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Economic and Institutional Change
Economics has used “evolution” for more than a century, mostly as a reproach to its own mainstream: a theory of equilibrium, its critics have said, cannot explain how an economy changes. What the word meant to those critics ranged from development unfolding from within to selection among competing firms and rules, and the field sorted its own cases by how much of Darwin they carried.
Veblen’s question and Marshall’s Mecca
Thorstein Veblen’s “Why Is Economics Not an Evolutionary Science?” (Quarterly Journal of Economics, 1898) charged the economics of his day with seeking a normal, stable state rather than tracing a process, and proposed instead a science of cumulative change in institutions, the habits of thought that material circumstances shape and that in turn shape them. Geoffrey Hodgson’s history of the school, The Evolution of Institutional Economics (2004), argues that institutionalism began Darwinian with Veblen and lost that content in the hands of his successors, John R. Commons and Clarence Ayres. Alfred Marshall, whose Principles of Economics consolidated the neoclassical tradition Veblen attacked, wrote in its preface that “the Mecca of the economist lies in economic biology rather than in economic dynamics”, and kept mechanical analogies and equilibrium only for convenience, because “biological conceptions are more complex than those of mechanics”.
Schumpeter’s development from within
Joseph Schumpeter made change from within the centre of his economics: the entrepreneur’s new combinations disturb every equilibrium, and creative destruction is the way capitalism develops. He kept the word “evolution” for it in Business Cycles (1939), though it was “objectionable on several counts”, because “it comes nearer to expressing our meaning than does any other”, and he refused the biology that went with the word: in the History of Economic Analysis (1954) he held that no appeal to biology would be of the slightest use. His sense of the word is development, the unfolding of a system from its own resources, and Hodgson’s study of him (1997) concludes that he was an evolutionary economist but that there is no legitimate basis for calling his approach Darwinian.
Alchian’s selection without maximisers
Armen Alchian’s “Uncertainty, Evolution, and Economic Theory” (Journal of Political Economy, 1950) argued that under uncertainty profit maximisation is not a well-defined guide to action, but that the market selects the firms that happen to realise positive profits, whatever their managers intend. Outcomes that look like maximisation can emerge without maximising agents. Milton Friedman took up the argument in 1953 to defend treating firms as if they maximised, and Edith Penrose (1952) objected that it left out the deliberate choices by which firms actually change.
Hayek’s cultural selection of rules
Friedrich Hayek developed, from The Constitution of Liberty (1960) to The Fatal Conceit (1988), an account of the rules of conduct that sustain a market order as the products of cultural evolution. The decisive factor, he wrote, was “not the selection of physical and inheritable properties of individuals but the selection by imitation of successful institutions and habits”, and groups that followed better rules prospered and were imitated. “Cultural selection is not a rational process; it is not guided by but it creates reason.” The unit is the group, the inheritance is by learning and imitation, and it is the group selection that critics pressed: Viktor Vanberg (1986) argued that Hayek’s theory could not show why rules good for a group would spread among individuals who bear their costs.
Routines and the modern field
Richard Nelson and Sidney Winter’s An Evolutionary Theory of Economic Change (1982) supplied the apparatus the earlier programmes lacked: routines that “play the role that genes play”, search as the source of variation, and the market as the selection environment. They called the theory “unabashedly Lamarckian”, since firms change their routines in response to what happens to them (see Lamarck and the inheritance of acquired characters). The field that grew from the book includes Giovanni Dosi’s technological paradigms and trajectories (1982), which transposed Kuhn’s paradigm to technology, J. Stanley Metcalfe’s models of competition as selection (1998), and Ulrich Witt’s The Evolving Economy (2003). Its central theoretical dispute sets the generalised Darwinism of Hodgson and Thorbjørn Knudsen, for whom variation, inheritance and selection are general principles with domain-specific mechanisms, against Witt’s continuity hypothesis, for which economic evolution is continuous with biological evolution and constrained by it, not an analogue of it; the exchange is set out under the criterion. Nelson himself (2006) accepted a broad universal Darwinism, a “roomy intellectual tent” in which mechanisms may differ greatly, and rejected the narrow one of close biological counterparts.
See also: Evolution (the subject landing) · The criterion · Lamarck and the inheritance of acquired characters · Cultural extensions of Darwinism · Veblen · Schumpeter · Hayek · Nelson · Arthur