At 17:00 10/01/2004 -0500, you wrote:
Some comments below, Ed.
- ----- Original Message -----
- From: Keith Hudson
- To: Ed Weick
- Cc: [EMAIL PROTECTED]
- Sent: Saturday, January 10, 2004 3:38 PM
- Subject: Re: [Futurework] Two sorts of evolutionary economics
- Ed,
- The trouble with the passage you quote below is that in the first paragraph the writer is imputing to classical economists the idea that perfect competition has already been arrived at. (That is, largely on the whole -- there are always pockets of near-perfect competition in the case of some products.) But there has rarely been perfect competition because (nearly always) governments intervene by giving favours to some parties.
Or some parties give favours to themselves, or conspire to do so, or have special advantages.
Yes. And the person who spoke mostest and oftenest about free trade originally was also the person who spoke often about businesspeople conspiring among themselves at any opportunity.
- Perfect competition is nothing more than a static theoretical device, not something that you'd find out there in the real economy.
No, no. We reach states of near-perfect competition often enough in real life for it, like honesty or peaceful behaviour, to be aspired to whenever possible. The fact that it doesn't happen perfectly very often doesn't invalidate it. This is the big non sequitur that anti-FT people constantly hurl at free trade.
- The "What if" scenarios which have become fashionable among historians in recent years are not really anything to do with evolution except in a very broad and general sense -- certainly not susceptible to the "for want of a horshoe, the battle was lost" type arguments. They are more akin to the sort of population adjustments that take place between different animal species within an environment in which slight changes take place from time to time (e.g. temperatures, rainfall, etc) -- and rather similar to the different equilibria that can take place between molecules in a complex chemical reaction.
Life itself is complex enough without playing silly games like "What If" scenarios. I think there are too many historians in our universities now and they have nothing better to get their teeth into -- such as write some good histroy books.
- My own cast of evolutionary economics is a much narrower view of economics than usual these days but it is based a great deal more firmly on evolution as it has actually happened -- that is, the permanent acquisition of traits, particularly that of status seeking, sexual selection and social inclusion. Although economics seems to be thrown in as an appendage, as it were, it is very firmly linked to real-time evolution as it resulted in us. (I have often used the example of red oxide trading going on 75,000 years ago. This is way before what used to be considered the time of the origin of man. Now that the latter has been pushed back to something like 100-150,000 years I wouldn't mind betting that, in due course, paleontologists will find evidence of trading much nearer that date.)
- Keith
Your charge is very true. In the same way that Smith was more of a moral philosopher than what we would nowadays call an economist, and Marx was more of a sociologist and historian than he was an economist, I am pretty well a straight-line anthropologist or evolutionary psychologist rasther more than an economist. But there's a niche (a big one) there for me because the latter gentlemen and ladies have almost totally neglected inter-tribal trade. I will never forget reading an account of an anthropologist from earlier in the last century who was describing a New Guinea hunter-gatherer tribe which had never been discovered before -- almost totally isolated in one river valley, almost constantly at war with its neighbours. He mentioned -- but the significance never registered in his mind -- that, although they'd never seen a white man before -- indeed, had never seen anybody except their nearest neighbours for thousands of years -- they were using one or two steel axe heads (which, presumably, were "Made in Sheffield" or Beijing, or wherever). It's only been in the last two or three years that one or two anthropologists have realised that trade was very extensive among very early man even though they've had the evidence for decades.
- Economists, perhaps wrongly, tend not to focus on the individual or the small tribe, but on the larger system - e.g. Marx who saw the economy evolving into a worker's paradise via the dialectical process.
Yes, economist are quite wrong to concentrate on aggregates except for very general purposes such as considering trade balances (though even this is questionable because nation-states are not economic entities but conglomerations of them). (For example, half of American trade deficit is due to Chinese dollar profits, and just over half of that is due to American firms within China -- thus around $250 billion of the US deficit is entirely fictitious in a properly analytical set of accounts.)
Despite our being social, we are predominantly isolated individuals, each with a complete selfish pack of genes -- whatever else we have additionally by way of socially-assisting, partner-assisting and children-raising genes only work well in a relatively stress-free environment. As the biologists say, "In the womb, ontology recapitulates phylogeny" (or the other way round -- I can never remember!). Many a battle takes place in the foetus between more primitive selfish genes and there are many more stillbirths than successful ones because of it. (Most of these are within a day or two of fertilisation and are thus unbeknown to the mother.)
Back to aggregates, I think unemployment figures are becoming increasingly useless (even though they tended to mean something in the 1920-40s, say, or the 70s to 90s [in England]). In England today we have low unemployment (so low the figure is scarcely ever mentioned and I can't be sure myself what it is at the moment) -- but it's of the order of 3-5%. But that's not the true figure of all those who would like to work if there were suitable jobs in their locality. The true figure is more like 10-15%. In Germany, where the official unemployment figure is 11% this is more reliable but the true figure is probably nearer 15-20%. (Their true condition is not a great deal worse than us actually and this is why Schroder has had the greatest difficulty in getting even mild de-regulatory reform through parliament. He'll never manage any more and nor will anybody else until things get a great deal worse.) The important thing with unemployment is not the figure but whether the unemployed will collect in the streets and overthrow the government -- as they just did in Georgia -- or whether they take to terrorism, as they do in Chechnya (and will increasingly do in Iraq) -- or whether they just lie down and die. In the western nations, because populations have become so dependent on government welfare for a century or more, and because egalitarian education systems have creamed off the talent (for the time being that is -- intelligence replenishes itself if allowed to), the poor will lie down and die (or commit high levels of crime within their own localities) because their culture has totally lost any ideas about self-help or self-responsibility.
Keith
Keith, there are views of evolutionary economics other than yours and Schumpeter's. For example, in the following, the question appears to be one of what historic facts made the economy or the market achieve a particular equilibrium and not another of a range of possible equilibria. Would we be better off if history had take a different course and we had achieved one of the others? Essentially, if I have it right, what the authors are suggesting is understanding the economy as the product of historic selection and considering other possible outcomes by examining the evolutionary effect of alternative historic selections. Ed Mainstream welfare economics has tied its flag to the competitive market as the Panglosian structure that produces the best of all possible worlds. And of course if we are in the best of all possible worlds, there is no scope for regret. A perfect market allows no inefficiencies. This result has become a central dogma for neo-classical economists, or at least for the hard core. In the neo-classical rubric, when we observe a sub-optimal allocation in the world (which cannot be explained away as a mis-description), the vocabulary of explanation includes phrases like "market failure" or "market imperfection". Sub-optimal allocations indicate some sort of aberration--an outcome that can be considered "unnatural" in some way. Every neo-classical economist would agree that there are deviations from the perfectly competitive ideal and that some deviations cannot be fixed. But the point to note is that the starting point, and the thing taken as somehow the natural way of the world (if only governments would keep their hands to themselves) is competition, which, in the long run at least, produces ideal outcomes. On the other hand, in evolutionary economics Potential Regret may be the outcome where multiple equilibria are common and need not be welfare equivalent. The presence of multiple equilibria raises the issue of selection. How do we get one equilibrium rather than another? For evolutionary economists the answer to this question is typically "History." Selection mechanisms are inherently historical. Historical processes can have the feature of path dependence, and this is commonly present in evolutionary models. Here is the moment at which the Potential Regret result arises. Had history taken a different course in the past, we would now be at a different, and better, position. The historicity present here implies that explanations which address the issue of Potential Regret will necessarily be historical. The questions "Is potential regret possible?", or "Is potential regret actual in this case?" effectively ask what would have been the case had history taken a different course. This is a counterfactual question, equivalent in this regard to the question "What would be the effect on employment if the tax rate were reduced by x%?" This paper is concerned with this type of counterfactual, and in particular how the general tenets of evolutionary economics change the nature of counterfactuals from those in neo-classical economics. (Robin Cowan* and Dominique Foray, Evolutionary Economics and the Counterfactual Threat, April, 1999 (http://www.cgl.uwaterloo.ca/~racowan/counter.html)
- ----- Original Message -----
- From: Keith Hudson
- To: [EMAIL PROTECTED]
- Sent: Friday, January 09, 2004 12:13 PM
- Subject: [Futurework] Two sorts of evolutionary economics
- 249. Two sorts of evolutionary economics
- Most of the papers written by evolutionary economists -- in as far as I understand them -- are using the term, 'evolutionary economics', in the same sense that Joseph Schumpeter did in his famous work, Capitalism, Socialism and Democracy. However, he is not really using the term in its correct sense. He really means 'developmental' economics. This can be seen in the following passage from his book.
- An evolutionary system actually produces a multitude of branches like a great tree. As a new species breaks away from its branch it may brachiate again in due course, but sooner or later it proceeds only a little way further forward in a developmental-evolutionary way before coming to a full stop as a terminal twig as it finally accommodates itself harmoniously with the surrounding environment. Yet what Schumpeter talks about is the successive wholesale replacement of one particular technology, or consumer product, by another, not of brachiation. I don't quarrel with his description of this process as shown below, and I certainly don't quarrel with his use of the term 'Creative Destruction' -- one of the most outstanding insights in the whole field of economics -- but I am just suggesting that what he is writing about is not, strictly, speaking, evolutionary but, rather, developmental, even if it might be violent on occasion.
- In contrast, my use of the term evolutionary economics involves the fact that as homo sapiens evolved we were endowed with strong genetic predispositions. Among these is a strong need for status within the social group, particularly obvious in the case of the male. In turn, this need for status caused early man to trade for items which enhanced, or consolidated, the status of the male; and, in turn, it was this early trading that, ultimately, produced the variety of products and economic institutions that we find ourselves with today.
- That being said, I remain a great admirer of Schumpeter and the following passage shows is where he introduces his concept of Creative Destruction for the first time.
- Keith Hudson
- <<<<
- Excerpt from CAPITALISM, SOCIALSM AND DEMOCRACY (pp82/83)
- The essential point to grasp is that in dealing with capitalism we are dealing with an evolutionary process. It may seem strange that anyone can fail to see so obvious a fact which moreover was long ago emphasized by Karl Marx. Yet that fragmentary analysis which yields the bulk of our propositions about the functioning of modern capitalism persistently neglects it. Let us restate the point and see how it bears upon our problem.
- Capitalism, then, is by nature a form or method of economic change and not only never is but never can be stationary. And this evolutionary character of the capitalist process is not merely due to the fact that economic life goes on in a social and natural environment which changes and by its change alters the da'ta of economic action; this fact is important and these changes (wars, revolutions and so on) often condition industrial change, but they are not its prime movers. Nor is this evolutionary character due to a quasi-automatic increase in population and capital or to the vagaries of monetary systems of which exactly the same thing holds true. The fundamental impulse that sets and keeps the capitalist engine in motion comes from the new consumers' goods, the new methods of production or transportation, the new markets, the new forms of industrial organization that capitalist enterprise creates.
- As we have seen in the preceding chapter, the contents of the laborer's budget, say from 1760 to 1940, did not simply grow on unchanging lines but they underwent a process of qualitative change. Similarly, the history of the productive apparatus of a typical farm, from the beginnings of the rationalization of crop rotation, plowing and fattening to the mechanized thing of today -- linking up with elevators and railroads -- is a history of revolutions. So is the history of the productive apparatus of the iron and steel industry from the charcoal furnace to our own type of furnace, or the history of the apparatus of power production from the overshot water wheel to the modern power plant, or the history of transportation from the mail-coach to the airplane. The opening up of new markets, foreign or domestic, and the organizational development from the craft shop and factory to such concerns as U. S. Steel illustrate the same process of industrial mutation -- if I may use that biological term -- that incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one. This process of Creative Destruction is the essential fact about capitalism. It is what capitalism consists in and what every capitalist concern has got to live in. ....
- >>>>
- Keith Hudson, Bath, England, <www.evolutionary-economics.org>
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