Based on his letter, Joe is a smart student indeed. He clearly states what seems so evident: as every aspect of life on this planet evolves, economic life cannot be an exception. But this fact is not reflected in economic theory. So, why is economics not an evolutionary science? Startling as it is, exactly the same question had been raised more than 120 (!) years ago by Thorsten Veblen in the title of an article in the Quarterly Journal of Economics (1). Veblen was a leading non-mainstream economist of his time. He was as much enthusiastic about founding economics on the principle of evolution (that had just started to revolutionize the sciences) as Joe is today. But Veblen’s enthusiasm had not even a lasting impact on the school that he founded (2). Why is economics still so negligent of evolution? Because the mainstream sees the economy through looking glasses of mechanical analogies (informed by the paradigm of Newtonian physics)? This was Veblen’s answer. As was proven later (3), there is indeed much evidence for mechanical analogies shaping the formation of economic theory. However, even biased looking-glasses can allow valuable insights.

The mechanical analogies do capture important aspects of the self-organization that is going on in the economy: when and how changing relative prices and opportunity costs work to adjust and coordinate the interdependent production and exchange activities; how a proper provision of monetary means facilitates these activities; how taxation, market regulation, or a changing income distribution affect the allocation of resources; and so on. (The rational actor heuristic that Joe castigates as a misrepresentation has not always played a prominent role in canonical economics. Its present dominance is due to the “microfoundations revolution” in economics in the second half of last century and the related rise of a mathematical modeling culture in the discipline. The latter pushed the extreme value calculus of classical mechanics. This requires the rational actor heuristic as interpretative counterpart.) It is for this reason, I believe, that most economists are comfortable with the quasi-mechanical paradigm. Are they likely to change their mind? Presumably not, unless considering evolution in the context of economics proves to yield new insights on and beyond those of the canonical interpretation. So, what does evolutionary economics — or evonomics — promise to offer?

Joe rightly feels that turning against overdrawn rationality claims alone will not do the job. Behavioral economics is a step in the right direction. But its agenda needs to be extended in order to accommodate the influence of evolution and to contribute to its explanation in the economic domain (4). Perhaps even more important is to extend the understanding of self-organization in the economy beyond the equilibrating processes addressed in canonical economics. The economy is a multi-level, self-organizing system in which processes can occur that undermine or disrupt equilibrium states at some level(s). These disturbances can spread across the interconnected levels and trigger ever new adaptive efforts (which may or may not converge to new equilibrium states). Where these processes are endogenously caused they need to be explained rather than being treated as unexplained “exogenous” shocks as in the quasi-mechanical approach of canonical economics. 

Endogenous disturbances result mainly when human creativity and insight are allowed to innovate production technology, trade, and commerce. Not accidentally these innovations – which can be seen as the major element of variation in economic evolution – are center stage in the Neo-Schumpeterian branch of evolutionary economics (5). The extent to which innovations occur is contingent on particular cultural, institutional, and perhaps even genetic conditions at a certain time and place (6). Innovations initially affect only particular markets and industries. But when they are successful in outcompeting established patterns of production and trade in a selection process in their industry they tend to cause disruptive repercussions also in other industries. The repercussions can cumulate and result in destabilizing effects at higher levels, in legal and political institutions, or society at large. The competitive innovative pressure that emerges often causes losses of jobs and wealth for parts of the population. Yet, although often ambiguous, at the end of the day the resulting adaptations have turned out in the past to be the main driver of economic growth.  

Once this dimension of evolutionary self-organization is taken into account lots of questions arise for which an evolutionary approach can offer the answers. Many of the questions connect back to behavior: Why and when do people engage in risky innovative ventures? What are the criteria governing the economic and political selection processes that determine which innovations succeed and thus set the course for innovative change? 

What motivates the selective and adaptive activities at the individual level that drive the expansion of the human economy and ultimately of the human niche? When do the individual motivations undercut rather than supporting the adaptive capacity of the economy as a whole (7)? These problems have been grossly ignored in the microfoundations revolution in economics. The “why”-question which Joe poses in his comment is right at their core. A good deal of the behavior is motivated by inherited dispositions that evolved in ancestral times. We need to thoroughly understand their influence as they are not necessarily well adapted to present living conditions. Further, cultural learning processes that occur at the non-cognitive as well as the cognitive level influence economic motivations and may also lead to maladaptive episodes in the unfolding of the economy (8). 

The political economy implications of the extended research agenda are highly relevant for many of the pressing problems that modern societies face. Among them are the questions of what kind of innovations should be encouraged/discouraged and on the basis of which criteria? When does then unfolding economic change imply “progress” as assessed by what kind of measuring rod? This is the teleological aspect that matters in evolutionary economics unlike in evolutionary biology. It relates not least to the overall assessment of the future of economic growth given the increasingly problematic effects it has on the ecosystem in which the human niche is embedded (9). Are the motivations we pursue with all the newly created technological opportunities worth the impact they have on the future of our species? And is the answer independent of the riches we have already accumulated? 

Doesn’t all this sound like an invitation to work on the agenda of evolutionary economics? There are challenging and rewarding opportunities for gaining important new insights on and beyond the canonical agenda. To be honest, though, evolution is no self-seller in economics. Due to the transdisciplinary nature of research on evolution, openness to engage in an interdisciplinary dialogue is required. Not least because of this fact, students of evolutionary economics often find less support at least in economics departments than fellow researchers working on mainstream topics (not to speak of being offered a ready-made, specialized curriculum). This means that you need to depend pretty much on yourself and perhaps a few like-minded colleagues in your department. But there are many fellow scholars in a similar situation dispersed all over the world. Networks can be built and exchanges can be organized at international meetings such as the International Schumpeter Society, the European Society for Evolutionary Political Economy, (in part also the Ecological Economics Society) and a few specialized national societies. My experience is that despite the geographical dispersion a functioning, strongly committed faculty has emerged on this basis. While not perfect, this is a viable situation that allows advancing the evolutionary agenda in economics with highly motivated, bright students like Joe.

Read the entire Advice to an Aspiring Economist series:

1. Introduction by David Sloan Wilson

2. Some Pessimistic Advice to an Aspiring Economist by Geoffrey Hodgson

3. The Invisible Hand is a Wishful Invention by Alan Kirman

4. The Case for Adding Darwin to Behavioral Economics by Robert Frank

5. A War Between the Economy and Earth by Lisi Krall

6. The Good, the Bad and the Ugly Truths of Being an Economist by John Gowdy

7. Do zee Chimpanzees Have zee Credit Card? by Terrance Burnham

8. Evolution is No Self-Seller in Economics. What Do We Do About That? by Ulrich Witt

9. Bringing Evolutionary Thinking Into Economics and Finance by David Hirshleifer

10. Placing Economics into the Cooperative Frame by Andreas Duus Pape

11. A Copernican Revolution in Economics by Dennis Snower

12. Advice for Evolutionary-Minded Economics Students by Donald Cox

13. Economics Will Never Move If We Try To Change It Incrementally by Blair Fix

14. My Advice to an Aspiring Economist: Don’t Be an Economist by David Bollier

References:

(1) Veblen, T.B. (1898) Why Is Economics Not an Evolutionary Science? Quarterly Journal of Economics 12: 373-397.

(2) Hodgson, G.M. (2004) The Evolution of Institutional Economics. London: Routledge.

(3) Mirowski, P. (1989) More Heat than Light. Economics as Social Physics – Physics as Nature´s Economics. Cambridge: Cambridge University Press.

(4) Burnham, T. et al. (2016) Evolutionary Behavioral Economics. In: D. S. Wilson and A. Kirman (eds.), Complexity and Evolution – A New Synthesis for Economics, Cambridge, MA: MIT Press, 113-144.

(5) Nelson, R.R. and Winter, S.G. (2002) Evolutionary Theorizing in Economics. Journal of Economic Perspectives 16: 23-46.

(6) Spolaore E. and Wacziarg, R. (2013) How Deep Are the Roots of Economic Development? Journal of Economic Literature 51: 325-369. 

(7) Wilson, D.S. (2016) Two Meanings of Complex Adaptive Systems. In: D. S. Wilson and A. Kirman (eds.), Complexity and Evolution – A New Synthesis for Economics, Cambridge, MA: MIT Press, 31-46.

(8) Witt, U. (2017) The Evolution of Consumption and Its Welfare Effects. Journal of Evolutionary Economics 27: 273-293.

(9) Binder, M. and Witt, U. (2019) As Innovations Drive Economic Change, Do They Also Improve Our Welfare? In: U. Witt and A. Chai (eds.), Understanding Economic Change – Advances in Evolutionary Economics, Cambridge: Cambridge University Press, 343-368.

Published On: December 17, 2020

Ulrich Witt

Ulrich Witt

Ulrich Witt is professor emeritus of economics and past director of the Evolutionary Economics Research Group at the former Max Planck Institute of Economics in Jena, Germany, see his website www.evoecon.mpg.de. He has published extensively on evolutionary economics and has taught graduate and PhD. courses on evolutionary economics since more than 20 years.

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