System Science and Evolutionary Science

The subject matter of evolutionary economics is the economy as an evolving system. The central scientific focus of this approach lies in investigating the theoretical nature of the system and that of evolutionary dynamics.

Early pioneers of modern evolutionary economics, such as Nicholas Georgescu- Roegen (1972) and Kenneth Boulding (1980), featured expressly an evolutionary system approach. There are surprisingly few references to these pioneers in evolutionary eco­nomics today, which may reflect the fact that the systemic aspect of evolutionary analysis has been generally neglected in the community.

The archetypical domain to start with is a network, defined as an ensemble of many elements and their connections. A network is said to constitute a system (to have sys­temic properties) if all or some of the elements have functional or similar systemic attributes connecting into a whole. The distribution of the systemic elements represents a structure brought about by a process of coordination. A system is said to change when one or several of the component parts of the structure change and, as a consequence, the structure of their connections changes.

The theoretical key problem lies in furnishing an analytical unit that in one breath explains both: the theoretical features of structure and of its evolution as a process of continual change. The core of the theoretical explanation of the evolution of an economic system resides thus in a unit composed of a structure component and of a process component. Neoclassical economics conspicuously lacks both (structure and process), and as a consequence, its theoretical programme fails to provide any cues for an endogenous explanation of an evolving - continuously restructuring - economy.

The analytical concept dealing with structure - the structure component - is well exem­plified in Adam Smith’s famous case of the division of labour in pin manufacturing. The whole process of producing a pin is divided into structure components stated in terms of special (and possibly specialised) production steps of the total production sequence. This example is important as it highlights the power of “downward” scale economies, but it is not the only kind of structure component characteristic of a product and its production. For instance, for a car to qualify as such it is necessary for it to be composed of various component parts independent of whether or not their production involves Smithian division of labour or scale economies. The constituent criterion in this case is e contra­rio the “upward” complementarity of the component parts. The relative importance of this kind of division of labour will increase as the number of new consumer products increases or as factorial inputs (as structured wholes) are substituted increasingly by new ones (as in the digital economy, Beinhocker 2006). Brief as this account may be, it leads to the identification of the two essential building blocks of a general theory of division of labour: there are derived, ex-post downward (Smith type) and original, ex-ante upward (non-Smith type) kinds of complementarity defining the nucleus of a general theory of the division of labour.

How does change occur in the economy? Enquiring into this issue, it is helpful to return to evolutionary ontology, which proposes that information changes continuously. This has led to a bimodal representation of existences distinguishing between semantic information or the content of a rule and its physical actualisation in historical time and space (axiom 1). Structure and change (rest representing temporary non-change) are defined with respect to these two existential categories.

At the level of semantic information, we have rules as component parts of a rule struc­ture.

In turn, rule actualisation occurs as a process in time and space. Being physical instan­tiations, rule actualisations are observable. They may be interpreted as representing a “surface” level of the economic system.

The ontological posture backing up the theoretic terms - structure (axiom 2) and process (axiom 3) - has far-reaching consequences for the nature of economic methodol­ogy. In its very core, there is a deep level of structure that relies essentially on qualitative analysis and a surface level of process that is amenable to observation and quantifica­tion. Combining the two into a single set of analytic or theoretic statements makes for the art of an evolutionary economic methodology.

Activities at the operant level - the level at which rules are assumed to be given - are also observable; as a result, dealing with particular topics in economic analysis may suggest a need to distinguish between the generic and the operant surface level. In what follows only the former are dealt with.

Evolutionary (generic) change occurs as change in the rules at both the deep and the surface levels. While this exposition excludes some interpretations, it still leaves much room for competing propositions as to how change occurs, or what its causes and sys­temic consequences are. In Smith’s model, change occurs in the course of an increase of production steps and specialisation in a particular kind of product. The crucial point with this interpretation of change is that the novelty-generating engine comes to a halt once the optimal regime of decomposition has been reached and the benefits from economies of scale have become exhausted.

Darwin, by contrast, proposed that change comes about in the process of sexual repro­duction, suggesting a continuity of change, which therefore did not require Lamarckian “learning” (though Darwin did appreciate Lamarck’s views). Various mechanisms, such as recombination, mutation and others, incessantly generate novel generic vari­ants (today we talk of genes or genomes). The various organisms produce offspring, leading to a variety of organisms in a population. Learning from Thomas Malthus that resources are scarce, Darwin conjectured that only those organisms would survive - and retain temporarily their heritable information - that could cope with environmental constraints through adaptation. He argued that nature “selects” much more powerfully than humans do when practising artificial selection, and thus he used for the proposed mechanism the metaphor “natural selection”.

The micro-trajectory introduced earlier is reminiscent of Darwin’s trajectory, with the crucial difference that a Darwinian trajectory features in the second (selection) phase and the third (retention) phase the concept of population. For economic illustration, the mentioned N-W routines are now not adopted by a single carrier (micro) but rather by a population of them (meso). Darwin’s notion of population represents thus an entirely new concept. There was, of course, the concept of species defined by a genus and a population, as with the taxon in Linnaeus’s taxonomy, but in that concept the genus was assumed to be pre-given and fixed. In Darwin’s model, a population is assumed to come into existence only if new information is generated. Linnaeus’s taxa of species featured “typological thinking”, Darwin’s “population thinking” (Metcalfe 2001).

From the viewpoint of the present analysis, it is essential to acknowledge not only that a population is an ensemble of many members but also that it represents a process of rule actualisation along a population trajectory of origination, selection and retention. Summarily,

Phase 1 - generation of novel rule.

Phase 2 - adoption of rule by population of carriers in selective environment. Phase 3 - retention of rule by population of carriers for recurrent operations.