All human activity is organized using two institutions: hierarchies and the market. Voluntary associations and charities are a possible exception, but can be regarded as a subcategory of market activity, along with formal, informal and black markets.

The primary difference between hierarchies and markets is that hierarchies are intended to achieve as single goal or vision while markets strive to serve multiple goals and visions. And while markets typically lack formal structures, they none the less coordinate human activity "as if by an invisible hand."

The institution of extended trade existed prior to historical records or formal government, as evidenced by sea shell jewellery far from any ocean. In fact, archaeology has shown that Neanderthals were contemporaries with modern man and were as technologically advanced, but they never got the hang of trade. Trade is a uniquely human institution, and perhaps a defining one.

Hierarchies exist throughout the animal kingdom, but with one major difference. Social animals only cooperate with close relatives. Ant nests, bee hives and termite colonies consist entirely of identical twins. Wasp nests and lion prides consist of sisters. Most herds consist of a single sexually active adult male, his harem and their offspring.

Only domesticated animals seem willing to cooperate outside their immediate family. It might be more accurate to say that man is domesticated animal rather than a social animal. Throughout history our ancestors were faced with the choice of slavery or death, and we are the end result of this selective breeding.

The institution of slavery was developed at the same time as the domestication of animals and was first practiced by nomadic herders. Nomadic herders also supplemented their incomes by raiding nearby agrarian societies. The institution of government and the class system were invented when one group of raiders decided to settle down and collect taxes. To the extent they have kept their bloodlines pure, aristocrats are the descendants of bandits. Government, needless to say, evolved as a form of organized crime.

It should also be noted that most hierarchies have an major subdivision based on class rather than function. Specifically, enlisted men and workers were commoners while officers and managers were nobles (or at least college educated). The only functional reason for such a division is that above a certain point in the hierarchy everyone has a vested interest in preserving the structure, while those below do not.

In Systems of Survival, Jane Jacobs noted that our ethical and moral principles seemed to fall into two clusters, which I like to call Noble Values and Common Virtues. Besides their obvious class origins, they serve different functions. Specifically, Noble Values are needed for the smooth operation of hierarchical institutions, and Common Virtues are needed for markets. (See also Culture and Class .)

While the application of Common Virtues to markets is fairly obvious, the use of Noble Vritues to hierarchies is less apparent.

To a certain extent, "shun trading" is simply class prejudice where any common activity is seen as disgraceful. However, trading within a hierarchy basically means trading favors, which is to say corruption. Trading outside the hierarchy means trading with the enemy, which is to say treason.

Being loyal, showing fortitude and being fatalistic are the principle virtues of middle and lower management, since very few will ever make it to the top. Exerting prowess refers primarily to the skills of domination, which include social skills as well as fighting, lying, cheating and stealing.

(You've heard the expression "trade is theft." By the standards of Noble Values trade is worse than theft, since thieves exert prowess over mere merchants.)

Hierarchies exhibit certain tendencies not included in the Jacob's list.

First, the prime directive of any hierarchical orgainization is to preserve the hierarchy. Going over your bosses head is ultimately unforgivable, even in extreme emergencies. While the official function of a hierarchy is to implement the vision of one man, every single member (above a certain level) has a vested interest is preserving the hierarchy itself.

While empire building was not listed among the Noble Values, it is certainly a Noble Vice. Since one's position in a hierarchy is determined by how many people are under you (rather than how few are above you), the easiest way to improve your position is to increase the size of your "empire." I would argue that the trend toward corporate mergers has little to do with economics, but is simply an orgy of empire building. How else can one explain why so much effort and capital is tied up in an activity which shows so little return?

Hierarchies reward attitude over ability. Ability is important, but attitude is critical. In today's relatively class free society, attitude is the essential separating factor between workers and management. I used to work in a research lab were the average worker had a Ph.D., and the managers were not the smart ones.

An unstated but uniform rule of hierarchies is that the rules don't apply to the people on top. More precisely, expecting virtuous or even ethical behavior from a superior is itself insubordinate. After all, hierarchies were first used to support a hereditary ruler, and a good king is an oxymoron.

Another problem is that one typically tells one's superiors only what you think they want to hear, and one's subordinates what you think they need to know. Consequently, all hierarchies suffer from bad communications. Unless an organization develops lines of communication outside the chain of command, upper management will become completely out of touch with reality, and workers clueless as to where the company is headed.

Similarly, if you have an idea, every single person in your chain of command must agree with it for it to be implemented. In a market, you only need a single investor to say yes.

Corporations are interesting in that they are hierarchical organizations which operate within the market. While they inevitably become dominated by Noble Values, it they lose all touch with Common Virtues they will ultimately fail.

The health of the economy is at least partly determined by the relative balance of Noble Values and Common Virtues within the business community. When executives start reading books like The Art of War and Leadership Secrets of Attila the Hun, it is simply a matter of time before they start lying on their financial statements.

In a theoretical world where better products beat better marketing, one would expect businesses to seek the minimum size needed and shun empire building. Until then, we are mostly doomed to deal with hierarchies.