“Instructions and Incentives” deals with the misconceptionthat economic activity is directed by planners. This sectionexplains that although people within a firm are guided totasks through instruction from managers, the economy as awhole is not coordinated that way. Instead, the price systemfunctions as the coordination mechanism.

I want to draw particular attention to the way that specializa-tion makes an economy subject to fluctuations in employmentand economic activity. Entrepreneurs constantly test new typesof specialization, leading to what Joseph Schumpeter calledcreative destruction, meaning new enterprises that drive oldfirms out of business. Modern production processes involvemany layers and many steps, making the patterns of specializa-tion highly complex. New patterns create new opportunities,but other patterns can become unsustainable

Specialization means that we rely on tasks performedby strangers. If we cannot trust what strangers do, thenwe cannot specialize. For transactions to be trustworthy,

And while the assumptionof natural greed is mathematically convenient for neoclassical theory (withoutit, their theoretical models do not work), it is ridiculed by social scientists fromother disciplines – who immediately recognize its shortcomings as a misguidedcaricature of actual human social behaviour.In fact, if real-world Homo sapiens actually behaved like Homo economicus,there is no possibility we could have survived when we first descended from thetrees somewhere in East Africa. Human beings are the only species of animalswhere unrelated individuals cooperate in performing complex tasks. This uniquesocial intelligence and ability to cooperate is precisely what allowed us to surviveharsh conditions, outperform other species of primates, and eventually proliferateto inhabit most of the planet. To support this essential cooperation over milleniaof human evolution, deeply-rooted traditions and instincts of mutual recognitionand reciprocity took hold, that social biologists and geneticists are now beginningto understand

It undervalues the unpaid work done within our homesand our communities. Because of sexism at home and in the workplace, most ofthat unpaid work is done by women; hence, GDP underestimates the economiccontribution of women.It’s especially misguided to interpret GDP as a measure of human well-being.We’ve seen that there are many valuable things that are not included in GDP. Onthe other hand, many of the goods and services that are counted in GDP are utterlyuseless, annoying, or even destructive to human well-being – like dinner-hourtelephone solicitations, many pharmaceuticals, excess consumer packaging, andarmaments production. Moreover, just because a society produces more GDP isnever a guarantee that most members of society will ever receive a bigger amountof it.So we must be cautious in our use of GDP statistics, and we must never equateGDP with prosperity or well-being.Despite these caveats, GDP is still an important and relevant measure. Itindicates the value of all production that occurs for money

So the economy is an important, perhaps even dominant, force in humandevelopment. That doesn’t mean that we should make “sacrifices” for the sakeof the economy – since the whole point of the economy is to meet our materialneeds, not the other way around. And it certainly doesn’t mean that we shouldgrant undue attention or influence to economists. But it does mean that we willunderstand a great deal about human history, current social reality, and our futureevolution as a species, when we understand more about economics