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Introduction Into Evolutionary Economics

Teacher: Prof. Dr. Carsten Herrmann-Pillath, Witten/Herdecke University, Germany

In a non-technical fashion, the course offers an introduction into the newly emerging field of Evolutionary Economics. Basic concepts and methodological premises are developed, following an independent approach which is closely related to European intellectual traditions in economics (e.g. institutional economics, theory of order, regulation theory, Schumpeterian economics, Austrian School etc.).

Teaching methodology is “erotetic”, based on the Socratian approach to gain new knowledge via posing questions and conducting an open and equal dialogue between student and teacher. The class presupposes prior independent study by the students, the underlying material of which is offered via the website www.evolutionaryeconomics.net. Students are asked to prepare their answers to the questions by exploiting this material, however they are free to include independent research and viewpoints. The website contains numerous links to other resources that can be used for this purpose. In particular, they are strongly encouraged to find their own solutions and to develop their independent opinion. In the classroom, the teacher actively participates in the free discussion among the students and provides additional information and perspectives.

The class is concluded with a written examination where one out of two questions for choice has to be discussed. Original and critical thought is especially praised, with less emphasis on “right” or “wrong”.

Languages used in the classroom are English and Chinese. The written examination is in Chinese (clearly written…).

Session One:

First Steps Toward a New View of Economics: Knowledge and Networks

1-1. What are the costs of the entrepreneur? Are they included in the data from the accounting department?

1-2. People often decide with incomplete information and even total ignorance about the future. Do you think that they can apply some optimization calculus about the necessary investment into the collection of information? What are the alternatives? Imagine yourself buying a new computer with cutting edge equipment. How do you find the best buy? When do you stop searching for further market intelligence?

1-3. How would you define ?knowledge“? Is there always a subject who “knows” the knowledge? Consider some social rules the function of which might differ from the meaning that is assigned to the rules by the participant subjects. Draw a comparison with the “knowledge” that is embodied in your genes.

1-4. What is the difference between the following two views of the market? a) The market is the place where supply and demand meet and are equilibrated via the price mechanism, and b) the market is a complex social network where subjects communicate and process information to find opportunities for mutually beneficial bargains. Try to define a network of relations between actors and compare your concept with standard descriptions of markets in a microeconomics textbook.

1-5. In what way do structures of networks constitute power of an actor? What does power mean in the economic context? In the context of competition, power is often perceived as being detrimental to the emergence of socially optimal outcomes. However, how about the role of power for stabilizing structures of networks that coordinate market transactions?

Session Two:

Ends and Means in an Evolutionary Context

2-1. Many economists think that preferences are given and do not need to be explained. People are presumed to find an equilibrium of their conflicting wants such that they are fully satisfied with their realized state of consumption. Yet, try to understand consumption and preferences with a view on then existence of internal conflicts, for example, between the wish to have a beautiful body and the drive to eat a lot of delicious things, or between short-term interests in leisure and long-term interests in professional success. How can we explain the different kinds of preferences, and how can we understand the way of solving the conflicts? Is the equilibrium concept really sensible here?

2-2. Do you think that it makes a difference whether people try to maximize their perceived level of material welfare or whether they try to maximize their relative position to other people? What is the implication for social cooperation and social order? Try to find some arguments why the maximization of relative status might be engrained in our genes as a result of natural evolution. What kind of evidence do you find in everyday life?

2-3. Economists mostly think of people being led by self-interest and rational choice. In reality, there is much room for symphathy, love and hatred and other emotions. Think of problems of strategic interaction where “irrational” behavior may lead toward optimal outcomes! Strategic interaction involves complex issues of mutual information about the knowledge of the different actors involved. How can emotional commitment help to overcome obstacles against a solution to the problem to understand and anticipate the other’s action?

2-4. One of the main achievements of human history is the capability to create large organizations. Consider different explanations of the emergence of the organization in a market context. To which extent can we explain the organization as a result of explicit human design? Can we think of goals of the organization which are partly autonomous from the goals of the individual members?

Session Three:

Patterns of Process and Change

3-1. Think about time. In most scientific analyses, time is treated as a linear arrow between past and future. How far can we say that time has also a structure? Imagine production as a chain of elementary processes which cannot be further subdivided in time. In what way are simultaneous events a crucial determinant of the specific outcome? How is coordination of different processes in time possible? Think of economic development as an increasing complexity of structures of time!

3-2. How does the past determine the present? Take technology as an example, as, for instance, the automobile. How far are current technological choices restrained by past events in technology evolution? Try to understand technology as a network, both on the material and the social level. How do network structures channel further technological change?

3-3. A fundamental concept of any evolutionary explanation is the mechanism of variation, selection and retention. Imagine the market process and try to depict it as a VSR-mechanism. Could you think of technology evolving via VSR-processes? How is planned construction related to evolution? What is the role played by limited knowledge about complex systems? Pay special attention to the sources of variety and to the mechanisms of retention. Consider what happens if the mechanisms of retention are themselves the object of a VSR-process.

3-4. We can say that an economic system maintains a state of order as compared to its environment. For this, the system needs energy. Try to apply the laws of thermodynamics on this. How far can we can go in reaching certain conclusions for energy policy? For example, should we try to minimize energy throughput as far as possible, even if market prices suggest otherwise? Should the government pursue an explicit policy to save resources? Or, will the market regulate the proper preparation for future needs?

Session Four:

Evolution of Structure

4-1. How can we distinguish between different levels of evolution? What is the relation between units of selection and complexity of VSR-mechanisms? Consider the effect of a self-referential VSR-process. Apply these theoretical distinctions on human social organization and cooperation. For example, consider cooperation among villagers who collectively organize an irrigation system, and who stay in a competitive relation with a neighbouring nomadic tribe who might try to live parasitically on the village by means of regular raids. How far can we go with an individualistic explanation of observed patterns, and do we need a concept of group selection?

4-2. Analyze the different functions of institutions in the economy. How far can we explain these as a result of rational choice among a larger group of actors? Discuss the relation between “evolution” and “revolution” in institutional change, taking China’s recent history as an example.

4-3. Consider market institutions that cope with the problem of quality uncertainty. How can they emerge spontaneously out of the market process? To which extent is a powerful intervention needed to create and stabilize such institutions?

4-4. Is there a relation between technology and institutions? Broaden your view on organizations. How far is technology evolution determined by internal factors, how far by external factors, i.e. referring to the institutional and organizational environment? Is there an interactive relation, with technology also determining the evolution of institutions and organizations?

4-5. Analyse the different kinds of knowledge involved in technology evolution. Test your result by means of applying it on the question how users influence technology evolution.

Session Five:

Emergence of Order

5-1. Many people think that culture is an important determinant of economic development. How can culture be fit into an evolutionary approach? How do you think about recent fears about a “clash between civilizations”? Try to distinguish between negative and positive economic effects of cultural distinctiveness among groups and peoples.

5-2. How can we explain human action as a result of the endowment with certain empowering resources? These might be conceived of as kinds of capital. Pay special attention to endowments related to institutions and networks. Many economists use the term “social capital” here. Check whether the concept of “capital” is applied in an appropriate way, for example, by comparing it with financial capital.

5-3. Many people talk about the competitiveness of countries and regions. Develop your own view of the possible determinants resulting from the interaction of structures of technology, institutions and power relations. Do you think that there is a certain match between particular technologies and social and political structures? Pay special attention to the role of space and place: Will the modern digital technology and the internet eventually make them irrelevant for the competitiveness of enterprises? Will “Made in China” be completely substituted by “Made by Haier”?

5-4: Draw a picture of recent Chinese economic reforms in the light of evolutionary economics!