Monday, April 4, 2011

Elevator Speech #1--evolutionary thinking

Real economics are best described by evolutionary theory

In 1859, Charles Darwin would publish his seminal work entitled "On the Origin of Species by Means of Natural Selection, or the Preservation of Favoured Races in the Struggle for Life."  This work would set off controversies that resound to this day.

Before Darwin, the generally accepted idea was that the world was the way it was because that is how the Creator wanted it.  The majority of intellectual speculation, whether of a scientific, philosophical, or religious nature, assumed that the goal in life was to discover those divine rules that ordered a fixed universe.  After Darwin, while folks still sought to discover the natural laws with universal applications, the focus shifted to describing the mechanisms of change.

No wonder Darwin is often considered the most disruptive thinker in history.

Taking Darwin out of the biology context is a hazardous occupation.  The ugliest of the non-biological manifestation of Darwin's theories is often called "Social Darwinism."  Perhaps the most famous social Darwinist in USA was the 19th century chairman of Political Economy at Yale by the name of William Graham Sumner.  His most famous student was a kid from Minnesota named Thorstein Veblen.

Veblen was influenced by Sumner--though not in ways usually expected.  Veblen thought Social Darwinism was a monstrous error and devoted much of his life's work to debunking Sumner's teachings.  This did not mean Veblen rejected the theories of evolution.  Far from it.  In 1898, even before his first book was published, Veblen wrote an incredibly important paper entitled “Why is Economics Not an Evolutionary Science”.

Suddenly, the extant economics looked as static and ridged as any holy book.  Veblen would go on to write a body of work that would described "economic man" as a dynamic actor with complex motives who was constantly evolving.  Veblen is usually considered one of the fathers of a discipline called evolutionary economics.  Wikipedia defines this speciality thus:
Evolutionary economics is part of mainstream economics as well as heterodox school of economic thought that is inspired by evolutionary biology. It stresses complex interdependencies, competition, growth, structural change, 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 is validated by the existence of something that can only be called evolutionary industry.  Toyota imported evolutionary concepts into their system of quality control and called it Kaizen (continuous improvement).  The results were stunning--Toyota so revolutionized quality control they were able to leverage this reputation into their present status as world's largest automaker.

Why this is important

Evolutionary economics, especially in its heterodox manifestations, is hands down the best ways to understand and describe the complexity of the real world.  Typical non-evolutionary economic statements like
The market is always rational
A corporation exists only to maximize the return to the shareholders
Free Trade will bring generalized prosperity
are wrong because they are as static and ridged as any theological statement they so resemble.  This blog rejects static economics--mostly because dynamic descriptions of economic behavior are far more accurate.

Evolutionary industry is important because if we ever produce one, the green sustainable society will happen one tiny little improvement at a time.  And the folks MOST likely to create those new green bits and pieces are those most industrially evolved already.

Links to other posts at real economics on this subject

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