Human beings are social. But that does not invalidate economics or justify socialism.
Human sociality is fundamentally tribal. If your cousin tells you that he lost his wallet and needs to borrow $100, you instantly take out your wallet. If a stranger says the same thing, you probably keep your money in your pocket.
Tribalism makes us generous and egalitarian toward people we regard as familiar (note that the words “familiar” and “family” have the same root). But tribalism makes us hostile and suspicious toward people who are unfamiliar.
Within a tribe, humans are the most cooperative of all the primate species. Our ability to coordinate with one another, communicate with one another, and learn from one another is what sets us apart from other apes. Chimpanzees never progressed to learn to bake bread or produce iPhones, because they do not have the ability to cooperate.
Humans are remarkable in our collective intelligence. As Joseph Henrich points out in The Secret of Our Success, our individual intelligence is miniscule in comparison with what we acquire culturally.
But for hundreds of thousands of years, we could not extend cooperation beyond the level of a tribal band. Instead, when two bands encountered each other, violence was a typical result. We are naturally inclined to fear and hate people outside of our own tribe.
Only in the last 10,000 years or so did we develop social institutions that enabled us to coexist somewhat peacefully in large societies. The first large societies that emerged were strictly hierarchical, in which each person knows his or her place, as in the Indian caste system. In these hierarchical societies, slavery was considered natural.
The major religions brought another binding force into human affairs. People were willing to trust strangers who showed that they followed the same religious rituals. The religions also began to steer us toward valuing the dignity of every human being.
Finally, a few hundred years ago, we began to seek alternatives to fixed hierarchies as means for organizing ourselves. Democracy and market capitalism emerged.
To enable large societies to coordinate economically, there is no better institution than the market. In a market context, individuals make rational calculations of self-interest, but within a set of constraints that are socially constructed. When we deal with strangers, as we must in market transactions, we assume that while they are self-interested they also are committed to following a set of rules, both written and unwritten. The market cannot rely on self-interest alone. It would not function without these institutional norms, which must be socially enforced.
For economic purposes, tribal solidarity works at small scale. We can be egalitarian and altruistic in groups where we know one another and feel close to one another.
At a large scale, tribal solidarity does not suffice. We do not know how to coordinate to deliver the goods and services that we enjoy without using market prices. We do not know how to motivate people to choose occupations that serve the needs of the larger community except through self-interest.
Self-interest does not explain economic behavior. Instead, what we observe results from the complex interaction of self-interest, tribalism, and cultural intelligence. Both pro-market economists and their critics should try to resist over-simplification. None of us should under-estimate the importance of cumulative cultural intelligence, as reflected in the social norms and formal institutions that enable human cooperation in large-scale society.