Evolutionary economic dynamics: persistent cycles, disruptive technology and the trade-off between stability and complexity

doi:10.1017/CBO9780511492297.015

15 - Evolutionary economic dynamics: persistent cycles, disruptive technology and the trade-off between stability and complexity

Published online by Cambridge University Press: 22 September 2009

Ping Chen

Edited by

Kurt Dopfer

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Ping Chen: Affiliation:
Research Fellow Ilya Prigogine Center for Studies in Statistical Mechanics and Complex Systems, The University of Texas at Austin, Austin, Texas, United States
Kurt Dopfer: Affiliation:
Universität St Gallen, Switzerland

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Summary

Introduction: bridging the gap between economics and biology

Alfred Marshall once remarked that economics should be considered closer to biology than to mechanics (Marshall, 1890). Living systems have two essential features: life rhythms, and the birth/death process. However, the current economic framework is far from Marshall's dream: economic order is widely formulated by a steady-state solution plus random noise. Can we bridge the gap between equilibrium economics and evolutionary biology?

There are two fundamental problems in theoretical economics: the nature of persistent business cycles, and the diversity in developing the division of labour. To study these problems, there are two different perspectives in economic dynamics: the equilibrium-mechanical approach, and the evolution-biological approach.

The existence of persistent business cycles and chronic excess capacity is hard to explain by using equilibrium models in macroeconometrics. External noise cannot maintain persistent cycles in the Frisch model (see Chen, 1999); aggregate fluctuations in the Lucas micro-foundations model are too weak for generating large macro-fluctuations according to the principle of large numbers (Lucas, 1972, Chen, 2002); and random walk and Brownian motion are not capable of explaining persistent fluctuations in macro-indicators (Chen, 2001). Adam Smith once observed that the division of labour was limited by the extent of the market (Smith, 1776). George Stigler noted that the above Smith theorem was not compatible with the Smith theory of the ‘invisible hand’ (Stigler, 1951). Joseph Needham asked why capitalism and science originated in Western Europe, not in China or other civilizations (Needham, 1954).

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Type: Chapter
Information: The Evolutionary Foundations of Economics , pp. 472 - 505

DOI: https://doi.org/10.1017/CBO9780511492297.015 [Opens in a new window]

Publisher: Cambridge University Press

Print publication year: 2005

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