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Just a quick comment, Keith, perhaps more
later.
I said:
- Perfect competition is nothing more than a
static theoretical device, not something that you'd find out there in the real
economy.
Then you said:
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.
Take a look at any standard Ec 101 textbook. It
really is a theoretical model used to illustrate the most efficient use of
society's productive resources. It could only happen in situations of
complete freedom and equality, and such situations are so rare as to be
non-existent.
Ed
----- Original Message -----
Sent: Sunday, January 11, 2004 2:54
AM
Subject: Re: [Futurework] Two sorts of
evolutionary economics
Ed,
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.
I would suggest that "what if" scenarios
can be very useful to learning from history - as in what went wrong, or
what was overlooked, or how do we ensure that it doesn't happen
again. For example, institutions like central banks able to set
monetary policy were responses to crises that existed before their were
such banks.
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
Keith, when I read your version of
evolutionary economics, I often find myself wondering how and why it
differs from anthropology or evolutionary psychology. Your focus is
very much on the individual and not on the system. Your focus on the
dominant male and the need for red ochre hence the need for trade is not
unlike something an anthropologist would come up with, though I suppose an
economist could too.
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
Ed
At 15:06 09/01/2004 -0500, you wrote:
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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