November 15, 2003


Evolutionary Economics: Foundation of Liberal Economic Philosophy (Jason Potts, Autumn 2003, Policy)

Contrary to common perception, the concept of evolution was not first invented by Darwin and it was not first observed in the Galapagos Islands. Rather, evolution was first conceived as a process at work in the economic realm, and it was first observed in 18th century European and Scottish society by the likes of Voltaire, Vico, Montesquieu, Adam Smith, and David Hume. It was generalised in the 19th and 20th centuries by Darwin and his followers into the natural realm. Since then it has spread to such contemporary domains as evolutionary psychology, evolutionary politics and evolutionary computation.

Evolutionary economics is a modern recapturing of that primacy. It is not an historical footnote, but an essential insight into the relation between evolutionary theory, economic theory and liberalism. The common ancestry of both evolution and economics stems from the moral philosophers of the 18th century Continental and Scottish Enlightenment, amongst whom were Hume and Smith. They were the first to think clearly about the nature of human knowledge in a world of change, and it was they who furnished us with the idea of evolution. Darwin’s Origin of Species was a brilliant and far-reaching application of this existing concept.

Economic evolution is about how knowledge grows. Some ideas are tested and found reliable. Others are tested and rejected, and then regenerated by new conjectures that are often variations upon those same rejected ideas. Knowledge grows by this evolutionary process. Evolutionary economics is the study of the mechanisms by which this occurs. [...]

For evolutionary economists, market capitalism—by which we mean a set of institutions relating to the exchange of property rights—is at heart an experimentally organised process of competitive rivalry, driven by the discovery of new ideas and ways of doing things.

For evolutionary economists, the concept of competition does not mean a large number of identical firms in a market for a homogeneous good. Rather, it means that someone is looking at a particular way of doing things and speculating that they could do it better, or, perhaps, that they could do something that would make it unnecessary to do what was being done in the first place.

Competitive or entrepreneurial actions create new knowledge and/or destroy old knowledge, and the market—the democracy of economic agents—decides whether or not it is a good idea. People are motivated by private gain, but if they succeed, then it becomes a public gain: an old problem is better solved, or a new problem is solved. This is what entrepreneurs do, and it is why they are central to the health of an economic society. Entrepreneurs drive economic evolution, and thereby, if harnessed, economic growth.

Humans are all biologically similar, but economically different, and that is what matters. We do not all carry the same knowledge, and this is why our economies can grow. Indeed, if we were all the same there would be no need to interact, to access the web of knowledge, because there would be no gains from specialisation and trade. Each economic agent is a specialised component of knowledge, and the central economic problem is how to coordinate this specialised knowledge. Provided interaction is preserved and remains open, both production and growth are possible. The upshot is a society of knowledge into which agents fit (in both the biological sense of ‘fitness’) and within which agents can move around by acquiring new specialisations and making new connections.

This is market capitalism. Entrepreneurs propose, institutions facilitate, markets decide, and knowledge grows. And when knowledge grows, societies progress. As new knowledge is discovered and used to solve problems, invariably generating further problems, the economy evolves as an ever-changing structure of opportunities and constraints in an ever-present cloud of uncertainty and rival conjecture.

Obviously in economics it is Man who proposes ideas, tests them, chooses among them, then proposes adaptations. No one would question the brilliant insight of Darwin that Nature seems to have proceeded similarly. But the question arises: in Darwinism, who is doing the proposing and disposing? Natural forces appear to suffice for the kind of slight variation within species that was evident to him from studying how local farmers bred animals. But large-scale changes that create genuinely new species likewise appear to be quite similar to new ideas that are being tried out.

Posted by Orrin Judd at November 15, 2003 5:48 PM

Darwin's theories would not have been accepted so quickly and so widely without the writings of Hegel, who basically stretched philosophy into a form (or pathway) of historical evolution. Once Kant put metaphysics into the grave, it was only a matter of time before new paradigms came along to fill the void.

Given the state of the church and Christianity in general after the Reformation withered into pettiness, it is easy to understand why Hegel and Darwin would inspire more optimism. But Nietzsche took care of that foolishness. Since then, no one on the 'secular' side has an excuse for believing that any "evolution" is ever going to make things better.

Posted by: jim hamlen at November 15, 2003 10:17 PM

Mr. Judd;

You still don't seem to quite get the essence of evolutionary theory. This is that complex, self sustaining systems can arise without a central authority, i.e. through the local actions of elements in the system. You don't need a directing deity to explain the biosphere anymore than you need a Central Economic Planning Comittee to explain the US economy. This is very similar to the problem that many of the Soviet leaders have - they simply could not comprehend that the US economy could function without a central, explicitly directing authority.

The fact that the invotations in the economy are the result of intelligent decisions by individual people is just an implementation detail and not an essential feature of the system.

Now, you could back up a bit and talk about the legal infrastructure the permits capitalism, which is far less evolutionary. But then you have a Spinozan God, not an interventionist one.

Posted by: Annoying Old Guy at November 15, 2003 10:45 PM

Brilliant Jim. I've always wondered why the term "evolution" hasn't been abandoned for just "differentiation" in secular circles.

Posted by: Judd at November 16, 2003 7:51 AM


I agree--there need not be one intelligence--but intelligence is obviously a key element of the system to which Darwin hoped to analogize. The failure of his theory seems to precisely relate to the incompleteness of his analogy--the deletion of that intelligence.

Posted by: oj at November 16, 2003 9:10 AM

Potts does not understand either economics or darwinism, though he's weaker on darwinism.

To say that each is "evolutionary" is meaningless, though it is trivially correct that each evolves.

Market capitalism is unable to account for all inputs. There are many desirable things that can be attained only by forgoing short-term profits -- the blackout this year in the eastern states is an obvious example.

In economics, eventually these mistakes are caught up with and paid for, and to some extent corrected.

It is not merely that market capitalism devalues things that have an actual value, but it is incapable even of identifying all inputs.

Darwinian evolution automatically identifies all inputs, so that problem does not occur. However, unlike an economy, biological failures cannot be fixed up afterwards. Once you're extinct, you're extinct.

J.R. Simplot would have been extinct under a Darwinian evolutionary system. Under market capitalism, he's thriving.

The philosophical underpinning of Darwinian evolution has been expressed best (and almost alone) by Ernst Mayr, whose key insight is that life operates according to population dynamics (what he calls "population thinking") and that nothing else does. (He does not actually say nothing else does; he merely says that life does, but I cannot identify anything else that does.)

Potts makes the most obvious kind of category error.

Posted by: Harry Eagar at November 16, 2003 3:51 PM

Mr. Eager;

You're making a category error as well. Market capitalism doesn't value anything because that's not what it's for. It's a system to allow individuals to act on their own values. It's a tool, like science, that works very well in the real world. But it doesn't create or determine "value" in the sense you use it here. The humans who use the tools do that.

Posted by: Annoying Old Guy at November 16, 2003 5:43 PM

Or Mayr does, we don't know yet.

Posted by: oj at November 16, 2003 6:19 PM


In the biosphere, DNA serves as the repository for inheritance, and a major, though not exclusive, source of variation.

In the economy, intelligence fills the same role as DNA does in the biosphere. Unfortunately, you get distracted by the word at the expense of acknowledging the role the word performs.

AOG could not possibly have put the case better.

Posted by: Jeff Guinn at November 16, 2003 10:00 PM

I acknowledge that DNA is words or intelligence--a written language even. What was your point?

Posted by: OJ at November 16, 2003 11:06 PM

"Intelligence" is not the same as "Designer."

And whether Intelligence or DNA, the change process, which is what Evolutionary Theory explains, remains the same.

Which means no clock-maker is required to make one heck of a clock.

Posted by: Jeff Guinn at November 17, 2003 7:23 AM

BTW--that includes large scale changes, as well.

Posted by: Jeff Guinn at November 17, 2003 7:24 AM


No one said anyrthing about a Designer--that's the classic Darwinian problem, presenting it as a choice between Darwin or Creationism. In fact, the point is the weaknesses in the theory itself, not the absence of a better alternative. The main weakness appears to flow from the attempt to analogize to intelligence driven evolutions, like animal breediong, but to dispose of the key element of intelligence.

Posted by: OJ at November 17, 2003 8:25 AM


You make claims for analogy the analogies themselves don't make.

The analogies only wish to make the case that any system sharing a specific set of characteristics will behave in similar ways over time. Additionally, the extent the system behavior is similar, then one may hypothesize that types of outcomes in one system are not prohibited to another, similar system. This is important where cycle times of one system are so long as to prohibit detailed understanding of all the intermediate states.

Possibly the most important thing to keep in mind, though, is that none of the characteristics of an evolutionary system have anything to do with intelligence, or lack thereof. In this respect, intelligence is far from key, it is irrelevant.

Posted by: Jeff Guinn at November 17, 2003 12:24 PM

You keep saying that and it never gets any truer. Economics and language don't require a Designer, but they do require intelligent beings.

Posted by: oj at November 17, 2003 12:33 PM

Do the terms evolutionary psychology, evolutionary politics, and evolutionary computation have any real meaning?

Posted by: jim hamlen at November 17, 2003 12:44 PM


Obviously any system in which intelligent beings are involved evolves. By including evolutionary in the name you get to pretend that Nature drove the development rather than intelligence.

Posted by: oj at November 17, 2003 1:38 PM

How about evolutionary music? Britney Spears is the evolution of say, Nina Simone or Dusty Springfield.

But I hear the rejoinder already - intelligence, dammit, intelligence.....

Posted by: jim hamlen at November 17, 2003 2:15 PM


What they require for existence, and how they change over time are no more alike than chalk and cheese.

Posted by: Jeff Guinn at November 17, 2003 10:30 PM

(Accidentally hit the post button)

Intelligence is an ingredient. Evolution is a process.

Posted by: Jeff Guinn at November 17, 2003 10:33 PM

A process that requires intelligence, like making chalk and cheese.

Posted by: OJ at November 17, 2003 11:24 PM

Only if it has a goal.

Classical economists assume, mostly wrongly, that economic action is driven by self-interest.

Evolution isn't driven by anything. It just goes.

Posted by: Harry Eagar at November 18, 2003 9:03 PM

And then stops once Man arrives.

Posted by: oj at November 18, 2003 10:00 PM

Evolution is also driven by self-interest. Just not the conscious kind.


Evolution doesn't stop with the arrival of humans, not even for humans.
We merely get to tinker with it a bit more than any other species.

Posted by: Michael Herdegen at November 19, 2003 8:31 AM

Right, this is an entirely coincidental period of complete stasis that's lasted for all of the history of the one species capable of coming up with the theory and observing it in action.

Posted by: OJ at November 19, 2003 8:38 AM

You don't seem to have an appreciation for the immensity of time.

You could have said the same for virtually any 3,000 year period of earth's history.

Just big change happens rarely, and smaller changes happen more slowly than your arbitrarily small time frame can readily detect, doesn't mean they don't happen.

For intellectual consistency, you reject plate tectonics, of course.

Don't you?

Posted by: Jeff Guinn at November 20, 2003 7:30 AM

If there were no seismographs and earthquakes I'd be dubious.

Posted by: OJ at November 20, 2003 7:43 AM

Well, all those things just show there are meaningless, small changes. Certainly nothing amounting to the moving of continents, since none of that has been observed throughout human history.

Posted by: Jeff Guinn at November 21, 2003 7:24 AM

That's precisely what it is--movement of the continental plates.

Posted by: oj at November 21, 2003 8:15 AM