Turning economics into an evolutionary science: Veblen, the selection metaphor, and analogical thinking.

Author:Cordes, Christian

But by scientifically colloquial usage we have come to speak of pre-Darwinian and post-Darwinian science, and to appreciate that there is a significant difference in the point of view between the scientific era which preceded and that which followed the epoch to which his name belongs. (Veblen 1919, 36) In his article, "Why is economics not an evolutionary science?" Thorstein Veblen says that "economics is helplessly behind the times, and unable to handle its subject-matter in a way to entitle it to standing as a modern science" (1898b, 403). In addition, he claims that "modern sciences are evolutionary sciences" (1898b, 403). A way to remedy this problem and to turn economics into an evolutionary science is to introduce aspects of Darwin's explanatory model of biological evolution to economic theory. However, there are different possibilities how Darwinian concepts can be harnessed to further develop economic theory. This problem has triggered a conceptual-methodological debate in the economic community.

This paper discusses several explanatory approaches to economic phenomena --the concept of routines, Universal Darwinism, and the continuity hypothesis--that rely on concepts borrowed from biology. To emphasize the differences between these avenues, special attention is given to their dealing with the units and processes of selection in biological and economic evolution. Selectionist models analogous to phylogenetic biological evolution are prominent in many works in the field of evolutionary economics. Moreover, the relation of these approaches to Veblen's own notions and demands with regards to the conversion of economics into an evolutionary science is highlighted. How fruitful is the introduction of explanatory models stemming from biology as analogies to economic theory development? How do evolutionary--Darwinian--thought and economic evolution relate? In answering these questions, this paper offers an interpretation of Veblenian thinking that deviates from existing receptions. (1)

The paper is organized as follows: section two takes a closer look at processes and units of selection in the biological and cultural realms. It addresses the question of whether it is possible to delimit units of selection in cultural evolution and whether there is an analogy to the process of natural selection. Section three presents basic statements and underlying notions of the continuity hypothesis that can serve as an analytical framework for evolutionary processes in economics. The details of Veblen's notions of an evolutionary science are the subject matter of section four and the last section offers some conclusions.

The Role of the Selection Metaphor in Economic Theory

Although some economists claim the use of analogies to biological evolution can serve as a unifying research paradigm in evolutionary economics (Nelson 1995), it is still not clear in what sense Darwinian concepts are relevant for economics (see e.g., Vromen 2001; 2004; Witt 2003, 3-18; Cordes 2005c; 2006). While there is no doubt the human species is a result of natural evolution, how the modern forms of the human economy can be explained in terms of Darwin's model of biological evolution is a controversial issue. Many scholars interested in economic evolution refer to more or less abstract analogies to, or at least a metaphorical use of, Darwinian notions to arrive at an evolutionary concept of economic development. Often, the selection metaphor is considered the distinguishing principle of evolutionary economics (see e.g., Dosi and Nelson 1994; Nelson 1995).

One reason for this is that abstractions from natural evolution are the only existing well-established general notion of evolution. Consequently, neo-Darwinian adaptation principles of genetic variation and natural selection are considered the archetype of an evolutionary theory also in economics (Witt 2003, 7). In contrast to such an approach, Joseph Schumpeter and Edith Penrose, for example, explicitly denied Darwin's explanatory model of biological evolution any relevance for understanding economic development (see Schumpeter 2002; Penrose 1952; Witt and Cordes 2006). One reason for this reluctance to derive abstract principles from biological evolution in order to apply these to economic development was the observation that the heuristic analogy to physical gravitating systems underlying neoclassical theory obscured much of the interesting phenomena of real world economic evolution (Witt 2002). Referring to the usage of the term "statics" in economics, Veblen recognized the same problem:

The word is borrowed from the jargon of physics, where it is used to designate the theory of bodies at rest or of forces in equilibrium. But there is much in the received economic theories to which the analogy of bodies at rest or of forces in equilibrium will not apply.... So, for instance, it seems scarcely to the point to speak of the statics of production, exchange, consumption, circulation. (1919, 83) Hence, Schumpeter and Penrose's theories of capitalist development put the crucial role of innovations and entrepreneurship center stage, i.e., the sources of novelty and change emerging from within the economy, without recourse to Darwinian thought. Penrose wrote:

The chief danger of carrying sweeping analogies very far is that the problems they are designed to illuminate become framed in such a special way that significant matters are frequently inadvertently obscured. (1952, 804) Some of the problems Penrose is referring to become obvious when analyzing the role of selection in biology and economics in detail. In every kind of evolving system, the sources of variation--on an abstract level--are of outstanding importance for the endeavor of explaining its behavior, as are those selective forces that work to reduce this variety. (2) However, there are crucial differences on a more concrete level of analysis. In biological evolution, the supply of variation is renewed mainly by mutations and recombinations of parental genes, i.e., genetic crossover in every generation, both providing the "raw material" for natural selection (Mayr 1991, 88). Moreover, an essential attribute of any selection argument is the stability of selective characteristics and environment over time. Natural selection is an a posteriori phenomenon (Darwin 1859, chap. 4; Lewontin 1970; Mayr 1991, 87). (3)

Thus, a necessary condition for natural selection to produce systematic change is a certain degree of inertia on the part of the environment and the unit of selection. Furthermore, according to the central dogma of molecular biology, no information contained in the properties of the somatic proteins could be transferred to the nucleic acids of DNA (Dawkins 1983; Mayr 1991, 120). The phenotype does not pass information to the genotype. Consequently, a fundamental component of any theory of selection is insistence on the temporary constancy of the genetic material or any equivalent to enable selection forces to work and the absence of a systematic feedback between phenotype and genotype. However, and that is the fundamental problem of an analogy construction, the environment of economic systems is characterized by many variables changing simultaneously preventing something like natural selection forces to work in a systematic way, i.e., to direct the distribution of traits in a population in a certain direction (Witt 2004).

Moreover, humans are endowed with the cognitive capabilities that allow them to anticipate and avoid selection effects. Behaviors, habits, routines, or institutions do not exhibit the constancy of genetic material, but are adapted systematically to selection pressure. Therefore, cultural evolution is characterized by a systematic interaction between variation and selection: a positive feedback is established between the generation and the diffusion of novelty. Hence, Veblen, while acknowledging the stabilizing effects of habits on human behavior, emphasized the continuous instinct driven change and the malleability of habits and the institutions based on them:

So that the manner, and in a great degree the measure, in which the instinctive ends of life are worked out under any given cultural situation is somewhat closely conditioned by these elements of habit, which so fall into shape as an accepted scheme of life. (1914, 7) On the other hand the habitual elements of human life change unremittingly and cumulatively, resulting in a continued proliferous growth of institutions. (1914, 18) Given these insights, concepts that rely on an identification of pheno- and genotypes (or interactors and replicators, as in, for example, Knudsen 2004) in cultural evolution have to take into account the fact that there is indeed systematic feedback between these entities that restrict the explanatory power of such an analogy construction. (4)

Within evolutionary economics, firms are often considered to be a kind of phenotype in cultural evolution, whose functioning relies on routines, the genotype (see e.g., Nelson and Winter 1982; Hodgson and Knudsen 2006; Becker et al. 2005). In the case of the development of a firm, a "business conception" may be considered to guide its development as an entrepreneurial venture based on some more or less concrete imaginings about what business to engage in and how to do it. However, in contrast to a genetic program governing the ontogenesis of an organism, this conception is subject to permanent variation in direct feedback from the development it induces (Witt 2000). Firms can, for instance, learn and react creatively to problems emerging during development and adapt the "business conception." Penrose (1952, 813-14) makes a similar point that "there is no a priori justification for assuming that firms, in their struggle for profits, will not attempt as much consciously to adapt the environment to their own purposes as to adapt themselves to the environment." Another crucial...

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