As families all over the Western world gather to spend the final days of the year together, the ever restless economic system goes through a period of relative tranquility. Of course, massive amounts of Christmas trees, stuffed turkeys and home entertainment sets are being sold during the time you read this article. But, although these activities are certainly economic, they have little impact on the true nature of the economic system. That is, even though consumer spending thrives towards the end of the year, the production methods that underlie man’s economic system experience little change. Please, do not be alarmed! Not before long humanity will pick up where it left off and rush into 2016, introduce innovative technologies, tap into new markets and, in so doing, change and enlarge the economic system.
Christmas, traditionally a time of reflection, offers an ideal occasion to take a deep breath and pose the following question: Where are we – as humanity – going to?
The economy evolves
Before we can consider answering this question, we should familiarize ourselves with the ideas of economist Thorstein Veblen. At the end of the 19th century, it was Veblen – obviously inspired by Darwin’s theories – who posed the question: “Why is economics not an evolutionary science?” According to Veblen: “the economic life history of the individual is a cumulative process of adaptation of means to ends that cumulatively change as the process goes on, both the agent and his environment being at any point the outcome of the past process.” Veblen argued in favor of evolutionary economics or, using his words, “… [a] theory of a process of cultural growth as determined by the economic interest, a theory of a cumulative sequence of economic institutions stated in terms of the process itself.”
Later, a multitude of economists, among them Joseph Schumpeter, added to Veblen’s theory by giving their own interpretations of such an evolutionary process. Roughly speaking, all these theories are based on the same fundamental principle. Think of it this way: we can speak of evolution anytime ‘things’ are varied, selected and copied. In nature variation occurs in the genetic coding of organisms, natural selection ‘picks out’ the fittest individuals and makes sure their genes are copied at a higher rate than the genes of less fit individuals. In a similar fashion the combined efforts of entrepreneurs, engineers and statesmen provide for variation in the economy, while markets continuously select the most fit production methods. Logically, companies that make use of fit production techniques expand, whereas those wo do not eventually go bankrupt.
Thanks to this evolutionary process the economic system has become more and more potent when it comes to producing goods and services for human purposes, resulting in larger world populations and higher living standards. Furthermore, history reveals that the economy grows at an increasing velocity. Brian Arthur, one of the most influential economists around, explains this by zooming in on the main driver of change in the economy: technology. According to Arthur, novel technologies emerge out of the recombination of existing ones. In their turn, newly created technologies form the building blocks for even more novel technologies. In other words, we should expect innovation rates to rise as the pool of existing technologies becomes larger. Therefore, it seems likely that productivity will continue to increase at an accelerating pace in the foreseeable future.
Evolution is cleverer than you are, yet it has no consciousness
The catchphrase ‘evolution is cleverer than you are’ refers to the fact that evolution outperforms even the world’s most inventive engineers when it comes to creating solutions for design problems. Think for a second of the long neck of a giraffe, the aerodynamic shape of a dolphin or the changing skin color of a chameleon: nature’s solutions are so perfect that religious people actually see them as important evidence for the existence of an intelligent designer. However, nowadays it is understood that the mindless process of variation, selection and amplification is capable of generating solutions that lie far outside the narrow scope of human imagination. As a matter of fact, some businesses have started to apply this principle and design new products using evolutionary algorithms.
Let it be clear, evolutionary processes are certainly creative, but they have no specific goal in mind. In fact, they have no mind at all. The mindless grinding of the evolutionary algorithm simply generates variants, those that turn out to make a good match with the environment proliferate. Therefore, we must admit that evolution is a non-conscious process.
This has important implications for the evolution of our economic system. Just like any evolving entity, the economy has no specific goal in mind. It depends on people to bring forth diversity and people also decide – through markets – which specific variants proliferate. Apparently, the economy is driven by individuals’ attempts to introduce novel entities, ranging from new products to new organizational forms, which meet the demands of other people. Since anything that is likely to generate significant profits will eventually be introduced, it is naïve to believe that the economy will automatically improve our lives. In other words, products, services and production techniques are primarily selected based on their economic utility: on their profitableness. Nevertheless, they also tend to have a considerable impact on the social and natural world.
Illustratively, after its introduction the smartphone was adopted rapidly, putting into motion a dynamic process in which digital media started to play an ever more important role in our everyday lives. At no point in time a careful assessment about the social and environmental consequences of this development was conducted. Questions like: ‘will smart phones change our lives for the better?’ were obviously raised by some individuals, but their potential impact was zero: economic logic had already determined to adopt the product. Thus, a product responsible for drastically transforming human life as we knew it, for better or worse, was introduced by the economic system without having received any prior approval by humanity.
The human experiment
Don’t get me wrong. This article does not argue in favor of delimiting personal liberty. It might actually be a good thing that no one is behind the steering wheel of the economic system. Nonetheless, it might be wise to embrace the fact that we are all part of one big human experiment.
Following the logic of evolutionary economics, it seems safe to assert that the economy will continue to expand at an accelerating pace in the years to come. But even a vague description of the products that will be produced and the production methods used to produce them transcends the scope of this article and of man’s imaginative faculty in general. Further still, it is impossible to predict whether the evolution of the economic system will be beneficial for human happiness or earthly life.
P.S. If you are willing to spice up your family Christmas dinner, feel free to introduce this topic. Rostra will not take any responsibility for resulting family disputes.