Evolution, Death, and the Free Market

Since the beginning of the current economic crisis, I've been thinking about the general parallels between biological systems and economic systems, and particularly about concepts of how each of these systems works toward becoming "better," whatever that means for each respective field. (Disclaimer: my understanding of the biological world has quite a bit more nuance than the economic, so I apologize ahead of time for all of the butcherings, false claims, oversimplications, and general prostitutings of economic ideas that follow).

Despite tons of differences, there are some overarching and important similarities between the economy and evolution. Both Adam Smith and Darwin were (explicitly or not) influenced by the thinking of Malthus, emphasizing the limited nature of many (if not all) resources. From this style of thinking, both Smith and Darwin realized that competition was an essential aspect of progress. Perhaps more fundamentally, each viewed their respective system as being spontaneously self-organized by limited resources and competition. (I see both of these systems as examples of the larger theme of emergence, a subject on which i will post in the near future).

Smith saw that in a system of economic exchange, competition was the most important driving force behind change. If you start with the premise that resources (money, time, goats, whatever) are limited, and that each individual is going to act in their own self-interest, society is bound to get better. Self-interest (importantly, combined with the ability to individuals within society to freely choose between a given set of options) leads to lowering prices and spurring innovation within markets and so on, the "invisible hand" of fundamental self-interestedness becomes the driving force behind socio-economic change, and the modern free-market economy is born.

Darwin most likely drew directly on the work of Adam Smith in his own revolutonary theories on the biological world. When applied to the biological world, the same basic principles of limitiations, competition, and self-interest emerge. Ultimately, there are not enough resources in the world for all species to reproduce infinitely. Given this fact, and the fact that there are differences between individuals in terms of their ability to reproduce, those individuals who reproduce more (through faster generation times, higher survival, sperm competition, or any of a gajillion other evolutionary mechanisms) will pass their traits onto the next generation in greater numbers than others, and the world will look a little more like them. Through the self interest of genes (for lots lots more, see Richard Dawkins, The Selfish Gene) the world is in a continual process of change and progress (depending on your perspective).

So this, very briefly, covers, evolution and the free market. In both society and the biologocial world, there are lots of discrete actors (in society, us, in biology, genes) fighting for limited resources in a slf-interested way, and this leads to a change in the landscape of society/biology. In general, I think this overarching analogy between are fairly well explored and acknowledged, despite lots of infighting over piddling details among academics. But now, I want to talk a little more about why i actually posted this up here, and this is death, and how it relates to this analogy.

Death is a sad, nasty thing in almost every way. It is the opposite of all meaning, inherently. Oddly, however, it is fundamental to any coherent understanding of evolution. The nice way to word evolution is that there is "differential survival" between individuals, which is another way of saying that some survive and some die (or are never born). Without death, there cannot be any overall change in the genetic structure of a population. These overall genetic changes in the long run improve the robustness of a species, because this species becomes more adept at survival in the face of a set of particular environmental changes.

Evolutionary thinking is frequently applied to the economy, both academically and colloquially (i.e. the "survival of the fittest"). Certain parts of this analogy, such as competition, limited resources, and progress through self-interest, transfer fairly directly and I think cleanly from evolution to the economy. I would argue that in addition to these, however, the role of death also tranfers to the economy. If we allow a "free market" system that runs in parallel to evolution, then there are obvious examples of market "death," the most obvious examples being bankruptcies and recession.

It seems to me that is an inevitable part of the analogy between evolution and the economy, and one deserving of attention. Clearly, death is a necessary part of the evolutionary system, both in the form of individuals deaths (analogous to bankruptcies) and also in the form of more devastating events such as the KT Event or the Permian extinction (analogous to major recessions and/or depressions) which usher in major systemic change in how a system functions.

The question that we face, I believe, is whether or not we are willing to accept the costs (i don't really think they're risks, because they are in some global sense inevitable) of having a free market system that is largely analogous to an evolutonary system. Are we willing to accept the effects of "market death," (i.e. widespread joblessness and inumerable social tolls)? If the answer is no, then this probably implies a move toward higher levels of market regulation (as well as increased social safety), which seems to be the direction in which we're heading. It seems obvious to me that some level of regulation is necessary, and that individual members should indeed be shielded from at least some effects of the free market (health care is for me, the most obvious and pressing example of this), but do these regulations weaken our economy as a whole, and its robustness in response to the larger economic environment?

To add a bit of personal complication, i find it kind of odd as I think through these issues that when I think strictly about politics and the economy, free of biology, I am a strong supporter of regulation and a more socialist system. But when i apply an evolutonary perspective, it is hard for me not to think about the pitfalls that seem to be associated with interfering with "death." I guess the ideal system would be one where we can allow the dynamics of the evolutionary/market environment (the competition, success, survival and death inherent in the market) to play out on a level that is removed from the lives of members of our society. And thoughts on how that could actually happen will be fodder for another post.