The analytical foundations of evolutionary economics: From biological analogy to economic self-organisation

In this paper, it is argued that the espousal of biological analogies by evolutionary economists cannot reveal the most important features of evolutionary change in economic processes. Analogies are used to best effect in the preliminary stages of research and in their normal linguistic role as illustrative devices in argumentation. An economic process may sometimes appear to operate ‘like’ a biological one; however, it is inappropriate to then model such a process ‘as if’ it is essentially biological due to its timeless qualities. Because of this timelessness, the model cannot address history except through the contrived use of Newtonian comparative statics, with the force of competition acting as the equilibrating mechanism. In contrast, the self-organization approach to system behaviour is founded upon an observable historical process, captured in the entropy law. It deals with non-equilibrium structural change, as found in historical experience, not timeless Newtonian comparative statics, workable only in contrived laboratory experiments. The advantage of the self-organization approach is that it encompasses time irreversibility, structural change and fundamental uncertainty in an analytical framework which can be used in empirical settings. The economic self-organization approach offers an analytical framework which can embrace a range of other positions. It can deal with Austrian considerations concerning the variety of subjective knowledge, aspiration and uncertainty and it can give spontaneous order an explicit process meaning. A wide range of institutionalist insights can be translated into propositions concerning self-organization. Marshallian neo-classical approximations concerning the short period operation of the price mechanism in certain market conditions can be dealt with. What we cannot incorporate is the post-Marshallian general equilibrium analysis which has become so popular in modern neoclassical economics. Neither can we embrace new Keynesian propositions concerning asymmetric information or incomplete markets. Thus, economic self-organization provides a modern context for the revitalization of older traditions in economics and political economy that stress the fact that nonlinear structural change is an ongoing feature of economic systems. Copyright © 2009 Elsevier B.V. All rights reserved