laws of supply and demand. By understanding the principles of demand and supply, one can begin to understand more complicated economic theories such as aggregate demand and supply, elasticity, foreign currency exchange and trade. Real economic situations such as oil cartels, trade embargos and taxation can be broken down and modelled using PQ-diagrams (depicting the demand and supply curves).
The laws of supply and demand are two crucial laws of economics that everyone should have some understanding of, as it can be extremely useful in everyday life. Not only do they apply in obvious situations such as running a store or a business, or understanding how the economy works, but it can be applied to negotiating too. One of the fundamental principles of negotiating is finding the balance between what one person wants (demand) and what the other person is willing to do (supply). It is amazing how useful knowing that simply being slightly flexible is in negotiations.
How many friends can a person have? Believe it or not, science has solved this question. An anthropologist called Robin Dunbar studied various societies, tribes and primate groups to determine how many members a group can have to maintain stability. He discovered that the ideal size for a group of humans was about 150.
What happens if there are more than 150 people in a group? This is easily explained by the following thought experiment. Imagine that you have a friend called Mr. White. Add a personality to him – flesh him out as a person. Next, you make another friend called Mr. Red. Then Mr. Blue, Mr. Green, Mr. Maroon… At a certain point, you will no longer remember the name or personality of your “friend” and not even care about that person. This is the limit set by our brains – known as Dunbar’s number, or more colloquially the Monkeysphere.
Any person outside of this Monkeysphere is not of your concern. Once you saturate your brain with 150 relationships, the brain ceases to care about other people. Interestingly, the Monkeysphere is directly related to the size of the neocortex (the part of the brain responsible for higher order thinking). For example, most monkeys can only operate in troupes of 50 or so.
The Monkeysphere can be defined as the group of people that you conceptualise as “people”. Because of this limitation, we are physiologically incapable of caring about everyone in the world. For example, we are highly unlikely to be concerned about the welfare of the janitor at work compared to a loved one. As politically incorrect it may be, the brain sees the janitor as “the object that cleans the building” rather than a human being. You may “care” about the janitor in the sense that you greet him in the corridor, but there is a limit to this. This effect actually explains quite well why society is dysfunctional in general.
Because we do not see people outside the Monkeysphere as “people”, they mean less to us. Stalin once said that “one death is a tragedy; a million deaths is a statistic”. Similarly, the death of a family member is devastating but 10,000 people dying in a foreign country from war does not have the same emotional effect. Furthermore, if a stranger was to die in front of your eyes, you would still not be nearly as devastated as the death of someone you are close to.
Also, as we do not feel connected to these “outsiders”, we are much more prone to act rude or aggressively. For example, one may insult other drivers with the most colourful words on the road, but would (hopefully) never say those words to a friend.
This expands to a greater scale in the context of survival. We are wired to put the need of the members of our Monkeysphere ahead of those outside of it. Thus, we would not steal from our friends but openly evade taxes as we see the government and others as a cold, faceless body. It does not occur to us that through our actions, we are harming other human beings. The same applies to our view of corporations; despite being made up of real people, we only see them as heartless machines actively conspiring against us.
What if the scale was then expanded to countries? If we do not see a person on the other side of the road as a human being, it is extremely unlikely we would register a foreigner as one. This explains why racism and stereotyping is so common in human societies. Although liberal-minded people would like to believe that we should treat every human being like we treat our mothers, our brain is incapable of it. In fact, it is much more likely we would see those people as acting against our interests by “stealing jobs” and so forth. Thus, racism is a hard-wired behaviour to protect the best interest of our Monkeysphere.
We have established that it is impossible to worry about the seven billion strangers in this world. This brings us to an important point: it is just as impossible to make “them” interested in “you”. It is a cold, hard fact that if you are outside of their Monkeysphere, people will not care about you. Ergo, they treat you badly, put you down, steal from you and downright ignore you. In fact, cognitive dissonance means you are even less likely to care for people outside the Monkeysphere as your brain actively rejects people from getting closer to your Monkeysphere, exceeding the preset limit of 150 people. This is why propaganda always focusses on dehumanising the enemy and why people seeking votes and attention pull at sympathy strings – to try get as close to your Monkeysphere as possible.
Many people will lament how we are not monkeys and the Monkeysphere does not apply to us. We have laws, ethics and “humanity”. However, we cannot escape our primitive psychological behaviours and this is reflected in societies filled with crime, unhappiness and a general disinterest in people not related to yourself. This is why city-dwellers tend to be less friendly than villagers, as there are too many people to fit in one, happy Monkeysphere. In fact, monkeys may have more functional societies than us because they hardly ever exceed their own Monkeyspheres (which may also explain why they rarely have wars). The same can be said of tribes and villages of the past.
Ironically, the development of society has been based around working around the limitations of the Monkeysphere – a theoretically ideal society. By living in larger groups, humans can achieve greater feats such as industries and large-scale economies. Although we suffer the consequences of racism and crime, we have become very effective in survival.
Economics is based on the Monkeysphere too. As we only care about our Monkeysphere, there is no reason for us to be concerned about the needs of others. So when a system such as communism forces us to share our bananas, we become infuriated that we have to give up our bananas to people we do not know. But in capitalism, every individual can pick bananas for just ourselves and those we care about. The system thrives as each Monkeysphere acts dynamically and everyone is happy. This is the concept of the invisible hand that is the foundation of modern economics.
But still, the concept of countries means that we have to share the burden of millions of people we do not care about in the form of taxes and civil duties. This makes us unhappy. So what can we do?
Firstly, realise that you are to others what others are to you. If you find a certain person on television as annoying and irrational, chances are that someone else sees you in that light. You are limited to your Monkeysphere of 150 people and people outside of it are in their own Monkeyspheres.
Secondly, understand that no one is special. There are no heroes or perfect beings. Everyone is a human being and prone to making mistakes and acting “human”. Therefore, we cannot idolise people and be disappointed by their actions. This also means that you cannot judge another person and consider their words and actions as insignificant, as they are just as human as you.
Lastly, never simplify things. The world is not simple. It cannot be generalised as one happy village with everyone living happily in harmony. It is a composite of a massive number of different Monkeyspheres, all concerned with their own well-being and not caring about anything else.
Remember the words that Charles Darwin spoke to his assistant, Jeje Santiago: “Jeje, we are the monkeys”. As much as we would like to think that we are higher-order beings, we are simple creatures of habit and behaviour limited by our Monkeysphere.
Unless you are a psychopath, as a human being you are bound to feel emotions. Love, happiness, anger, sadness… there are many emotions that range from simple to complex. Emotions are an interesting system as they allow us to respond rapidly to a situation without thinking, while alerting other members of our society to what is happening to us. Essentially, emotions help us in survival and social interactions.
According to Professor Paul Ekman, emotions are universal from culture to culture, with facial expressions being almost identical from tribal cultures to modern ones. He found that there are six major emotions: anger, fear, disgust, sadness, surprise and happiness. He also pioneered the field of micro-expressions, which studies the flickering change in our facial expressions whenever we feel a certain emotion. As emotions usually occur before the conscious mind thinks, we are often unaware of the expressions we make.
Another psychologist, Dr. Paul Gilbert, divided emotions into three affect systems. They are as follows:
Threat/protection system: associated with the fight-or-flight response, activates in response to danger. It causes anger and fear and is related to catecholamines (e.g. adrenaline) and cortisol (stress hormone).
Want/desire system: associated with hunting and rewarding behaviour, helps us perform actions that aids survival such as obtaining food and mates. It is related to the emotion of excitement, which is caused by the neurotransmitter dopamine (part of the reward system).
Contentment system: associated with met needs and social connection, especially when we feel safe and relaxed. It produces feelings of happiness and peace, linked to the hormone oxytocin (released with human touch, especially during kissing).
Dr. Gilbert also posited that as societies have evolved over time, our affect systems have been altered. For example, despite the lack of natural predators around, urban dwellers are often in a state of high anxiety. This causes a sustained stress response, leading to negative health outcomes. Furthermore, the agitation and the paranoia caused by constant fear leads to crimes such as murder and war. Our want/desire system has also been heightened as we find pleasure in gaining material wealth. This has led to aggressive capitalism, exploiting other people and the environment for selfish gain.
On the other hand, the contentment system has shrunk. People feel less content despite being in a generally healthier and richer world than 100 years ago. The reason being, our brain has evolved to help us survive, not to keep us happy.
One must learn how to adapt to these changes by finding a way to relieve tension and stress, while finding inner peace and happiness. Whether it be through sports, music, humour or simply talking to another person, finding your own way to deal with anxiety is the best road to being happy and content.
In modern ant cities, there can be found many genetic mutations as a result of millennia of division of labour. Thus, ants born with large mandibles that can cut down enemies become soldier ants, while ants born with mandibles that can grind grains become milling ants. Some ants have highly advanced salivary glands and these ants wash and disinfect young larvae.
Here are some examples of the amazing adaptability of ants through the use of mutations:
Doorkeeper ants have large, flat heads that can block strategically important entry points to guard the hive. If a worker ant wishes to enter the hive, it must knock on the broad head. If it gives the wrong password, the living door attacks and devours the worker ant.
Honeypot ants are found in some tropical ant species. These worker ants are hung upside down on the ceiling and are filled with honey until their abdomens swell up to 20 times the normal size. When another ant comes and strokes the honeypot ant, it releases a few drops of honey it is storing.
However, out of all of these mutations that produce “specialists”, the most noticeable is the mutation that produced specialists of love.
Worker ants are born without the ability to reproduce. This is to prevent these busy worker ants from being distracted from sexual impulses. Reproduction is left to certain ants that do nothing other than reproduce. These ants are the male and female ants – essentially the princes and princesses of the ant kingdom. These ants are born only to make love and have special anatomical features that make the mating process easier. Wings that allow them to fly, antennae that allow the communication of abstract emotions and eyes that can sense infrared light are all examples of this.
How about human beings? We too have “specialists”, but they are not based on features we are born with. Instead, they are a result of the education and upbringing we receive as we grow up – an acquired specialisation rather than a natural one. Then again, it is not as if we are all born equal. Some people are born with a more muscular body that is helpful for labour-intensive work, while others are born with more intelligent brains that are better for jobs that require much thinking. However, our societies have a strange style of oppressing these natural talents and only push study on them. No matter how good a child is at the arts, music or sports, their abilities are ignored and the children are forced to conform into a pre-set path. If a child is introverted and prefer working quietly indoors, they are told off and told to become more extroverted. Ultimately, human societies prefer producing all-round individuals rather than specialists in a certain trade.
But what if we did what ants did and recognise a child’s natural talents and nurture it? The Jewish people have followed a system of education that focusses on helping a child develop their own skill instead of forcing something on them. Considering that 18 of the 40 richest people in USA are Jewish, it could be suggested that this is a very effective form of educating children.
Then why do so many parents want their children to become doctors, lawyers and CEOs? The reason is capitalism. Given the characteristics of the jobs, they are comparatively better paid and more stable than workers and artists. Ergo, parents push children towards such professions “for the sake of their future”. Even though many other professions are required for the smooth functioning of society. If so, could we not equalise the pay of all jobs? Unfortunately, this was tried in communist states but tragically failed as the incentive to study and go into such professions disappeared as the pay was “not worth it”. In fact, the major reason for the downfall of communism was human greed. As ants work for the good of the society rather than the individual, they have the luxury of doing the job they were literally born for and still be well-nourished.
Then what if we paid salaries not equally, but fairly? For example, instead of giving everyone the same pay, we pay people according to the amount of work they do, regardless of the profession. If we distributed the unnecessarily high amounts of wealth of politicians and upper class have to fund the wages of technicians and artists, the income gap between jobs would disappear and children would receive the same reward for whatever profession they chose (given it helps society). If this was implemented, then everyone would be able to bring out their strongest trade and significantly boost productivity. Furthermore, the tragedy of having to give up something you want to do for the sake of money would disappear. If we can find a way to overcome human greed and make equitable distribution of wealth possible, human societies would be able to kill two birds with one stone – progress and happiness.
(first half from the Encyclopaedia of Relative and Absolute Knowledge by Bernard Werber, second half from author’s original thoughts) (Image Source: http://www.behance.net/gallery/Collages-ABC-of-professions/237797, see source for description of each letter (professions in French))
According to ancient Greek mythology, a person’s soul must cross five rivers to enter Hades’ underworld after death. Charon ferries souls across the first river, Acheron, also known as the river of pain. To use Charon’s services, one had to pay a silver coin (obolus). If one could not pay the fee, one could not cross the river and would circle the Earth for eternity. Thus, the ancient Greeks had a custom of putting a coin in the deceased’s mouth for their journey.
Even for something as unavoidable as death, Charon asks for money. This not only shows that the ancient Greeks had a good understanding of market economies, but also teaches us something important about capitalism.
Just as the reaper takes a fee, nothing in the world is free. A market is the most effective economy system that man has devised and no other system (especially communism) has overcome it. But we have a tendency to denounce corporations for only taking advantage of poor, helpless citizens. Although there is corruption in reality, corporations are still subject to the invisible hand and bound by the basic principle of capitalism, supply and demand.
We only see the negative sides of capitalism and decry Charon’s greed. “How could you ask a helpless soul for money? Is that not robbery?”, we cry. But such words can only be said by someone who has devised a better system than the market, or found a way to keep Charon well-fed. Instead of criticising the economy or policies, it is far more efficient to think of a way to improve the market system. Blindly criticising and trying to destroy capitalism like Karl Marx did will only result in splitting the world in two and cause everyone to starve to death.
The reason being, money is an invention as important as fire to mankind.
