Economic evolution and equilibrium

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Species struggle for ascendancy in the biological jungle and people struggle for ascendancy in the economic jungle.

Economic Evolution

But while species struggle in an impassive environment of biological law, the economic struggle seems driven by human volition and ambition. But routines and rules are difficult to portray as the drivers of an evolutionary process.

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They tend to stabilise activity, rather than change it. It is difficult to explain actual historical economic evolution through changes in routines and rules. Here, then, is a new attempt to provide an evolutionary economics, utilising the theory of support-bargaining and money-bargaining introduced to WEA members in Newsletter of December Support-bargaining identifies a sense of individual insecurity as a primary psychological trait.

To alleviate this sense of insecurity, individuals seek the support of others, thus creating groups. Both support-bargaining and money-bargaining are situation-related. People determine their interests and requirements by reference to their present circumstances. This gives a natural evolutionary dynamic. Societies evolve from situation to situation.

The centrepiece of the book is a re-interpretation of the industrial revolution.

It is argued that the essential of the revolution was the transition from a society dominated politically and economically by landowners to a society dominated in the economic sphere by companies. Companies function as specialist money-bargaining agencies, formatting to meet a viability condition. The historians of the industrial revolution missed the essential flux of the revolution. The emphasis has been on structural change, technology, factories, steam power, etc, but without a strong focus on companies the industrial revolution is not well understood.

It is argued that company formats in cotton production, iron production and railways constituted the essential factors in the British national industrial revolution, and company formats in shipbuilding and shipping services constituted the essential factors in the subsequent global expansion of trade. The evolutionary theory of support-bargaining and money-bargaining gives a new perspective on the old theory. This is particularly apparent in the theory relating to foreign trade.

David Ricardo developed his theory of comparative advantage in the context of his campaign in the British Parliament for repeal of the Corn Laws. He assumed a barter economy, in which advantages of comparative productivity would dictate production patterns. But in the context of a money-bargaining system, unit costs dictate which companies are ascendant. Weakness in productivity can be offset by adjustment to wage rates to give competitive unit costs. Furthermore, in an evolutionary system, advantage is never fixed.

How energy conversion drives economic growth far from the equilibrium of neoclassical economics

Companies evolve their formats in accordance with changing circumstances. But understood in terms of an evolutionary money-bargaining system, the definitions are misconceived. Economies do not function in the way Keynes portrays. Their formats incorporate technology as critical components. Oded Galor and Stelios Michalopoulos examine the coevolution of entrepreneurial spirit and the process of long-run economic development. Specifically, they argue that in the early stages of development, risk-tolerant entrepreneurial traits generated an evolutionary advantage, and the rise in the prevalence of this trait amplified the pace of the growth process.

However, in advanced stages of development, risk-aversion gained an evolutionary advantage, and contributed to convergence across countries. A basic economic concept such as utility may be better viewed as due to preferences that maximized evolutionary fitness in the ancestral environment but not necessarily in the current one. Loss aversion may be explained as being rational when living at subsistence level where a reduction of resources may have meant death and it thus may have been rational to place a greater value on losses than on gains.

People are sometimes more cooperative and altruistic than predicted by economic theory which may be explained by mechanisms such as reciprocal altruism and group selection for cooperative behavior. An evolutionary approach may also explain differences between groups such as males being less risk-averse than females since males have more variable reproductive success than females. While unsuccessful risk-seeking may limit reproductive success for both sexes, males may potentially increase their reproductive success much more than females from successful risk-seeking.

Frequency-dependent selection may explain why people differ in characteristics such as cooperative behavior with cheating becoming an increasingly less successful strategy as the numbers of cheaters increase. Another argument is that humans have a poor intuitive grasp of the economics of the current environment which is very different from the ancestral environment.

The ancestral environment likely had relatively little trade , division of labor , and capital goods. Technological change was very slow, wealth differences were much smaller, and possession of many available resources were likely zero-sum games where large inequalities were caused by various forms of exploitation. Humans therefore may have poor intuitive understanding the benefits of free trade causing calls for protectionism , the value of capital goods making the labor theory of value appealing , and may intuitively undervalue the benefits of technological development.

There may be a tendency to see the number of available jobs as a zero-sum game with the total number of jobs being fixed which causes people to not realize that minimum wage laws reduce the number of jobs or to believe that an increased number of jobs in other nations necessarily decreases the number of jobs in their own nation. Large income inequality may easily be viewed as due to exploitation rather than as due to individual differences in productivity. This may easily cause poor economic policies, especially since individual voters have few incentives to make the effort of studying societal economics instead of relying on their intuitions since an individual's vote counts for so little and since politicians may be reluctant to take a stand against intuitive views that are incorrect but widely held.

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Rubin and C. Monica Capra. The evolutionary psychology of economics. In Roberts, S. Roberts, S. Craig ed. Oxford University Press. Northampton, MA: Edward Elgar. Chapter preview links. Journal of Evolutionary Economics. Journal of Economic Literature. The Quarterly Journal of Economics. Macroeconomic Dynamics.

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