A field in economics that considers economic evolution
Evolutionary economics
is a school of
economic
thought that is inspired by
evolutionary biology
. Although not defined by a strict set of principles and uniting various approaches, it treats
economic development
as a process rather than an
equilibrium
and emphasizes change (qualitative,
organisational
, and
structural
),
innovation
,
complex interdependencies, self-evolving systems
, and
limited rationality
as the drivers of economic evolution.
[1]
The support for the evolutionary approach to economics in recent decades seems to have initially emerged as a criticism of the
mainstream
neoclassical economics
,
[2]
but by the beginning of the 21st century it had become part of the economic mainstream itself.
[3]
[4]
Evolutionary economics does not take the characteristics of either the objects of choice or of the decision-maker as fixed. Rather, it focuses on the non-equilibrium processes that transform the economy from within and their implications, considering interdependencies and feedback.
[1]
[5]
The processes in turn emerge from the actions of diverse agents with
bounded rationality
who may learn from experience and interactions and whose differences contribute to the change.
[1]
Roots of evolutionary economics
[
edit
]
Early ideas
[
edit
]
The idea of human society and the world in general as subject to evolution has been following mankind throughout its existence.
Hesiod
, an
ancient Greek
poet thought to be the first
Western
written poet regarding himself as an individual,
[6]
described five
Ages of Man
– the
Golden Age
, the
Silver Age
, the
Bronze Age
, the
Heroic Age
, and the
Iron Age
– following from divine existence to toil and misery. Modern scholars consider his works as one of the sources for early economic thought.
[7]
[8]
[9]
The concept is also present in the
Metamorphoses
by an
ancient Roman
poet
Ovid
. His
Four Ages
include technological progress: in the Golden Age, men did not know arts and craft, whereas by the Iron Age people had learnt and discovered
agriculture
,
architecture
,
mining
,
navigation
, and
national boundaries
, but had also become violent and greedy. This concept was not exclusive to the Greek and Roman civilizations (see, for instance,
Yuga Cycles
in
Hinduism
, the
Three Ages of Buddhism
,
Aztecs’
Five Suns
), but a common feature is the path towards misery and destruction, with technological advancements accompanied by moral degradation.
Medieval and early modern times
[
edit
]
Medieval
views on society, economics and politics (at least in
Europe
and
Pax Islamica
) were influenced by
religious
norms and traditions.
Catholic
and
Islamic
scholars debated on the moral appropriateness of certain economic practices, such as
interest
.
[10]
[11]
The subject of changes was thought of in existential terms. For instance,
Augustine of Hippo
regarded
time
as a phenomenon of the universe created by
God
and a measure of change, whereas God exists outside of time.
[12]
A major contribution to the views on the evolution of society was
Leviathan
by
Thomas Hobbes
. A human, according to Hobbes, is a matter in motion with one's own appetites and desires. Due to these numerous desires and the
scarcity
of resources, the
natural state of a human
is a
war of all against all
:
[13]
“In such condition there is no place for
industry
, because the fruit thereof is uncertain, and consequently no culture of the earth, no
navigation
nor the use of
commodities
that may be imported by sea, no commodious building, no instruments of moving and removing such things as require much force, no knowledge of the face of the earth, no account of time, no arts, no letters, no society, and which is worst of all, continual fear and danger of violent death, and the life of man, solitary, poor, nasty, brutish, and short.”
In order to overcome this natural
anarchy
, Hobbs saw it necessary to impose an ultimate restraint in the form of a
sovereign
.
Economic development and socialism
[
edit
]
Further theoretical developments relate to the names of prominent
socialists
of the 19th century, who viewed economic and political systems as products of
social evolution
(in contrast to the notions of
natural rights
and
morality
). In his book
What is Property?
,
Pierre-Joseph Proudhon
noted:
[14]
“Thus, in a given society, the authority of man over man is inversely proportional to the stage of intellectual development which that society has reached.”
The approach was also employed by
Karl Marx
. In his view, over the course of history superior economic systems would replace inferior ones. Inferior systems were beset by internal contradictions and inefficiencies that made them impossible to survive in the long term. In Marx's scheme,
feudalism
was replaced by
capitalism
, which would eventually be superseded by socialism.
[15]
Emergence and development
[
edit
]
The term "evolutionary economics" might have been first coined by
Thorstein Veblen
.
[1]
Veblen saw the need for taking into account cultural variation in his economic approach; no universal "human nature" could possibly be invoked to explain the variety of norms and behaviours that the new science of
anthropology
showed to be the rule rather than an exception.
[16]
He also argued that social institutions are subject to selection process
[17]
and that economic science should embrace the
Darwinian theory
.
[18]
[19]
[20]
[1]
Veblen's followers quickly abandoned his evolutionary legacy.
[16]
[21]
When they finally returned to the use of the term “evolutionary”, they referred to development and change in general, without its Darwinian meaning.
[1]
Further researchers, such as
Joseph Schumpeter
, studied
entrepreneurship
and innovation using this term, but not in the Darwinian sense.
[2]
[22]
Another prominent economist,
Friedrich von Hayek
, also employed the elements of the evolutionary approach, especially criticizing “
the fatal conceit
” of socialists who believed they could and should design a new society while disregarding human nature.
[23]
However, Hayek seemed to see the Darwin theory not as a revolution itself, but rather as an intermediary step in the line of evolutionary thinking.
[1]
There were other notable contributors to the evolutionary approach in economics, such as
Armen Alchian
, who argued that, faced with
uncertainty
and
incomplete information
, firms adapt to the environment instead of pursuing
profit maximization
.
[24]
An Evolutionary Theory of Economic Change
and beyond
[
edit
]
The publication of
An Evolutionary Theory of Economic Change
by
Richard R. Nelson
and
Sidney G. Winter
in 1982 marked a turning point in the field of evolutionary economics. Inspired by Alchian's work about the decision-making process of firms under uncertainty and the behavioural theory of the firm by
Richard Cyert
and
James March
,
[25]
[1]
Nelson and Winter constructed a comprehensive evolutionary theory of business behavior using the concept of
natural selection
. In this framework, firms operate on the basis of organizational routines, which they evaluate and may change while functioning in a certain selection environment.
[26]
Since then, evolutionary economics, as noted by
Nicolai Foss
, has been concerned with “the transformation of already existing structures and the emergence and possible spread of novelties.”
[27]
Economies have been viewed as a complex system, a result of causal interactions (non-linear and chaotic) between different agents and entities with varied characteristics.
[28]
Instead of perfect information and rationality,
Herbert Simon's
concept of
bounded rationality
[29]
has become prevailing.
By the 1990s, as put by
Geoffrey Hodgson
,
[1]
“it was possible to write of an international network or ‘
invisible college
’ of ‘evolutionary economists’ who, despite their analytical differences, were focusing on the problem of analyzing structural, technological, cultural and institutional change in economic systems… They were also united by their common dislike of the static and equilibrium approaches that dominated mainstream economics.”
In 2020, Yoshinori Shiozawa published a paper "A new framework for analyzing technological change"
Journal of Evolutionary Economics
30: 989-1034, in which the author proved that (1) technological change induces the economic growth in the sense that real wage rate increases for all workers and (2) it is the major source
of economic growth.
Evolutionary economics and the Unified Growth Theory
[
edit
]
The role of evolutionary forces in the process of economic development over the course of human history has been further explored during the past few decades, primarily by
Oded Galor
and his colleagues. A pioneer of the
Unified Growth Theory
, Galor depicts economic growth and development throughout human history as a continuous process driven by technological progress and the accumulation of
human capital
as well as by the accumulation of those biological, social and cultural features that favour further development. In
Unified Growth Theory
(2011), Galor presents a dynamic system capable of describing economic development in this way.
According to Galor's model, technological advancements in the early eras of the mankind (during the
Malthusian
epoch, with limited resources and near-
subsistence
levels of income) would lead to increases in the size of population, which in turn would further accelerate technological progress due to the production of new ideas and the increase in demand for them. At some point technological advancements would require higher levels of
education
and generate the demand for educated
labour force
. After that, an economy would
move into a new phase
characterised by
demographic transition
(given that investment into less children, although more costly, would yield higher returns) and sustained
economic growth
.
[30]
The process is accompanied by improvements in
living standards
, the position of the
working class
as necessary in order to complement technological progress (contrary to Marx and his followers, who predicted its further impoverishment), and the position of women, paving the way for further
social
and
gender equality
improvements.
[5]
[31]
Interdependent, these elements facilitate each other, creating a unified process of growth and development, although the pace may be different for different societies.
Galor's theory also refers to other fields of science, including
evolutionary biology
. He invokes, among other things, the sophisticated
human brain
and the anatomy of the
human hand
as key advantages that bolstered the development of humans (both as a species and as a society).
[31]
In
The Journey of Humanity: The Origins of Wealth and Inequality
(2022) Galor provides some statements that exemplify his evolutionary approach:
[31]
“Consider… two large clans: the Quanty and the Qualy…
Suppose that Quanty
households
bear on average four children each, of whom only two reach adulthood and find a reproductive partner. Meanwhile, Qualy households bear on average only two children each, because their budget does not allow them to invest in the education and health of additional offspring
[sic!]
, and yet, thanks to the investment that they do make, both children not only reach adulthood and find a reproductive partner but they also find jobs in
commercial
and skill-intensive occupations… Now suppose the society in which they live is one where technological development boosts the demand for the services of
blacksmiths
,
carpenters
and other trades who can manufacture tools and more efficient machines. This increase in earning capacity would place the Qualy clan at a distinct
evolutionary advantage
. Within a generation or two, its families are likely to enjoy higher incomes and amass greater resources.”
Galor, his colleagues and contemporaries have also used the evolutionary approach in order to explain the origins of more particular elements of economic and social behavior. Using the genealogical record of half a million people in
Quebec
during the period 1608-1800, it was suggested that moderate
fertility
, and hence the tendency towards investment in child quality, was beneficial for the long-run reproductive success,
[32]
reflecting the quality-quantity tradeoff observed and discussed in earlier works.
[33]
[34]
A natural experiment regarding the expansion of the
New World
crops into the
Old World
and vice versa during the
Columbian exchange
led to the conclusion that beneficial pre-industrial agro-climatic characteristics may have positively affected the formation of a future-oriented mindset in corresponding contemporary societies.
[35]
Key concepts related to
behavioural economics
, such as
risk aversion
and
loss aversion
, were also studied through evolutionary lenses. For instance, Galor and Savitsky (2018) provided empirical evidence that the intensity of
loss aversion
may be correlated with historical exposure to climatic shocks and their effects on reproductive success, with greater climatic volatility in some regions leading to more loss-neutrality among contemporary individuals and ethnic groups originating from there.
[36]
As for
risk aversion
, Galor and Michalopoulos (2012) suggested there was a reversal in the course of human history, with risk-tolerance presenting an evolutionary advantage during early stages of development by promoting technological advancements, and with risk-aversion being an advantage during later stages, when risk-tolerant individuals channel less resources towards children and natural selection favours risk-averse individuals.
[37]
Adaptive market hypothesis
[
edit
]
Andrew Lo
proposed the adaptive market hypothesis, a view that financial systems may follow principles of the
efficient market hypothesis
as well as evolutionary principles such as adaption and natural selection.
Criticism
[
edit
]
The emergence of modern evolutionary economics was welcomed by the critics of the neoclassical mainstream.
[4]
[1]
However, the field, especially the approach by Nelson and Winter, has also drawn critical attitude from other
heterodox economists
. A year after
An Evolutionary Theory of Economic Change
was published,
Philip Mirowski
expressed his doubts that this framework represented genuine evolutionary economics research (i.e., in the vein of Veblen) and not just a variant of neoclassical methodology, especially since the authors admitted their framework could include neoclassical orthodoxy.
[38]
Some Veblenian
institutionalists
claim this framework is only a “protective modification of the neoclassical economics and is antithetical to Veblen's evolutionary economics.”
[39]
Another possible shortcoming recognized by the proponents of modern evolutionary economics is that the field is heterogenous, with no convergence on an integrated approach.
[1]
Related fields
[
edit
]
Evolutionary psychology
[
edit
]
Evolutionary psychology is a theoretical approach in
psychology
that examines cognition and behaviour from a modern evolutionary perspective.
[40]
[41]
It seeks to identify human psychological adaptations with regards to the ancestral problems they evolved to solve. In this framework, psychological traits and mechanisms are either functional products of natural and sexual selection or non-adaptive by-products of other adaptive traits. Economic concepts can also be viewed through these lenses. For instance, apparent anomalies in decision-making, such as violations of the maximization principle, may be a result of the human brain evolution.
[42]
Another concept suitable for evolutionary analysis is the utility function, which may essentially be represented as the fitness evolutionary function.
[42]
Evoltunionary Psychology and Economic Behavior
There have been efforts to apply the insights of evolutionary psychology to understand economic behavior. An important part of this effort has been to use evolutionary psychology to analyze and add structure to the human utility function.
Paul H. Rubin has made significant contributions to this area of resesrch. His influential book, "Darwinian Politics," delves into the intersection of evolutionary theory and political and economic behavior, exploring how evolutionary principles shape human political preferences. This book shows that many errors in political decision making, such as a dislike of free trade, are based in our evolved mental architecture. This analysis is extended in "Folk Economics" which shows that our evolved brains are subject to zero-sum thinking.
Rubin, P. H. (2002). "Darwinian Politics." Rutgers Uuniverdity Press.
"Rubin, P. H. (2008). "Folk Economics." Southern Evonomic Journal
Evolutionary game theory
[
edit
]
Evolutionary game theory is the application of
game theory
to evolving populations in biology. It defines a framework of contests,
strategies
, and analytics into which Darwinian competition can be modelled. It originated in 1973 with
John Maynard Smith
and
George R. Price's
formalisation of contests, analysed as strategies, and the mathematical criteria that can be used to predict the results of competing strategies.
[43]
Evolutionary game theory differs from classical game theory in focusing more on the dynamics of strategy change.
[44]
This is influenced by the frequency of the competing strategies in the population.
[45]
Evolutionary game theory has helped to explain the basis of
altruistic behaviours
in Darwinian evolution. It has in turn become of interest to sociologists, anthropologists, philosophers, and economists.
[46]
See also
[
edit
]
References
[
edit
]
- ^
a
b
c
d
e
f
g
h
i
j
k
Hodgson, G. M.
(2012).
Evolutionary Economics
, in Fundamental Economics, edited by Mukul Majumdar, Ian Wills, Pasquale Michael Sgro, John M. Gowdy, in Encyclopedia of Life Support Systems (EOLSS), Developed under the Auspices of the UNESCO, EOLSS Publishers, Paris, France,
[1]
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- ^
a
b
Hodgson, G. M.
(1993).
Economics and Evolution: Bringing Life Back Into Economics
. Cambridge, UK and Ann Arbor, MI: Polity Press and University of Michigan Press.
- ^
Friedman, D. (1998). Evolutionary Economics Goes Mainstream: A Review of the Theory of Learning in Games.
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- ^
a
b
Galor, O.
(2005).
From Stagnation to Growth: Unified Growth Theory.
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Thomas Hobbes
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Proudhon, Pierre-Joseph
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(2004).
The Evolution of Institutional Economics: Agency, Structure and Darwinism in American Institutionalism
. London and New York: Routledge.
- ^
Camic, C.
,
Hodgson, G. M.
(eds.) (2011).
Essential Writings of Thorstein Veblen
. London and New York: Routledge.
- ^
Veblen, T. B.
(1898). Why Is Economics Not an Evolutionary Science?
The Quarterly Journal of Economics, 12
(3), pp. 373-97.
- ^
Veblen, T. B.
(1899).
The Theory of the Leisure Class: An Economic Study in the Evolution of Institutions
. New York: Huebsch.
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- ^
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(1919).
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Hayek, F. A.
(1988).
The Fatal Conceit: The Errors of Socialism
.
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(1950).
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March, J. G.
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(2022).
The Journey of Humanity: The Origins of Wealth and Inequality
. Penguin Random House, 2022.
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, Klemp, M. (2019). Human Genealogy Establishes Selective Advantage to Moderate Fertility.
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, Savitskiy, V. (2018).
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. NBER Working Paper No. 25273, National Bureau of Economic Research.
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, Michalopoulos, S. (2011).
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. NBER Working Paper No. 17075.
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, Capra, C. M. (2011).
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. In Roberts, S. C. (ed.), Applied Evolutionary Psychology. Oxford University Press.
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,
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Michihiro, K.
(1997).
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. In
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Further reading
[
edit
]
- Veblen, T. B.
(1898). Why Is Economics Not an Evolutionary Science?
The Quarterly Journal of Economics, 12
(3), pp. 373-97.
- Veblen, T. B.
(1899).
The Theory of the Leisure Class: An Economic Study in the Evolution of Institutions
. New York: Huebsch.
Archived
from
[24]
on November 22, 2021.
- Nelson, R. R.
,
Winter, S. G.
(1982).
An Evolutionary Theory of Economic Change
. Cambridge, MA: Harvard University Press.
Archived
from
[25]
on March 23, 2023.
- Hodgson, G. M.
(2004)
The Evolution of Institutional Economics: Agency, Structure and Darwinism in American Institutionalism
. London and New York: Routledge.
- Hodgson, G. M.
(2012).
Evolutionary Economics
, in Fundamental Economics, edited by Mukul Majumdar, Ian Wills, Pasquale Michael Sgro, John M. Gowdy, in Encyclopedia of Life Support Systems (EOLSS), Developed under the Auspices of the UNESCO, EOLSS Publishers, Paris, France,
[26]
.
Archived
from
[27]
on April 24, 2023.
- Oded Galor
(2022).
The Journey of Humanity: The Origins of Wealth and Inequality
. Penguin Random House, 2022.
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]
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