Evolutionary economics

Evolutionary economics

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Evolutionary economics is part of mainstream economics
Mainstream economics
Mainstream economics is a loose term used to refer to widely-accepted economics as taught in prominent universities and in contrast to heterodox economics...

 as well as heterodox
Heterodox economics
"Heterodox economics" refers to approaches or to schools of economic thought that are considered outside of "mainstream economics". Mainstream economists sometimes assert that it has little or no influence on the vast majority of academic economists in the English speaking world. "Mainstream...

 school of economic
Economics
Economics is the social science that analyzes the production, distribution, and consumption of goods and services. The term economics comes from the Ancient Greek from + , hence "rules of the house"...

 thought that is inspired by evolutionary biology. Much like mainstream economics
Mainstream economics
Mainstream economics is a loose term used to refer to widely-accepted economics as taught in prominent universities and in contrast to heterodox economics...

, it stresses complex interdependencies, competition
Competition
Competition is a contest between individuals, groups, animals, etc. for territory, a niche, or a location of resources. It arises whenever two and only two strive for a goal which cannot be shared. Competition occurs naturally between living organisms which co-exist in the same environment. For...

, growth
Economic growth
In economics, economic growth is defined as the increasing capacity of the economy to satisfy the wants of goods and services of the members of society. Economic growth is enabled by increases in productivity, which lowers the inputs for a given amount of output. Lowered costs increase demand...

, structural change
Structural change
Structural change of an economy refers to a long-term widespread change of the fundamental structure, rather than microscale or short-term output and employment. For example, a subsistence economy is transformed into a manufacturing economy, or a regulated mixed economy is liberalized...

, and resource constraints but differs in the approaches which are used to analyze these phenomena.

Evolutionary economics deals with the study of processes that transform economy for firms, institutions, industries, employment, production, trade and growth within, through the actions of diverse agents from experience and interactions, using evolutionary methodology.

Evolutionary economics analyses the unleashing of a process of technological and institutional innovation by generating and testing a diversity of ideas which discover and accumulate more survival value for the costs incurred than competing alternatives. The evidence suggests that it could be adaptive efficiency that defines economic efficiency.

Mainstream
Mainstream economics
Mainstream economics is a loose term used to refer to widely-accepted economics as taught in prominent universities and in contrast to heterodox economics...

 economic reasoning begins with the postulates of scarcity
Scarcity
Scarcity is the fundamental economic problem of having humans who have unlimited wants and needs in a world of limited resources. It states that society has insufficient productive resources to fulfill all human wants and needs. Alternatively, scarcity implies that not all of society's goals can be...

 and rational agent
Rational agent
In economics, game theory, decision theory, and artificial intelligence, a rational agent is an agent which has clear preferences, models uncertainty via expected values, and always chooses to perform the action that results in the optimal outcome for itself from among all feasible actions...

s (that is, agents modeled as maximizing their individual welfare), with the "rational choice" for any agent being a straightforward exercise in mathematical optimization
Optimization (mathematics)
In mathematics, computational science, or management science, mathematical optimization refers to the selection of a best element from some set of available alternatives....

. There has been renewed interest in treating economic systems as evolutionary systems in the developing field of Complexity economics
Complexity economics
Complexity economics is the application of complexity science to the problems of economics. It studies computer simulations to gain insight into economic dynamics, and avoids the assumption that the economy is a system in equilibrium.- Models :...

.

Evolutionary economics does not take the characteristics of either the objects of choice or of the decision-maker as fixed. Rather its focus is on the non-equilibrium processes that transform the economy from within and their implications. The processes in turn emerge from actions of diverse agents with bounded rationality
Bounded rationality
Bounded rationality is the idea that in decision making, rationality of individuals is limited by the information they have, the cognitive limitations of their minds, and the finite amount of time they have to make a decision...

 who may learn from experience and interactions and whose differences contribute to the change. The subject draws more recently on evolutionary game theory
Evolutionary game theory
Evolutionary game theory is the application of Game Theory to evolving populations of lifeforms in biology. EGT is useful in this context by defining a framework of contests, strategies and analytics into which Darwinian competition can be modelled. It originated in 1973 with John Maynard Smith...

 and on the evolution
Evolution
Evolution is any change across successive generations in the heritable characteristics of biological populations. Evolutionary processes give rise to diversity at every level of biological organisation, including species, individual organisms and molecules such as DNA and proteins.Life on Earth...

ary methodology of Charles Darwin
Charles Darwin
Charles Robert Darwin FRS was an English naturalist. He established that all species of life have descended over time from common ancestry, and proposed the scientific theory that this branching pattern of evolution resulted from a process that he called natural selection.He published his theory...

 and the non-equilibrium economics
Non-equilibrium economics
Non-equilibrium economics deals with processes that exhibit self-reinforcing causation, as opposed to standard neoclassical equilibrium economics. This approach is represented by modern researchers in the fields of evolutionary-institutional economics, Post Keynesian economics, Ecological...

 principle of circular and cumulative causation. It is naturalistic
Natural science
The natural sciences are branches of science that seek to elucidate the rules that govern the natural world by using empirical and scientific methods...

 in purging earlier notions of economic change as teleological
Teleology
A teleology is any philosophical account which holds that final causes exist in nature, meaning that design and purpose analogous to that found in human actions are inherent also in the rest of nature. The word comes from the Greek τέλος, telos; root: τελε-, "end, purpose...

 or necessarily improving the human condition.

Predecessors


In the mid-19th century was presented a schema of stages of historical development, by introducing the notion that "human nature" was not constant and was not determinative of the nature of the social system; on the contrary, he made it a principle that human behavior was a function of the social and economic system in which it occurred.

Karl Marx
Karl Marx
Karl Heinrich Marx was a German philosopher, economist, sociologist, historian, journalist, and revolutionary socialist. His ideas played a significant role in the development of social science and the socialist political movement...

 based his theory of economic development on the premise of evolving economic systems
Economic system
An economic system is the combination of the various agencies, entities that provide the economic structure that defines the social community. These agencies are joined by lines of trade and exchange along which goods, money etc. are continuously flowing. An example of such a system for a closed...

; specifically, over the course of history superior economic systems would replace inferior ones. Inferior systems were beset by internal contradictions and inefficiencies
Inefficiency
The term inefficiency has several meanings depending on the context in which its used:*Algorithmic inefficiency - refers to less than optimum computer programs that might exhibit one of more of the symptoms of:** slow execution...

 that make them impossible to survive over the long term. In Marx's scheme, feudalism
Feudalism
Feudalism was a set of legal and military customs in medieval Europe that flourished between the 9th and 15th centuries, which, broadly defined, was a system for ordering society around relationships derived from the holding of land in exchange for service or labour.Although derived from the...

 was replaced by capitalism
Capitalism
Capitalism is an economic system that became dominant in the Western world following the demise of feudalism. There is no consensus on the precise definition nor on how the term should be used as a historical category...

, which would eventually be superseded by communism
Communism
Communism is a social, political and economic ideology that aims at the establishment of a classless, moneyless, revolutionary and stateless socialist society structured upon common ownership of the means of production...

.

At approximately the same time, Charles Darwin
Charles Darwin
Charles Robert Darwin FRS was an English naturalist. He established that all species of life have descended over time from common ancestry, and proposed the scientific theory that this branching pattern of evolution resulted from a process that he called natural selection.He published his theory...

 developed a general framework for comprehending any process whereby small, random variations could accumulate and predominate over time into large-scale changes that resulted in the emergence of wholly novel forms ("speciation
Speciation
Speciation is the evolutionary process by which new biological species arise. The biologist Orator F. Cook seems to have been the first to coin the term 'speciation' for the splitting of lineages or 'cladogenesis,' as opposed to 'anagenesis' or 'phyletic evolution' occurring within lineages...

").

This was followed shortly after by the work of the American pragmatic philosophers (James
William James
William James was a pioneering American psychologist and philosopher who was trained as a physician. He wrote influential books on the young science of psychology, educational psychology, psychology of religious experience and mysticism, and on the philosophy of pragmatism...

, Peirce, Dewey
John Dewey
John Dewey was an American philosopher, psychologist and educational reformer whose ideas have been influential in education and social reform. Dewey was an important early developer of the philosophy of pragmatism and one of the founders of functional psychology...

) and the founding of two new disciplines, psychology
Psychology
Psychology is the study of the mind and behavior. Its immediate goal is to understand individuals and groups by both establishing general principles and researching specific cases. For many, the ultimate goal of psychology is to benefit society...

 and anthropology
Anthropology
Anthropology is the study of humanity. It has origins in the humanities, the natural sciences, and the social sciences. The term "anthropology" is from the Greek anthrōpos , "man", understood to mean mankind or humanity, and -logia , "discourse" or "study", and was first used in 1501 by German...

, both of which were oriented toward cataloging and developing explanatory frameworks for the variety of behavior
Behavior
Behavior or behaviour refers to the actions and mannerisms made by organisms, systems, or artificial entities in conjunction with its environment, which includes the other systems or organisms around as well as the physical environment...

 patterns (both individual and collective) that were becoming increasingly obvious to all systematic observers. The state of the world converged with the state of the evidence to make almost inevitable the development of a more "modern" framework for the analysis of substantive economic issues.

Thorstein Veblen
Thorstein Veblen
Thorstein Bunde Veblen, born Torsten Bunde Veblen was an American economist and sociologist, and a leader of the so-called institutional economics movement...

 (1898) coined the term "evolutionary economics" in English. He began his career in the midst of this period of intellectual ferment, and as a young scholar came into direct contact with some of the leading figures of the various movements that were to shape the style and substance of social sciences into the next century and beyond. Veblen saw the need for taking account of cultural variation in his approach; no universal "human nature" could possibly be invoked to explain the variety of norms and behaviors that the new science of anthropology showed to be the rule, rather than the exception. He emphasised the conflict between "industrial" and "pecuniary" values and in the hands of later writers this was interpreted as the "ceremonial / instrumental dichotomy" (Hodgson 2004); Veblen saw that every culture is materially-based and dependent on tools and skills to support the "life process", while at the same time, every culture appeared to have a stratified structure of status ("invidious distinctions") that ran entirely contrary to the imperatives of the "instrumental" (read: "technological") aspects of group life. The "ceremonial" was related to the past, and conformed to and supported the tribal legends; "instrumental" was oriented toward the technological imperative to judge value by the ability to control future consequences. The "Veblenian dichotomy" was a specialized variant of the "instrumental theory of value" due to John Dewey, with whom Veblen was to make contact briefly at the University of Chicago
University of Chicago
The University of Chicago is a private research university in Chicago, Illinois, USA. It was founded by the American Baptist Education Society with a donation from oil magnate and philanthropist John D. Rockefeller and incorporated in 1890...

.

Arguably the most important works by Veblen include, but are not restricted to, his most famous works (Theory of the Leisure Class; Theory of Business Enterprise), but his monograph Imperial Germany and the Industrial Revolution and the 1898 essay entitled Why is Economics not an Evolutionary Science have both been influential in shaping the research agenda for following generations of social scientist
Social Scientist
Social Scientist is a New Delhi based journal in social sciences and humanities published since 1972....

s. TOLC and TOBE together constitute an alternative construction on the neoclassical marginalist theories of consumption and production, respectively. Both are founded on his dichotomy, which is at its core a valuational principle. The ceremonial patterns of activity are not bound to any past, but to one that generated a specific set of advantages and prejudices that underlie the current institutions. "Instrumental" judgments create benefits according to a new criterion, and therefore are inherently subversive. This line of analysis was more fully and explicitly developed by Clarence E. Ayres of the University of Texas at Austin
University of Texas at Austin
The University of Texas at Austin is a state research university located in Austin, Texas, USA, and is the flagship institution of the The University of Texas System. Founded in 1883, its campus is located approximately from the Texas State Capitol in Austin...

 from the 1920s.

Kenneth Boulding was one of the advocates of the evolutionary methods in social science, as is evident from Kenneth Boulding's Evolutionary Perspective
Kenneth Boulding's Evolutionary Perspective
Kenneth E. Boulding's Evolutionary Perspective is an approach to economics put forward most completely in his Ecodynamics and Evolutionary Economics had roots in his 1934 work on population theory and the age structure of capital as well as his Reconstruction with chapter titles like "An...

. Kenneth Arrow
Kenneth Arrow
Kenneth Joseph Arrow is an American economist and joint winner of the Nobel Memorial Prize in Economics with John Hicks in 1972. To date, he is the youngest person to have received this award, at 51....

, Ronald Coase
Ronald Coase
Ronald Harry Coase is a British-born, American-based economist and the Clifton R. Musser Professor Emeritus of Economics at the University of Chicago Law School. After studying with the University of London External Programme in 1927–29, Coase entered the London School of Economics, where he took...

 and Douglass North
Douglass North
Douglass Cecil North is an American economist known for his work in economic history. He is the co-recipient of the 1993 Nobel Memorial Prize in Economic Sciences...

 are some of the Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel winners who are known for their sympathy to the field.

More narrowly the works Jack Downie
Jack Downie
Jack Downie was a British economist who is famous for writing The Competitive Process.Nightingale discusses the "short but brilliant career" of economist Jack Downie, emphasising the importance of his theory of The Competitive Process for many who rejecting orthodox theory when modeling of...

 and Edith Penrose
Edith Penrose
Edith Elura Tilton Penrose was an American-born British economist whose best known work is The Theory of the Growth of the Firm, which describes the ways which firms grow and how fast they do. Writing in The Independent the economist Sir Alec Cairncross, stated that the book brought Dr...

 offer many insights for those thinking about evolution at the level of the firm in an industry.

Schumpeter's "Entwicklung"


Joseph Schumpeter
Joseph Schumpeter
Joseph Alois Schumpeter was an Austrian-Hungarian-American economist and political scientist. He popularized the term "creative destruction" in economics.-Life:...

, who lived in the first half of 20th century, was the author of the book The Theory of Economic Development (1911, transl. 1934). It is important to note that for the word development he used in his native language, the German word "Entwicklung", which can be translated as development or evolution. The translators of the day used the word "development" from the French "développement", as opposed to "evolution" as this was used by Darwin. (Schumpeter, in his later writings in English as a professor at Harvard, used the word "evolution".) The current term in common use is economic development
Economic development
Economic development generally refers to the sustained, concerted actions of policymakers and communities that promote the standard of living and economic health of a specific area...

.

In Schumpeter's book he proposed an idea radical for its time: the evolutionary perspective. He based his theory on the assumption of usual macroeconomic
Macroeconomics
Macroeconomics is a branch of economics dealing with the performance, structure, behavior, and decision-making of the whole economy. This includes a national, regional, or global economy...

 equilibrium
Economic equilibrium
In economics, economic equilibrium is a state of the world where economic forces are balanced and in the absence of external influences the values of economic variables will not change. It is the point at which quantity demanded and quantity supplied are equal...

, which is something like "the normal mode of economic affairs". This equilibrium is being perpetually destroyed by entrepreneur
Entrepreneur
An entrepreneur is an owner or manager of a business enterprise who makes money through risk and initiative.The term was originally a loanword from French and was first defined by the Irish-French economist Richard Cantillon. Entrepreneur in English is a term applied to a person who is willing to...

s who try to introduce innovation
Innovation
Innovation is the creation of better or more effective products, processes, technologies, or ideas that are accepted by markets, governments, and society...

s. A successful introduction of an innovation disturbs the normal flow of economic life, because it forces some of the already existing technologies and means of production to lose their positions within the economy.

Present state of discussion


One of the major contributions to the emerging field of evolutionary economics has been the publication of 'An Evolutionary Theory of Economic Change' by Richard Nelson
Richard R. Nelson (economist)
Richard R. Nelson is an American professor of economics at Columbia University. He is one of the leading figures in the revival of evolutionary economics thanks to his seminal book An Evolutionary Theory of Economic Change written jointly with Sidney G. Winter...

 and Sidney Winter. These authors have focused mostly on the issue of changes in technology
Technology
Technology is the making, usage, and knowledge of tools, machines, techniques, crafts, systems or methods of organization in order to solve a problem or perform a specific function. It can also refer to the collection of such tools, machinery, and procedures. The word technology comes ;...

 and routine
Routine
Routine may refer to:*Subroutine in computer science*Choreographed routine, orchestrated dance involving several performers*Comedy routine, comedic act or part of an act*Visual routine, visual cognitive means of extracting information from a scene...

s, suggesting a framework for their analysis. If the change occurs constantly in the economy, then some kind of evolutionary process must be in act, and there has been a proposal that this process is Darwinian
Darwinism
Darwinism is a set of movements and concepts related to ideas of transmutation of species or of evolution, including some ideas with no connection to the work of Charles Darwin....

 in nature. Then, mechanisms that provide selection
Selection
In the context of evolution, certain traits or alleles of genes segregating within a population may be subject to selection. Under selection, individuals with advantageous or "adaptive" traits tend to be more successful than their peers reproductively—meaning they contribute more offspring to the...

, generate variation
Genetic variation
Genetic variation, variation in alleles of genes, occurs both within and among populations. Genetic variation is important because it provides the “raw material” for natural selection. Genetic variation is brought about by mutation, a change in a chemical structure of a gene. Polyploidy is an...

 and establish self-replication
Self-replication
Self-replication is any behavior of a dynamical system that yields construction of an identical copy of that dynamical system. Biological cells, given suitable environments, reproduce by cell division. During cell division, DNA is replicated and can be transmitted to offspring during reproduction...

, must be identified.

Milton Friedman
Milton Friedman
Milton Friedman was an American economist, statistician, academic, and author who taught at the University of Chicago for more than three decades...

 proposed that market
Market
A market is one of many varieties of systems, institutions, procedures, social relations and infrastructures whereby parties engage in exchange. While parties may exchange goods and services by barter, most markets rely on sellers offering their goods or services in exchange for money from buyers...

s act as major selection vehicles. As firm
Corporation
A corporation is created under the laws of a state as a separate legal entity that has privileges and liabilities that are distinct from those of its members. There are many different forms of corporations, most of which are used to conduct business. Early corporations were established by charter...

s compete, unsuccessful rivals fail to capture an appropriate market share
Market share
Market share is the percentage of a market accounted for by a specific entity. In a survey of nearly 200 senior marketing managers, 67 percent responded that they found the "dollar market share" metric very useful, while 61% found "unit market share" very useful.Marketers need to be able to...

, go bankrupt and have to exit. The variety of competing firms is both in their products and practices, that are matched against markets. Both products and practices are determined by routines that firms use: standardized patterns of actions implemented constantly. By imitating these routines, firms propagate them and thus establish inheritance of successful practices.

A key contribution to the current discussion is Esben Andersen's book Schumpeter's Evolutionary Economics (2009).

See also


  • Behavioral economics
  • Complexity economics
    Complexity economics
    Complexity economics is the application of complexity science to the problems of economics. It studies computer simulations to gain insight into economic dynamics, and avoids the assumption that the economy is a system in equilibrium.- Models :...

  • Creative destruction
    Creative destruction
    Creative destruction is a term originally derived from Marxist economic theory which refers to the linked processes of the accumulation and annihilation of wealth under capitalism. These processes were first described in The Communist Manifesto and were expanded in Marx's Grundrisse and "Volume...

  • Cultural economics
    Cultural economics
    Cultural economics is the branch of economics that studies the relation of culture to economic outcomes. Here, 'culture' is defined by shared beliefs and preferences of respective groups. Programmatic issues include whether and how much culture matters as to economic outcomes and what its relation...

  • Darwinism
    Darwinism
    Darwinism is a set of movements and concepts related to ideas of transmutation of species or of evolution, including some ideas with no connection to the work of Charles Darwin....

  • EAEPE
  • Ecological model of competition
    Ecological model of competition
    The ecological model of competition is a reassessment of the nature of competition in the economy. Traditional economics models the economy on the principles of physics . This can be seen in the economics lexicon: terms like labour force, market equilibrium, capital flows, and price elasticity...

  • Economics
    Economics
    Economics is the social science that analyzes the production, distribution, and consumption of goods and services. The term economics comes from the Ancient Greek from + , hence "rules of the house"...

  • Evolutionary socialism
    Scientific Socialism
    Scientific socialism is the term used by Friedrich Engels to describe the social-political-economic theory first pioneered by Karl Marx. The purported reason why this socialism is "scientific socialism" is because its theories are held to an empirical standard, observations are essential to its...

  • Hypergamy
    Hypergamy
    Hypergamy is the act or practice of seeking a spouse of higher socioeconomic status, or caste status than oneself....

  • Institutional economics
    Institutional economics
    Institutional economics focuses on understanding the role of the evolutionary process and the role of institutions in shaping economic behaviour. Its original focus lay in Thorstein Veblen's instinct-oriented dichotomy between technology on the one side and the "ceremonial" sphere of society on the...

  • Natural selection
    Natural selection
    Natural selection is the nonrandom process by which biologic traits become either more or less common in a population as a function of differential reproduction of their bearers. It is a key mechanism of evolution....

  • Population dynamics
    Population dynamics
    Population dynamics is the branch of life sciences that studies short-term and long-term changes in the size and age composition of populations, and the biological and environmental processes influencing those changes...

  • Social Darwinism
    Social Darwinism
    Social Darwinism is a term commonly used for theories of society that emerged in England and the United States in the 1870s, seeking to apply the principles of Darwinian evolution to sociology and politics...

  • Innovation system
    Innovation system
    The concept of the innovation system stresses that the flow of technology and information among people, enterprises and institutions is key to an innovative process...

  • Non-equilibrium economics
    Non-equilibrium economics
    Non-equilibrium economics deals with processes that exhibit self-reinforcing causation, as opposed to standard neoclassical equilibrium economics. This approach is represented by modern researchers in the fields of evolutionary-institutional economics, Post Keynesian economics, Ecological...

  • Universal Darwinism
    Universal darwinism
    Universal Darwinism refers to a variety of approaches that extend the theory of Darwinism beyond its original domain of biological evolution on Earth...


Journals


External links