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Evolutionary Economics


Saturday, March 1st, 2023


Companies as living beings


Today, I first want to make an idea interesting and then warn against it. The idea is that populations of companies in a market economy could become very much more competitive by actively imitating some key-features of biological evolution. The warning will be that such companies may develop a life of their own. They may pay as little attention to our welfare as we do to the welfare of the single cells that make up our bodies.

Historically, Victorian Britain and continental Germany where prolific breeding grounds for biological thinking in the spheres of politics and economics. A historic view at the 19th century will provide a good start for todays train of thought.

A 19th-Century Scrabble Game of Ideas


Scrabble is a game where it helps if you can form as many words out of a given set of letters as possible. How many words can you make out of the letters M U A N W S I O? Letters may here be used more than once for each word. If we ban words of less than three letters, there are still many solutions. You should at least find four common English words with more than two letters of the given letters.

There are two psychologically interesting effects this game has. Firstly, letters for themselves usually carry little meaning. The letter A for example is a full word, namely an indefinite article as in "a person". But without a noun that goes with it, the article "a" in itself is an empty piece of text. Only when we arrange letters into words does meaning begin to emerge. Secondly, as we increase the number of given letters the number of possible words increases at a much higher rate. It would be interesting to find out how many proper English words can be formed out of the n first letters of the alphabet as we increase n from 1 to 26. (English has more than 400 tousands words.) What we observe is that the number of possible meanings explodes as the number of letter rises. I would like to call this the combinatorial explosion.

If we equate letters with facts and meaning with hypotheses, we can play a Scrabble Game of Theories. Michael Farayday (1791 to 1867) arranged some facts about magnets and electrical currents into a theory of electromagnetism.

The first half of the 19th century can be sketched by a few events and names known to most educated people. Use these to create some live image of those times in your mind: The Napoleonic Wars, The first steamships and steam-trains, The Wild West in America, Slavery abolished in Britain (but not in the USA), hot air balloons, Jane Austens Pride and Prejudice, Dr. Faustus by Goethe, Beethoven, Marxisms as a revolutionary theory, Charles Dickens (Oliver Twist) and Edgar Allan Poe in the USA.

Younger people living in the first half of the 19th century may have heard life accounts from some of the following events from the preceding century: the US Declaration of Independence (1776), the last "witch" executed in Switzerland (1778), the first hydrogen-filled balloon rising into the air (1783), piracy dying out in the Carribean, and the Reign of Terror (1793) associated with the French Revolution.

For any person living in the first half of the 19th century, for example around the year 1830, the following phenomena were still in the far future: proper anasthetics, aircraft, washing machines, a National Health Service, the First World War, electric lights, Hamburgers, the construction of the Suez Canal, and the Downfall of the Turkish Ottoman Empire.

Transport yourself back about 170 or 200 years in time then. Try to imagine the thrill of each new discovery, each new political thought. Geologists were beginning to discover Deep Time, the slow recognition that earth was older than a few thousand years of biblical history (a new fact). The discovery of the first dinosaurs (a new fact), the astonishing successes of capitalism and market economies (a new fact). The discovery that many natural phenomena such as the length of wings of flies, followed strict rules of statistics (a new fact). Such ideas formed the letters out of which the Scrabble game of science and imagination formed new hypotheses and theories. With each new idea, the number of possible theories grew rapidly. The 19th century saw a combinatorial explosion of hypotheses fuelled by the correlation of ever new findings and facts. The idea of biological evolution was one such idea.

Finding the Obvious Can be Hard Work


When I first heard of Darwinian Evolution in school, I wondered why it was taught at all. I tought it was so obvious that it needed no explaining: out of a given number of organisms, only those survive or multiply that are best adapted to their environment. Add to this the idea of generations and you get evolution. This obvious fact had indeed long been used by farmers, pigeon breeders and botanists alike to shape crops and livestock to their needs. Was it not obvious that the same principles are at work in nature?

Bear in mind that the Central and Southern American civilizations of the Mayas, Aztecs and Incas could foretell astronomical events centuries ahead; they had built cities larger than London (at their time) and they had an effective political system to sustain empires thousands of kilometres in length. Yet to not one of those advanced people did it ever occur to build a functioning wheel to carry heavy weights. As obvious as a wheel may seem to us today, it is not so obvious an invention as to jump at any persons mind. The chances are high that you wouldn't invent the wheel today if it didn't already exist.

When Charles Darwin developed his theory of evolution, the obvious was perhaps obscured by too many facts rather than too few. Here comes another interesting psychological phenomenon. Try it with some other person. Ask someone to think up any multiplication problem with two numbers smaller than 10. Most people will quickly say something like "two times four" or "eight times nine". Then ask someone else but of a similar age to think up any mathematical problem. You will probably wait much longer for an answer than before. This is astonishing. The first question put more restrictions on the answer (only multiplication, small numbers) than the second question. The second question allowed for much more freedom, more choices to pick an answer from. But paradoxically, freedom here seems to make an answer harder.

Too many choices may not help the quick solution. Antelopes and zebras, it is said, actively confuse lions and similiar hunters by presenting to them ever changing pieces of prey. If each second a new antelope moves into the field of vision of the lion the lion will never successfully focus on any one antelope long enough to catch it. If this phenomenon doesn't already have a name, the lion-antelope-paradox would be a good one. Whether the paradox reflects a biological truth or not, it is a good simile for a specific class of problem in science: an overabundance of possibly relevant factors one could pick from to explain this or that phenomenon.

To appreciate this kind of problem, ask any scientist of the Economic Sciences about the decisive factors of the economic success of a country. Why, for example, do many Catholic countries share a similiar state of economics (Latin America, Phillipines) and many more Protestant countries another state (former Commonwealth Nations for example)? Does the religious outlook of the different peoples play a role? Is it, as sociologist Max Weber suggested, true that Protestants tend to seek their religious reward in earthly success, i. e. business life, whereas Catholics think more in terms of purgatory, heaven and hell, thereby neglecting earthly affairs to some measure? If you were a modern sociologist interested in the foundations of economic welfare, does Webers theory enlighten or obscure the factors you are looking for? Appreciate how much study is needed to decide this single and simple question alone. When Darwin thought about the large variety of organisms living on earth he too sought to find the key factors playing the major role. Was it that organisms developed specific traits, such as sharper teeth, during their lifetime and then passed those new traits on to their offspring? French biologist Lamarck (1744 to 1829) thought that giraffes had developed their long necks in such a way. Or was there some non-material agent at work, some living force of a more spiritual kind? (Orthogenesis is a word you may wish to look up in this direction.) Or was there no appreciable change in the species at all? Had all species been there from the beginning of Creation? At the time of Darwin, this theological idea was quite dominant. Each one of these notions may be either relevant or misleading or something inbetween. Darwins stroke of genius was perhaps less to find the relevant factos but to dismiss the irrelevant ones. A child, who is asked for the sum of 3 and 2 may answer rightfully by listing possible solutions like four, five, six, seven or eight. But, although right in the strict logical sense, is not very useful. Neither does it tell how well the child has understood adding. Singling out the relevant things and explicitly stating the irrelevant is the most useful form of an answer. Having done that by presenting a huge amount of biological data to support his the principles of evolution is Darwins great achievement. So, how did he get there?

Darwins Astonishing Discovery of the Obvious


In his correspondence with Herbert Spencer, Charles Darwin showed how much the economic writings of Thomas Robert Malthus (1766 to 1834) and Adam Smith (1723 to 1790) had influenced his thinking. Smith had laid out a master-plan for market economies. And Malthus had argued that the number of humans, generally speaking, grows faster than ressources to sustain their life. This will inevitably lead to recurring catastrophes diminishing the number of people alive. It is said that this idea sparked Darwins understanding of evolutionary changes in the biological world. Plants and animals usually produce more offspring than can later surive to adulthood. If the different children also have different traits such as long or short beaks for birds, for example, some are better equipped to survive than others. And, as was known at Darwins time from domestic breeding of livestock, if some of the relevant traits are passed on from parents to children, it follows that parents that are better adapted to their environment will produce more offspring. Add to this the statistical thinking of the newly emerging social sciences as favoured by Auguste Comte (1798 to 1857) and the notion of geological Deep Time and you get biological evolution. Although changes between two successive generations may be almost imperceptible, over hundreds or thousands of years, the mechanisms formulated by Darwin can, in principle, explain the full richness of biological species. Here are the basic principles of Darwinian evolution.


From Biology to Politics


Once Darwin had formulated the principles of evolution, these principles seem to have been as obvious to many of his contemporaries as the invention of the wheel seems to us now. The idea of evolution by variation and selection spread fast and far from its place of birth. Thomas Huxley, a broad minded scientist and contemporary of Darwin, was one of the causes of the spreading. Huxley aggressively popularizied Darwins ideas, especially in a close confrontation with the church. Huxley was soon to be called Darwins bulldog. In Germany, it was Ernst Häckel who helped to spread Darwinism. By the turn of the century, around the year 1900, Darwinism had not only conquered biology but it had also made a strong incursion into the political sphere. Social Darwinism was gathering momentum. The simplicity of Darwins principles had perhaps impressed itself upon the minds of many people with little or no biogical training.

In 1913, the First World War was to be started the next year, an influential German military historian (not a biologist), Friedrich von Bernhard, published a book titled Germany and the Nex War. I have translated a few quotes from the German original. Bernhardi writes: "Struggle (Kampf) ist the one natural law all other laws of nature can be reduced to. All goods owned by a society, such as thoughts, inventions, institutions like that of the state itself, are a result of inner social struggles where one thing persists while the other perishes. The struggle over and above societies that guides the development of societies is war." The whole book is written in this vein.

This is poorly shallow thinking.

There are at least two faults in Bernhardis arguing. One fault is factual, the other is logical. The factual fault is that evolutionary struggle does not always favour the development of higher faculties. Barnacles are marine animals that evolved from crab like ancestors. Once the animals were mobile and had acute sensory organs. But in their struggle to surive, they greatly reduced their ability to move around or to perceive their environment. Barnacles today live inside small shells attached to rocks or stones in tidal zones of marine coasts. When they are under water, they open their shells and stick out some tiny feet to filter plankton out of the water. This is all they do in life. Barnacles are sometimes quoted as an example of a so called regressive evolution. There are many more examples, where the "survival of the fittest" produced life forms that we would call degenerate. Bernhardi never mentioned this. He probably didn't know about it. Throughout his book, there are no signs that he knew much about biology. The second fault Bernhardi makes in his book is a logical one. It is called the naturalistic fallacy. One cannot logically deduce a moral law from a factual law. To argue that all life is struggle and that therefore it should be so is logically wrong. It may or may not be true that all life is struggle. And one can assume that struggle should be the guiding principle of social life to. But there is no logical connection between the two statements. One might as well argue that greenness seems to be the one guiding principle of plant life and that therefore all plants should be made green.

In 1917, the American anthropologist A. L. Kroeber pointed out the lack of any evidence supporting social Darwinisms: "it must be maintained that not a single piece of evidence has yet been produced to support the assumption that the differences which one nation shows from another - let alone the superiority of one people to another - are racially inherent".

In 1927, Jan Christian Smuts from South Africa published his book "Holism and Evolution" where he comes to a conclusion contrary to that of Bernhardi. Smuts, too, looks at evolution. He regards chemical compounds, organs in bodies, organisms and states as representing growing levels of complexity and wholeness. Where Bernhardi and other social Darwinists see struggle as the highest principle of life, Smuts sees an en evolution towards "Truth, Beauty, and Goodness".

Smuts idea prevailed. From the 1970ties onwards, there appeared many books published by scientists who saw evolution working towards greater integration of life on a global scale. Many authors foretold the coming of worldwide organisms made up of biological and technological parts. Examples are the MONON by German molecular biologist Carsten Bresch, Energons by the German zoologist Hans Hass, the Cybiont by French biologist Joel de Rosnay, utopian Metaman by Gregory Stock, the dystopian Machina sapiens by Kazem Sadegh-Zadeh, the Global Brain by Peter Russell, Francis Heylighen and Howard Bloom, or Valentin Turchins fascistoid Super-Being. These authors saw evolution not so much in terms of a Darwinian struggle. For them integrating tendencies towards unified life forms of great complexity are the main driving force of evolution.

We now have two aspects of evolution that seem to have attracted thinkers ever since Darwins time. The first aspect is the idea of constant struggle and Darwinian selection processes. The second aspect is a progressive tendency towards more complexity inherent in evolution itself.

From Biology to Computer Programming


If you know how to programme computers you may enjoy to create your own piece of artificial evolution. It is not difficult. You can use easy to learn programming languages like BASIC or C. With less than 20 lines of computer code you can run your own genetic algorithm to study evolution on a computer screen. A very simple programme draws the graph of a mathematical function in a coordinate system with an x- and y-axis. Imagine, for example, a curved line looking like a ~ or like a rounded letter w. The important thing is that there must be one or more peaks somewhere and one or more valley somewhere else. You then create a small population of perhaps three dot-like beings that live on that curve.

We then introduce the struggle for live in a very simple form: every five seconds or so, we will bring a Malthusian catastrophe over our population of four dots: out of those three dots, only two are allowed to survive. The dot lowest on the curve will not make into the next generation. But the dot highest on the curve will be allowed to produce one offspring. The total number of dots in each generation will always be three. And we will introduce a little variation. All three dots that make the new generation will undergo mutation. A random generator will place them not exactly at their old position but a little beside. We then create a so called loop around that process. A loop in programming repeats certain lines of code a number of times. If we repeat the Malthusian catastrophy and the creation of a new generation with mutants a few times we can watch evolution on the computer screen

The population of dots will appear to walk uphill. Each time a new generation is created, the lowest dot is "killed", the highest dot is allowed to double and the middle dot remains near its old position. The effect of the chance mutations is that the surving and new dots will not be stationary at one position but move along the curve in very small steps.

Such a simple genetic algorithm can easily find the highst point on a mathematical graph. As a programmer, you can now try to optimize the algorithm. You cann enlarge your population of dots to perhaps twenty. You can make the mutations smaller or greater, you can change the number of individuals that survive or change the number of offspring the highest individuals may have. Such changes will make the algorithm more or less effective, depending on the shape of the curve.

The mathematical curve our population of dots lives on is sometimes called the fitness landscape. If the fitness landscape changes, the population of dots will begin to move.

I once programmed such an algorithm with about twenty dots. With mutations fairly small, these dots appeared as a smeared out blob on the the curve. It slowly moved uphill like an amoeba. Once it had reached the peak, it stayed there. I then made the fitness landscape change slowly over time. As the peak moved out of its old position, the population of dots began to move again, always adapting to the new environment.
We can now generalize. The dots stand for individuals. They could for example be animals, plants, states or companies. The fitness landscape can be thought of as any environment in which individuals live. It could be a forest, the political sphere or a market economy. The position on the landscape corresponds to the sum of all traits an individual has. If a moth, for example, changes the colour of its wings it is better or worse camouflaged. Preying birds will spot it more or less easily. The moth has changed its position on the fitness landscape. The fitness itself, finally, is usually measured as some form of reproductive success of an individual.

With the background of Darwins original idea, their impact on social thinking and the simple genetic algorithm as a very general model for Darwinian optimization, we can now, at last, take a look at evolutionary economics.

From Biology to Economy


The name most closely associated with early theories of evolutionary thinking in economics is that of Joseph Schumpeter. He was influential in the first decades of the 20th century.

Some further reading


As a suggestion to German speaking readers, here are some links to articles on some of the topics raised in this post. These articles are, as a rule with exceptions, shorter and more descriptive than the posts in this blog. They also often have references to books and scientific papers. Get your browser to translate it from German to English. The result is usually quite good.


Search my German archive


The search field below gives access to a collection of German articles, mostly on school mathematics and physics. But there are also a number of articles on speculative philosophy, cosmic history and sociological issues. Try to get your browser to translate them into English. I have tried it. The result is quite adequate.




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